Unit 4 Feasibility Study

8/9/2019 Unit 4 Feasibility Study

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UNIT 4 :

FEASIBILITY STUDY

TECHNOLOGY ENTREPRENEURSHIP

(ENT600)

Entrepreneurship Dept, FBM (2009) 1ENT600/UNIT 4: FEASIBLITY STUDY


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Introduction to Feasibility Study

A feasibility study is the preliminary evaluation of a business idea,

conducted for the purpose of determining whether the idea is viable or worthpursuing.

Feasibility study takes the guesswork out of the business launch and

provides an entrepreneur with a more secure notion that a business idea is

feasible or viable.

Normally a feasibility study will be conducted to determine the viability of an

idea before proceeding with the development of the business.



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Purpose of a Feasibility Study

Provide a thorough examination of all issues and assessment of

probability of business success

Give focus to the project and outline alternatives

Narrow business alternatives

Surface new opportunities through the investigative process

Identify reasons NOT to proceed

Provide quality information for decision making



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Feasibile or Viable Business

A feasible or viable business idea is one

where the proposed business is expected to

generate adequate cash flow and profits

withstand the risks it will encounter

remain viable in the long term and

meet the goals of the founders



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Composition of a Feasibility Study

A Feasibility Study is a composite of the

following evaluation or studies:

Market Feasibility Study

Organisational Feasibility Study

Technical Feasibility Study

Financial Feasibility Study



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New

Venture

Idea

Determination

Of Feasibilityof Proposed

New Idea

TECHNICAL

MARKET

FINANCIAL

ORGANISATIONAL



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Is there a demand for the product?

Who else are producing similar

products?

What is needed to make the product?

What are the equipment andtechnology needs for the proposed

venture?

Who will manage the business?

What managerial requirements are

needed?

What is the cost of producing the

product?

What is the likely profit?

Determination of market opportunities and

risks

Analysis of the technical feasibility of the

product

Analysis of organizational capabilities andpersonnel requirements

Analysis of financial feasibility and

resources

A feasibility study will provide various information to the entrepreneur

such as follows:



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The market feasibility study is an assessment of the

overall appeal of the market for the product or service

being proposed. Aspects of market feasibility study that

should be carried out include:

Product/service

Customers

Market DemandCompetitors

Market Share


MARKET FEASIBILITY STUDY


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MARKET

Competitors

Market DemandCustomers

Product/Service Market share



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Market Feasibility Study:

Product/Service

This is an assessment of the overall appeal of the product/servicebeing proposed

A product is defined as anything that can be offered to a market for

attention, acqusition, use, or consumption that might satisfy a need or

want (Kotler, 2008)

A service is defined as any activity or benefit that one party can offer to

another that is essentially intangible and does not result in the

ownership of anything (Kotler, 2008)

Before any product/service enter the market it should meet theprospective customers needs and wants.



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Customer assessment involve determining who are the customer/s the

business wishes to serve.

Customers refer to individuals and households, business organizations

local as well as international and government organizations that buy

product and services for consumption.

They are the target markets for theorganizationsproduct or service

Target market defined as the group of customers with needs and wants

that can be satisfied by the business through the supply of

product/service.


Customer



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The target market can be segmented or broken down based on different

criteria or factors such as age, marital status, geographical areas, lifestyle,

hobby, and interest.

The purpose of market segmentation is to enable the business to satisfy the

needs and wants of the consumers it has selected with the limited resourcesthe business has

Subsequently as the business progress and has more resources it can

broaden into other market segment which it has not served before.



Customer (cont)


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Market demand refer to the total potential purchase that is expected from

the target market. Normally it is expressed in units or Ringgit.

The information on market demand is critical in determining the viability of a

proposed product or service.

Market demand can be calculated based on the following factors:Population of the target market

Number of houses in the target market

Competitors sales


Market Demand



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Market Share

Market share refers to the portion of the

market that the business can control after

taking into consideration market demand and

thecompetitorsposition in the same market.

Normally market share is stated in the form

of a percentage of total market demand



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A technical feasibility study is concerned with

determining whether the business has the necessary

technology and equipment to produce the intended

product/service. Aspects of technical feasibility study

that should be carried out include;

Technology and Equipment

Materials

Manpower andLocation


TECHNICAL FEASIBILITY STUDY


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In conducting technical feasibility study the business should

identify the type of technology to be used for the proposedbusiness venture.

In addition they have to know whether the technology is

accessible for their business ventures.

Apart from that the business must also identify the types of

equipment required.

The cost of technology and equipment needs to be included in

determining the feasibility of the venture.

The ability to obtain the technology and equipment will affect the

start-up timeline.

Technical Feasibility Study:

Technology & Equipment



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The organization has to identify the technical workersrequired in producing the product/service.

These technical workers need to have the appropriate

skills and qualifications in line with the requirement of

the venture.

The organization should also determine the number of

technical workers (full and part time) needed to support

the production level.


Manpower



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Location refers to the place where the proposed

business or project is likely to be set up.

There are various factors the business needs toconsider in selecting the appropriate location such as

the location should be such as being

near to the intended market or customers

near to the suppliers of raw materials

near to the major infrastructure


Location



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An organizational feasibility study is concerned with

determining whether the business has the necessary

and sufficient human resource to bring a particular

product/service idea to market successfully. Aspects

of organizational feasibility study that should becarried out include:

Organization Structure

Management TeamCompensation

Supporting Services


ORGANIZATIONAL FEASIBILITY STUDY


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ORGANISATIONAL

Organization

Structure

Management

TeamCompensation

SupportingServices



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Organization structure identifies responsibilities for

each job position and the relationship among those

positions.

Technopreneurs must form the right organizational

structure in order to facilitate the accomplishment of

the organization goals and missions

Organizational Feasibility Study:

Organization Structure



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Management team refers to a group of individualsresponsible to bring a product/service idea to market

successfully

The organization should evaluate the prowess or ability

of its management team to satisfy itself that management

has the requisite passion and expertise to launch the

venture.

Thus it is necessary to identify the types of positionsneeded as well as the qualifications and experiences

required to fill those positions.



Management Team


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Compensation refers to the monetary and non-monetary rewards in various form of pay which include

salary, wages, sales commission, allowances, bonus,

EPF and SOCSO contributions.

The organization should determine the types of

compensation that should be rewarded to their

potential staffs.

Any types of incentive such as ownership plan should

also be considered to entice potential employees.


Compensation



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Supporting services refers to the assistance and

services given by private agencies and government.

The organization should identify the appropriate types of

supporting services to launch the intendedproduct/service.

The availability of these services such as attorney or

professional public accountant will definitely assist inbringing the product/service successfully to the market.



Supporting Services


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The financial feasibility study is an

assessment of the financial aspect of the

business. Information in the financial feasibility

study should include:

Start up Capital

Financial Sources

Profitability Analysis


FINANCIAL FEASIBILITY STUDY


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The first stage in financial feasibility study is to determine the amount

of start up capital required to run the venture.

Start-up capital refers to the total cash required to start the business

which include the cost for the purchase of non current assets, working

capital, development costs and other expenses.

Non current assets are assets that are purchased and used as long

as the business is in existence. Their life span are more than one

year. Examples of non current assets are furniture and fittings,

machineries, equipment, renovation, etc

Financial Feasibility Study:

Start-up Capital



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Working capital also known as current assets refer to business

assets which have life span less than a year. Example of currentassets are cash, stocks or inventories which include raw

materials, finished goods.

Other expenses will include costs or expenses that are non

recurring or one time cost. Example of other expenses will includeregistration fees, business licenses, insurance.

It is advisable for the business to estimate the start up cost

capital required until revenue are realized at full capacity.

It is also suggested that it is better to overestimate rather than

underestimate the cost involved



Start-up Capital (cont)


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After determining the start up capital, the next stage is for the

business to identify the sources of fund to finance the start up

capital. The business has two options either to utilize internal

financing or external financing to finance the proposed venture.

Internal financing refers to the funds provided by family, friends,partners or shareholders.

External financing refers to funds that are available from external

sources such as loans from financial institutions, venture capital,

business angel, government grants, etc.

The availability as well as accessibility to the funds will be crucial

in bringing the product/service to the market.


Financing Sources



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Profitability analysis involve determining whether theproposed venture is generating enough profit to make

the proposed venture feasible.

This analysis is of great interest not only to the businessowners but also to third parties who are involve in

financing the venture.

Usually third parties require a certain rate of return on

their investment before deciding to invest in a particularbusiness venture.



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Thus, in order to conduct a profitability analysis, the

business should prepare a 3 years financial projection

which will include the following financial statements:

Cash flow statement

Income Statement andBalance Sheet Statement

Based on these statements various financial analysis

will be performed to determine the profitability of thebusiness.





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The feasibility study should give us a clear idea

whether the proposed business is a sound business

idea. If so, we can proceed with the preparation ofthe business blueprint.

Conclusion


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Unit 4 Feasibility Study

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