Module 3:

Feasibility Analysis and Business plan

Contents
• Feasibility analysis of Industry,
• Market, Product or service and Finance;
• Business plan Meaning, Significance, contents,
• formulation and presentation of Business Plan,
• preparing a model project report for starting a new venture,
• Final project report with feasibility study Common errors in Business
Plan formulation.
 Feasibility analysis
• Detailed analysis that considers all of the critical aspects of a
proposed project in order to determine the likelihood of it succeeding
• It analyzes the viability of a project to determine whether the project
or venture is likely to succeed
• Can conduct while launching a new business, adding a new product
line, or acquiring a rival
• It assesses the potential for success of the proposed plan
 Feasibility analysis
• Feasibility Study evaluates the viability and feasibility of a proposed
venture
• The feasibility of a project depends on the cost required and
forecasted profits
• A company carries out a feasibility study to decide whether to launch
a new venture or a new product range
• A well-structured and executed feasibility analysis will provide a clear
history of the business or a venture, a complete study of the product,
financial records, attributes of the operation, details of the market
research, legal policies, tax, and other financial information.
 Feasibility analysis
• Feasibility studies are a prelude to technical execution and project
commissioning.
• Any venture or business proposal with considerable capital heavily
relies on feasibility analysis before taking the plunge.
• In some instances, Feasibility studies also include cash flow analysis
and studying the changes in business after a merger or acquisition.
steps involved in conducting a feasibility
study:
• Begins with a preliminary survey
• Determines if the proposed idea or solution is substantial
• It is followed by market research and surveys to assess the market demand
and the possibility of the project succeeding
• Create an estimate of labour required and its costs
• Create a forecasted income statement with projected revenue, operational
cost, and estimated profits
• Generate a balance sheet for the opening day
• Followed by predicting the likelihood of hassles or associated risks and
outlining a plan to tackle them
• Make a firm decision on whether or not to proceed with the plan
 Types of Feasibility
• Financial feasibility • Schedule feasibility
• Commercial feasibility • Market feasibility
• Technical feasibility • Resource feasibility
• Economic feasibility
• Social feasibility
• Environmental feasibility
• Legal feasibility
• Operational feasibility
 Financial Feasibility
• Financial Feasibility: whether project is fiscally viable
• A financial feasibility report includes a cost/benefit analysis of the
project
• It also forecasts an expected return on investment (ROI), as well as
outlines any financial risks
• It examines the expenses of -
Starting, Operating, and Maintaining the business market and
economic feasibility
Expected return on investment (ROI); and expected liabilities
Types of financial feasibility
• Cost estimates
• ROI
• Payback period
• Net present value
• Mitigating errors in calculations
Economic feasibility
• Time Value of Money: The most widely used methods are Net
Present Value (NPV) and Discounted Cash Flow Rate of
Return, or Internal Rate of Return (IRR)
• Break-Even Analysis: type of cost benefit analysis to identify at
what point (if ever) benefits equal costs
• Economic valuation method: company can estimate the cost
for the new system one time investment for developing,
updating, software maintenance, incremental communication
cost, and supplies
Economic feasibility

• Economic feasibility determines can project make enough money to be

worthwhile
• It looks at the project’s costs and compares them to potential profits to see if
they are suitable investments
• It’s about figuring out whether a project will succeed
• Cost/Benefit Analysis: To assess economic feasibility, management has
to analyze costs and benefits associated with the proposed project
• The capital cost of a project affects the economic evaluation
• Cost estimating is essentially an intuitive process that attempts to predict the
final outcome of a future capital expenditure
Commercial feasibility
• Commercial feasibility allows us to know if a product or service has
the potential to generate profits in its target market
• The amount of investment required to bring innovation to the
market;
• to secure the required investments
Technical feasibility: described as the formal process of assessing
whether it is technically possible to manufacture a product or service
helps to determine the efficacy of the proposed plan by analysing the
process, including tools, technology, material, labour and logistics
Social feasibility

• Many infrastructure initiatives cause severe adverse impacts on

communities surrounding the site on which they are implemented
• It is aimed at identify and analyze such impacts in order to
understand the scale and reach of the project’s social impacts
• It also ensures that the impacts are mitigated, to the extent possible
• It greatly reduces the overall risks of the project, as it helps to reduce
resistance, strengthens general support, and allows for a more
comprehensive understanding of the costs and benefits of the project
Economic feasibility
• Return on investment (ROI) equals to net cash receipts of the project
divided by the cash outlays of the project. Firms choose the project that
provides the highest ROI. (Hoffer, George, Valacich)

• Payback period (PP) is amount of time required for an investment to

generate sufficient cash flows to recover its initial cost. Payback period is
similar to the break-even analysis, except the fact that payback period
ignores the concept of time value of money. (Baker and Powell)

• Profitability index (PI) shows the relative profitability of any investment. It

equal to the present value of cash inflow divided by present value of cash
outflow. (Baker and Powell)
Technical feasibility
• helps organisations determine whether they have the
technical resources to convert the idea into a fully functional
and profitable working system
• It helps in troubleshooting the project before commencing
work
• identifies potential challenges and uncovers ways to
overcome them
• helps in long-term planning, as it can serve as a flowchart
Environmental Analysis
• Analysis weighs the advantages and disadvantages of each option
with regard to the environment
• Reduction in waste quantity and toxicity;
• Reduction in waste treatment or disposal requirements;
• Reduction in raw material and energy consumption;
• Impact of alternative input materials and processes;
• Previous successful use within the company or in other industry;
• Low operating and maintenance costs;
• Short implementation period and ease of implementation;
• Regulatory requirements
Legal feasibility

• A legal feasibility assessment is an evaluation of whether a proposed

project is legally permissible, and whether it complies with relevant
laws, regulations, and policies
Benefits
• Compliance with Laws and Regulations
• Risk Management
• Investment Protection
• Stakeholder Confidence
• Cost Savings
Operational feasibility

• operational feasibility rationalizes that the task can be completed

with out much difficulty, without employing unnecessary means and
without incurring extreme costs to achieve the same outcome
• Ex: a company's effort to implement a new customer relationship
management system
• Operational feasibility is dependent on human resources available for
the project and involves projecting whether the system will be used
if it is developed and implemented
Schedule feasibility
• is defined as the probability of a project to be completed within its
scheduled time limits, by a planned due date
• If a project has a high probability to be completed on-time, then its
schedule feasibility is appraised as high

• The process of assessing the degree to which the potential time frame
and completion dates for all major activities within a project meet
organizational deadlines and constraints for affecting change
 Market feasibility

• is to understand the market to determine if enough demand exists to

make the venture successful. It provides a more in-depth and
thorough analysis
• excellent instrument for predicting the probability of failure or
success of a new business venture
• adopted in cases of incorporating new products and ideas into
business
• stepwise process to weigh the pros & cons of each step before getting
into the actual process
Methodology in market feasibility
• Preliminary Analysis- major requirement of the Client
• Stakeholder In-Depth interview - ain the relevant understanding
• Demographic Assessment & Trend Analysis: to find existing industry
trends
• Quantitative Survey & Competitive Assessment: Collection of data,
Preparation of list of competitors
• Compilation of Report: information and formation of the Country/
Market Research Report
• Scope: Customer & Competitor Analysis, SWOT Analysis, PESTEL
Analysis, Opportunity Assessment
 Resource feasibility
• This aspect looks at the resources that are required to complete the
project and whether the amount of available resources are sufficient
to complete the project effectively
Feasibility Study Report

• It is the summary of the analysis stating if the project is feasible

• outlines alternative ways of carrying out the project with a special

mention of the most befitting one

• It also provides relevant background details of the project

• This report helps investors decide whether to invest in a project and

eventually assign project managers to carry out the same
Importance of a Feasible Study Report

• It offers technical and legal clearance and is an affirmation of the project’s

viability and practical feasibility
• Decisions on budget and investment strategies by stakeholders are made
based on the report
• The template of a well-made FSR report assists in creating solutions for
project Analysis
• It bridges the efficiency of the project with a fixed budget
• It alleviates risk factors by forecasting associated risks and evaluating
effective strategies to tackle them
• It also helps the management create an efficient team to carry out the
project and recruit or train specialists
Advantages of Conducting Feasibility Study

• Helps project managers to investigate the advantages and

disadvantages of undertaking a venture before investing
• It prevents a company from entering into a venture that may not be
profitable
• Helps the companies develop new business development
• provide marketing strategies that help convince the stakeholders and
banks to invest in a particular project
• They help us understand whether or not there is an actual demand
for a proposed product or service in the market
Advantages of Conducting Feasibility Study
• It helps the company to understand if they have the required human
resources
• The study supports the project managers to determine if the
proposed venture or service has already saturated the market
• It also helps identify legal hassles like patent issues, trademarks, and
other intellectual property rights issues
• it proposes a reasonable and logical schedule or timeline for a project
• It helps the project managers to pace the project and set an
attainable deadline
Components of FSR
1.Executive Summary
2.Technical considerations
3.Target Marketplace
4.Marketing techniques
5.Staff requirement
6.Project schedule and deadline
7.Financial needs of the project
8.Relevant assessments and suggestions
 Business plan
• Business plan is strategic in nature and discusses the tactics of
implementation of the business idea
• Business plan makes necessary projections for the future.
• The preparation of a business plan starts only when the feasibility report
provides a green signal to move ahead with the idea
• The fundamental goal of the business plan is to seek finance from the
investors such as venture capitalists, angel investors, or banks and
Establishing a New Enterprise
• It decides on the course of action to achieve the underlined goals
• Thus, a feasibility study validates the idea and the business plan
strategically and operationally executes the idea
Business plan
• Mar J. Dollinger has defined the business plan as “the formal
written expression of the entrepreneurial vision, describing the
strategy and operations of the proposed venture.”

• According to Jack M. Kaplan, “The term business plan means

the development of a written document that spells out like a
roadmap where you are, where you want to be, and how you
want to get there.
Significance of Business plan
• is reducing anxieties and tensions in running business
enterprise
• useful for the entrepreneurs who require financial help
• It is like a road map
• Attract lenders and investors
Similarities between Feasibility/business plan
• Timing: Both are initially done before the business opens, and can
be conducted again later to determine the next steps on future ideas.
• Input: Both include input from several individuals or departments
that have different skills.
• Format: Both include other documents that are pulled together in
order to compose the report.
• Components: Some of the issues analyzed are similar, including
examining the target market, market conditions and financial costs.
• Usage: Both help the organization's management make decisions,
and can also be shown to potential investors.
Difference between Feasibility/business plan
• Purpose: Feasibility studies determine whether to go ahead with the
business or with another idea, whereas business plans are designed
after the decision to go ahead has already been made.

• Methodology: Essentially, feasibility studies are research projects,

whereas business plans are projections for the future.
• Risks: Feasibility studies determine the risks associated with the
idea, whereas business plans explain how management will deal
with the risks so that it will make a profit.
• Cost: Feasibility studies can require hiring outside professionals with
expertise who will conduct thorough studies, whereas business plans
are written by employees of the business, as part of their jobs.
Contents of Business plan
• Executive summary • Financials-revenue, budget, cost
• Business description • Appendices
• Market research and analysis
• Competitive analysis
• Marketing and sales plan
• Operating plan
• Organization description
• SWOT analysis
 formulation and presentation of Business Plan
• 1. Introductory Page
• (a) Name and address of business
• (b) Name(s) and address (es) of principals
• (c) Nature of business
• (d) Statement of financing needed
• (e) Statement of confidentiality of report
formulation and presentation of Business
Plan
• 2. Executive Summary – Three to four pages summarizing the
complete business plan
• 3. Industry Analysis
• (a) Future outlook and trends
• (b) Analysis of competitors
• (c) Market segmentation
• (d) Industry forecast
formulation and presentation of Business
Plan
• 4. Description of Venture
• (a) Product (s)
• (b) Services (s)
• (c) Size of business
• (d) Office equipment and personnel
• (e) Background of entrepreneurs
formulation and presentation of Business
Plan
• 5. Production Plan
• (a) Manufacturing process (amount
• subcontracted)
• (b) Physical plant
• (c) Machinery and equipment
• (d) Names of suppliers of raw materials
Formulation and Presentation of Business
Plan
• Marketing Plan
• (a) Pricing
• (b) Distribution
• (c) Production
• (d) Product forecasts
• (e) Controls
formulation and presentation of Business
Plan
• 7. Organisational Plan
• (a) Form of ownership
• (b) Identification of partners or
• principal shareholders
• (c) Authority of principals
Common errors in Business Plan formulation.
• Capacity-Utilization Estimates: Gross Unrealism
• Capacity Computation: A Miscalculation
• Market Study: A Neglected Task
• Machinery Selection: Serious Errors
• Technology-Oriented Products: A Shaky Arrangement
• Project-Pruning and Resource-straining: Safe Limits Exceeded
• Project Cost: An Underestimate
• Location Selection: Some Temptations
• Selling Price: Unfounded Optimism
• Cash flow in Initial Years: Poor Detail