1.0 INTRODUCTION Feasibility study is becoming increasingly important to
entrepreneurs venturing into projects. When a prospective entrepreneur finds
himself in a crucial decision as to
whether or not to go into a particular
business, he is carrying out what could be described as a feasibility study. A feasibility
study is simply a possibility study conducted to determine if an envisaged
project is possible and to ascertain its sustainability.
A feasibility study entails the total investigation plan for new
business or of a proposed project to reveal and authenticate the viability, profitability
as well as determine its economic desirability or values, technical, organization
and manpower profitability.
In this note, therefore, we shall discuss the preparation of a
feasibility study and see how useful it is to an entrepreneur. The end product
of feasibility study is a feasibility report that guides in taking investment
decisions and could also be used in securing finance for the business.
2.0 OBJECTIVES By the end of this note, you should be able to:
·
explain the term “feasibility study”
·
discuss the process of preparing a feasibility study
·
state the uses of a feasibility study
·
identify the advantages of feasibility study
·
identify the features of a good feasibility report.
3.0 MAIN CONTENT
3.1 Preparation of Feasibility Study
The process of undertaking a feasibility study will involve
business and management consultants, professionals in the field and prospective
beneficiaries or targeted customers of the proposed business. The prospective
entrepreneur might also be involved. The problem or need that the business is
expected to meet and solved should be properly captured, disserted and
understood by all the parties involved in the study. The major steps involved
in preparing a feasibility study are:
i. Social and Legal
Analysis: It is always very important to identify cultural factors that may
likely affect the proposed business operations, and the legal analysis which
deals with how local or national laws affect operations and consumption of products
or services.
ii. Analysis of the Economic Environment: This entails checking
the economic circumstances as it affects the local, national and international
economic performance. Other economic variables to be examined include
consumption patter, labour cost, price level, market potentials, and income and
general industrial environment.
iii. Market Analysis: There
is a strong need to evaluate the past and present demand and supply function to
determine the future performance of the proposed product or services. The past,
present and future growth, identification of target customer, and the influence
of competitions should be analysed.
iv. Financial/Profitability Analysis: These include the
analysis of the following key points: a. The sourcing of the capital b. Use of
capital and cash flow c. Initial capital requirement d. Return on investment e.
Projected profit/loss f. Break-even analysis
v. Technical
Analysis: This includes the analysis of the following: a. Type of equipment
required b. The stages the materials will pass through before the final product
is produced c. Equipment maintenance culture d. Type and volume of raw
materials e. Numbers, qualification and experience of manpower requirement
vi. Formulation of Goal and Strategy: Mission, goal and objectives
of the new business must be clearly stated. Strategy (both long and short) on
how to go about achieving the desired results should be formulated to outwit
the competitors and to be able to stay in the market.
vii. Revaluation: This involves going over and reassessment of the whole project
plans. This is done in order to arrive at final decision whether to go ahead or
not with the new project.
3.2 Features of a Feasibility Report When a feasibility
study has been carried out, a feasibility report will be drawn. A good
feasibility report must be able to highlight the following:
1. Background Information: This should give the reader of the report
such information as:
- Name of the organization undertaking the business
- The location or contact address of the Organization
- The nature of the organization such as legal status, objects of
the organization and previous experience of the organization in related
projects.
- The Organization’s profile highlighting core competence as relevant
to the project.
2. General Market Information Relating to:
i. The problem or need that will be met using objectivity
verifiable indications
ii. The target market and
basis of segmentation
iii. Demand analysis
iv. Competitive position
v. Marketing position
3. Production/Technical
Consideration:
This should highlight the following:
i. Product(s) to be
produced
ii. Manufacturing processes
highlighting
iii. Plant size and production schedule
iv. Machinery and equipment
layout
v. Plant location v
i. Building and facilities
vii. Raw materials required
viii. Utilities required
4. Financial Analysis: This includes:
i. Analysis of the needed funds, which will reflect the following:
total project cost
cash flow pattern
rate of return
alternative sources of capital
ii. General appraisal of the project, highlighting decision on
whether or not to embark on the project showing:
capital needs of the project
income projection showing profit profile
total investments in
capital and recurrent expenditure
rate of returns
3.3 Advantages of Feasibility Study
1. It helps to ascertain whether a project/business is worth undertaking
by bringing out the expected returns and the risk involves.
2. It reduces chances of failures.
3. It is used to raise capital (source for fund) from financial institutions.
4. It is used in justifying
the need for a proposed project
5. It serves as a guide for implementing a project
4.0 CONCLUSION
The above analysis showed the importance of a feasibility study to
a proposed project/business. It is essential that an entrepreneur embark on a
feasibility study before venturing into a business. The major importance of a
feasibility study is that it brings out detailed estimates of the cost,
technical, commercial, management and financial aspects of a project.
5.0 SUMMARY
In this note, we have
discussed the meaning of feasibility report. You were introduced to the process
of preparing a feasibility study. The advantages and uses of feasibility study
were highlighted.
0 comments:
Post a Comment