FEASIBILITY ANALYSIS

Dr. Gopal Thapa

Tribhuvan University

Kathmandu, Nepal

email: [email protected]

3-1
Feasibility Analysis

• Feasibility analysis is the process of

determining whether a business idea is viable.

3-2
Benefits of Feasibility Analysis
A feasibility analysis helps you …………
•To assess the merit of your business idea,
•Determine whether there is a market for your idea,
•Whether the idea is financially viable,
•and ultimately, whether or not it is worth investing
your time and money into the venture,
•Overall demand for new products, services, or
ideas
•Characteristics of likely customers (such as
demographics and buying behavior)
• Characteristics of likely competitors
3-3
When To Conduct a Feasibility Analysis

Timing of Feasibility Analysis

◦ The proper time to conduct a feasibility analysis is early in thinking through the
prospects for a new business.
◦ The thought is to screen ideas before a lot of resources are spent on them

3-4
Conti….
It is estimated that only one in fifty business ideas are
actually commercially viable. Therefore a business
feasibility study is an effective way to safeguard
against wastage of further investment

The research and information uncovered in the

feasibility study will support the business planning
stage and reduce the research time. Hence the cost of
the business plan will also be reduced

3-5
Components of a Feasibility Analysis

Industry/Target Market
Product/Service Feasibility
Feasibility

Organizational Feasibility Financial Feasibility

3-6
Feasibility Analysis
Role of feasibility analysis in developing business ideas.

3-7
Outline for a Comprehensive Feasibility
Analysis

3-8
Product/Service Feasibility Analysis

Components of product/service
feasibility analysis

Product/Service Product/Service
Desirability Demand

3-9
1.1- Product/Service Desirability
First, ask the following questions to determine the basic
appeal of the product or service.

• Does it make sense? Is it something consumers will get excited

about?
• Does it take advantage of an environmental trend, solve a
problem, or take advantage of a gap in the marketplace?
• Is this a good time to introduce the product or service to the
market?
• Are there any fatal flaws in the product or service’s basic design
or concept?

15-10
Second, Develop/Administer a Concept
Test
◦ A concept statement should be developed.
◦ A concept statement is a one page description of a business, that is distributed to
people who are asked to provide feedback on the potential of the business idea.
◦ The feedback will hopefully provide the entrepreneur
◦ A sense of the viability or the product or service idea.
◦ Suggestions for how the idea can be strengthened or “twisted” before
proceeding further.

3-11
Primary Research Techniques
Customer survey and questionnaires
Focus group discussions

3-12
 Product/Service Demand
Product/Service Demand
◦ Through primary and secondary research
◦ Step 1: Administer a Buying Intentions Survey, focus group etc
◦ Step 2: Conduct library, Internet research, used local data etc

3-13
Gumshoe Research

Explanation
• A gumshoe is a detective or an investigator that
scrounges around for information or clues
wherever they can be found.
• Be a gumshoe. Ask people what they think about
your product or service idea. If your idea is to sell
educational toys, spend a week volunteering at a
day care center and watch how children interact
with toys.

3-16
2.0 Industry/Target Market Feasibility Analysis

Purpose
Industry/Target Market • Is an assessment of the overall
Feasibility Analysis appeal of the industry and the
target market for the proposed
business.
• An industry is a group of firms
producing a similar product or
service.
• A firm’s target market is the
limited portion of the industry it
plans to go after.
3-18
Industry/Target Market Feasibility
Analysis
Components of industry/target market
feasibility analysis

Target Market
Industry Attractiveness
Attractiveness

3-19
2.1. Assessing Industry Attractiveness

porter five forces model

2.2. Target Market Attractiveness

Target Market Attractiveness

◦ The challenge in identifying an attractive target market is to find a market that’s
large enough for the proposed business but is yet small enough to avoid attracting
larger competitors.
◦ Assessing the attractiveness of a target market is tougher than an entire industry.

3-21
 3.0. Organizational Feasibility Analysis
Purpose
• Is conducted to determine
Organizational Feasibility whether a proposed business has
Analysis sufficient management expertise,
organizational competence, and
resources to successfully launch
a business.
• Focuses on non-financial resources.

3-22
Organizational Feasibility Analysis
Components of organizational
feasibility analysis

Management Prowess Resource Sufficiency

3-23
3.1. Management Prowess

Management Prowess
◦ A firm should candidly evaluate the prowess, or ability, of its management team to
satisfy itself that management has the requisite passion and expertise to launch the
venture.
◦ Two of the most important factors in this area are:
◦ The passion that the solo entrepreneur or the founding team has for the
business idea.
◦ The extent to which sole entrepreneur or the founding team understands
the markets in which the firm will participate.

3-24
3.2. Resource Sufficiency

Resource Sufficiency
◦ An assessment of whether an entrepreneur has sufficient non financial resources to
launch the proposed business.

3-25
Resource Sufficiency
Examples of nonfinancial resources that may be critical
to the successful launch of a new business
• Availability of factory/ lab space for business.
• Local and state government support of the business.
• Quality of the labor pool available.
• Closeness to key suppliers and customers.
• Willingness of high quality employees to join the firm.
•Proximity to similar firms for the purpose of sharing knowledge.
• Possibility of obtaining intellectual property protection in key areas.

3-26
4.0. Financial Feasibility Analysis

Purpose
• Is the final component of a
Financial Feasibility comprehensive feasibility analysis.
Analysis • A preliminary financial assessment
is sufficient.

3-27
Financial Feasibility Analysis

Components of financial
feasibility analysis

Total Start-Up Cash Financial Performance of

Needed Similar Businesses

Overall Financial
Attractiveness of the
Proposed Venture

3-28
4.1. Total Start-Up Cash Needed

Total Start-Up Cash Needed

◦ The first issues refers to the the total cash needed to prepare the business to
make its first sale.
◦ An actual budget should be prepared that lists all the anticipated capital
purchases and operating expenses needed to generate the first $1 in revenues.
◦ The point of this exercise is to determine if the proposed venture is realistic
given the total start-up cash needed.

3-29
4.2. Financial Performance of Similar
Businesses
Financial Performance of Similar Businesses
◦ Estimate the proposed start-up’s financial performance by comparing it to similar,
already established businesses.
◦ There are several ways to doing this, all of which involve a little ethical detective
work.
◦ First, there are many reports available, some for free and some that require
a fee, offering detailed industry trend analysis and reports on thousands of
individual firms.
◦ Second, simple observational research may be needed. For example, the
owners of New Venture Fitness Drinks could estimate their sales by
tracking the number of people who patronize similar restaurants and
estimating the average amount each customer spends.

3-30
4.3. Overall Financial Attractiveness of the
Proposed Venture

Overall Financial Attractiveness of the Proposed

Investment
◦ A number of other financial factors are associated with promising business
startups.
◦ In the feasibility analysis stage, the extent to which a business opportunity is
positive relative to each factor is based on an estimate rather than actual
performance.
◦ The table on the next slide lists the factors that pertain to the overall
attractiveness of the financial feasibility of the business idea.

3-31
Overall Financial Attractiveness of the
Proposed Venture
Financial Factors Associated With Promising Business
Opportunities
• Steady and rapid growth in sales during the first 5 to 7 years in a clearly
defined market niche.
• High percentage of recurring revenue—meaning that once a firm wins a
client, the client will provide recurring sources of revenue.
• Ability to forecast income and expenses with a reasonable degree of
certainty.
• Internally generated funds to finance and sustain growth.
• Availability of an exit opportunity for investors to convert equity to cash.

3-32