Feasibility

Chapter 12

How does a feasibility study differ from a business plan? The separate roles of the feasibility study and the business plan are frequently misunderstood. Although various components are common to both the feasibility study and the business plan, not all of the information developed in the feasibility study will be incorporated into the business plan and vice versa.

FEASIBILITY STUDY BUSINESS PLAN
  • The feasibility study is conducted during the deliberation phase of the project development cycle - prior to completing the business plan.
  • A feasibility study is an analytical tool typically prepared by someone not directly associated with the project.
  • A thorough feasibility effort includes several scenarios for the decision-makers in determining the practicality and profitability of a proposed project idea.
  • The feasibility study is only applicable for project development
  • The business plan reflects the intended responses to the critical issues identified in the feasibility study.
  • The business plan is generally created internally by the main parties involved in the business.
  • The business plan elaborates on the most promising scenario. By the time the business plan is created, focus has been set on the most opportune concept.
  • The business plan is a blueprint for project management.

 

Chapter 13

What is included in checking the feasibility of an idea?

A feasibility study can be divided into two major phases: An analysis of directly influencing factors and an analysis of environmental conditions.

13.1 Analysis of Directly Influencing Factors

1. Market Determination - determines potential market for the proposed product.

  • Consumption - analyzes consumption trends of the proposed product and competing products and determines form, quality and volume requirements.
  • Markets - determines type, location and cost of serving potential markets.
  • Distribution system - determines type, method and cost of distribution system for the product.
  • Market entry - determines method and cost of introducing the product to consumers.
  • Buyers - determines type of buyers and requirements and costs of selling to these buyers.
  • Selling arrangement - determines type of selling arrangements, including delivery schedules, pricing arrangements and payment schedules.
  • Prices - projects expected prices for the product.

2. Raw Product Supply - determines economic availability of sufficient raw product.

  • Minimum economic size of controlling unit - cost analysis of existing plants or synthesized models.
  • Plant requirements - determines quantity of raw product required to support controlling unit.
  • Availability of requirements - determines if required quantity of raw product is available, and is of suitable quality at an acceptable price.
  • Assured supply of requirements - determines if required raw product supply can be expected in the future.

3. Production Process - determines facility needs, capital and financing requirements, potential costs and returns.

  • Facility needs - determines specific facilities (buildings, equipment and rolling stock) required.
  • Investment capital needs - determines initial investment requirements for facilities.
  • Labor needs - determines specific quantity and types of labor required.
  • Cost of operation - develops cost budget to include costs of labor and management, raw material and operational and fixed components.
  • Profitability - determines potential profit by estimating returns and comparing with cost budgets. Also includes break-even analysis and preparation of projected income statement, balance sheet and cash flow statement.

13.2 Analysis of Environmental Concerns

1. Availability of site - determines adequacy of site in physical, ecological and economic terms.
2. Availability of services - determines adequacy and cost of required services such as utilities, financial services and educational services.
3. Governmental structure - determines type of governmental policies in area as they affect operations, such as assessment policies, taxes and zoning ordinances
4. Availability of transport facilities - determines adequacy and cost of transportation facilities to be used by the firms.

 

Chapter 14

What if the feasibility study indicates the idea may not work?

Feasibility studies do not become suddenly negative or positive. Instead, as research accumulates, the scales will gradually begin to tip one way or another. Often times, a failing scenario can be readily altered to restore a favorable balance. For instance, a concept that shows an inability to service intended debt loads might be made favorable if the owners provide more private capital and therefore avoid the costs of interest on borrowed monies. Costs of labor can be reduced by increased volunteerism, lack of market access might be solved by increasing the trade area, and so forth.

The best advice may be to work through problem scenarios completely before trying to force your project ahead. There is an old saying in the business world that goes something like, "The easiest way to avoid a bad situation in business is to avoid getting into it in the first place." Any producer who has ever been stuck axle-deep in a mudhole has found themselves wishing they would have heeded the signs that the ground was probably too wet to safely travel on. Avoiding a problem is virtually always easier than curing one after-the-fact. If the feasibility study says your idea will not be profitable - be wise and beware.

 

Chapter 15

Where do I go for technical assistance for Feasibility Studies?

There is an abundance of available business assistance in Iowa. As you begin your search for people and agencies that can help you with the feasibility stage, begin by looking locally, then regionally, followed by searching for state and federal forms of assistance. Looking for help in this manner provides a logical process that tends to ensure you are absolutely getting all of the help that is out there for you. Finally, starting at home puts you in stride with the way many assistance programs are structured. Federal assistance is sometimes contingent on state participation; state participation sometimes requires regional and local support, etc.

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