Unit 4 (Feasibility Study)

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UNIT 4 :

FEASIBILITY STUDY

TECHNOLOGY ENTREPRENEURSHIP

(ENT600)

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• A feasibility study is the

preliminary evaluation of

a business idea,

conducted for the

purpose of

determining whether the idea is viable or worth

pursuing.

• 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.

Entrepreneurship Dept, FBM (2009) ENT600/UNIT 4: FEASIBLITY STUDY 2

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Purpose of a Feasibility Study

1. Provide

a thorough examination of all issues

and assessment of probability of business

success.

2. Give

focus

to

the

project

and

outline

alternatives

.

3. Narrow business alternatives

.

4. Surface

new

opportunities

through

the

investigative process.

5. Identify reasons

NOT to proceed.

6. 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:

i.

Generate adequate

cash flow and profits

ii. Withstand the

risks

it will encounter

iii.

Remain viable

in the long term

iv.

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:

1. Market

Feasibility Study

2. Organisational

Feasibility Study

3. Technical

Feasibility Study

4. Financial

Feasibility Study

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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 and

technology 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 and personnel 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:

a. Product/Service

b. Customers

c. Market Demand

d. Competitors

e. Market Share

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MARKET

Product/Service Customers Competitors Market Demand Market Share

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Market Feasibility Study:

A. Product/Service

• This is an assessment of the overall appeal of the product/service being 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

the prospective 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 the organizations’ product 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.

• 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 resources the business has.

• Subsequently as the business progress and has more resources it can broaden into other market segment which it has not served before.

B. Customer

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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

C. Market Demand

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• Competitors refer to other businesses that provide similar, substitute or alternative product/service to the same market segment.

• In competitors analysis, the business not only has to identify

who are the major competitors but also the number of competitors in the market.

• The presence of competitors can affect immensely on the success of the business product/service that enter the market.

• Thus In order to establish a market niche and compete effectively, it is imperative for the business to identify who their competitors are as well as their strengths and weaknesses.

D. Competitors

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E. Market Share

• Market share refers to the

portion of the market

that the business can control

after taking into

consideration

market

demand

and

the

competitors’ position 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:

a. Technology and Equipment b. Materials

c. Manpower d. Location

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Entrepreneurship Dept, FBM (2009) ENT600/UNIT 4: FEASIBLITY STUDY 16 TECHNICAL

Technology

&

Equipment

Materials

Manpower

Location

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• In conducting technical feasibility study the business should identify the type of technology to be used for the proposed business 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:

a. Technology & Equipment

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• The business should identify the types, quantity, and quality of raw materials required.

• A list of suppliers for the raw materials needs to be identified and contractual arrangements with the suppliers need to be made to ensure the organization has uninterrupted supply.

• The cost of the raw materials should also be satisfactory and within the budget

b. Materials

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• The organization has to identify the technical workers required 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.

c. 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 to consider 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

d. 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 be carried out include:

a. Organization Structure b. Management Team

c. Compensation

d. Supporting Services

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Entrepreneurship Dept, FBM (2009) ENT600/UNIT 4: FEASIBLITY STUDY 22 ORGANIZATIONAL ORGANIZATION STRUCTURE MANAGEMENT TEAM COMPENSATION SUPPORTING SERVICES

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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:

a. Organization Structure

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• Management team refers to a group of individuals responsible 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 positions needed as well as the qualifications and experiences required to fill those positions.

b. 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.

c. 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 intended product/service.

• The availability of these services such as attorney or professional public accountant will definitely assist in bringing the product/service successfully to the market.

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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:

a. Start up Capital

b. Financial Sources

c. Profitability Analysis

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Entrepreneurship Dept, FBM (2009) ENT600/UNIT 4: FEASIBLITY STUDY 28 FINANCIAL RESOURCES START-UP CAPITAL FINANCIAL RESOURCES PROFITABILITY ANALYSIS

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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:

a. 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 current assets 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 include registration 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 over-estimate rather than under-estimate the cost involved.

Start-up Capital

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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.

b. Financing Sources

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c. Profitability Analysis

• Profitability analysis involve determining whether the proposed venture is generating enough profit to make the proposed venture feasible.

• This analysis is of great interest not only to the business owners 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 particular business 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 and • Balance Sheet Statement

• Based on these statements various financial analysis will be performed to determine the profitability of the business.