How to Conduct Feasibility Study from A to Z

by

Dr. Suntoro Tjoe

Feasibility Study for Project Success

Kuala Lumpur, 11th September 2001

Feasibility Study - A process of thought

Generation of ideas

Preliminary work Analysis Evaluation

Conduct market analysis

Initial screening

Is the idea prima facie promising?

No

Terminate

Yes
Plan feasibility analysis Conduct technical analysis

Conduct financial analysis Conduct economic and ecological analysis

Is the project worthwhile?

No

Terminate

Yes
Prepare funding proposal

Generation of ideas

Brain storming SWOT analysis Analyze performance of existing schemes Analyze economic and social trends Study plan outlays and governmental guidelines

Initial screening

Compatibility with the promoter Consistency with governmental priorities Availability of inputs

Adequacy of market
Reasonableness of cost Acceptability of risk level

Key Issues in Project Analysis

Potential market Market share Technical viability Sensible choices Financial Analysis Risk Return Social cost benefit Other impact Ecological Analysis Environmental damage analysis Restoration measures

Market Analysis

Technical Analysis

Economic Analysis

Market Analysis 1. Situational analysis and specification of objectives

Obtain general market opinion Formulate the objectives clearly and comprehensively

2. Collection of secondary information

National and economic information

Industry-specific information

Market Analysis (cont)

3. Conduct of market survey

Total demand and rate of growth of demand Demand in different segments of the market Income and price elasticities of demand Motives for buying Purchasing plans and intentions Satisfaction with existing products Unsatisfied needs

Attitudes towards various products

Socio-economic characteristics of buyers

Market Analysis (cont) 4. Characterization of the market

Effective demand in the past and present

Breakdown of demand Pricing Method of sales and promotion Customers Supply and competition Government policy

Market Analysis (cont) 5. Demand Forecasting

Qualitative methods Time series projection methods

Market Analysis (cont)

6. Market planning

Basic pricing
Packaging Promotion Services

Technical Analysis
1. Location and neighborhood:

proximity to key locations in metropolitan area,

quality of surrounding environment, existing housing/other structures, schools, parks and recreational facilities, amenities, shopping, public improvements.

Technical Analysis (cont)

2. Size and shape 3. Accessibility and visibility 4. Site Conditions:

slopes, vegetation, grading or fill required to build, existing structures, hydrology and drainage patterns, soil properties, sensitive land.

Technical Analysis (cont)

5. Legal constraints:

utility easements, private easements, deed restrictions, covenants that run with the land.

6. Utility:

water, sewer, electricity, gas, telephone, cable television.

Technical Analysis (cont)

7. Zoning and regulatory environment:

development climate, impact fee, future taking,

future road,
approval needed, citizen participation/opposition, approval process.

Financial Analysis 1. Cost of project

Land Building and

civil works Plant and machinery Marketing Permits and fees Professional fees Financing fees Overhead Commissions Provision for contingency

Financial Analysis (cont)

2. Means of financing
Share/equity capital Term

loans

Debenture capital Deferred credit Incentive sources Miscellaneous sources

Financial Analysis (cont)

3. Estimates of sales
Setting-up correct pricing At

pre-launch launching launching

During

Progress after

Financial Analysis (cont)

4. Working capital requirement and its sources

Calculate

the amount of required working capital

possible sources

Determine

5. Break-even Point
Break-even point = Fixed costs Selling price - Variable cost

Financial Analysis (cont) 6. Projected cash flow statements 7. Projected balance sheets

Economic Analysis

Social cost benefit analysis Other impact

Ecological Analysis

Environmental damage analysis

Restoration measures

Appraisal Criteria
Criterion Accept PBP < target period NPV > 0 IRR > cost of capital BCR > 1 Reject PBP > target period NPV < 0 IRR < cost of capital BCR < 1

Payback period (PBP)

Net present value (NPV) Internal rate of return (IRR)

Benefit cost ratio (BCR)

Thank You