How to Conduct Feasibility Study from A to Z

by

Dr. Suntoro Tjoe

Feasibility Study for Project SuccessKuala Lumpur, 11th September 2001

Feasibility Study - A process of thought

Conduct market analysis Conduct technical analysis

Conduct financial analysis

Analysi

s

Generation of ideas

Initial screening

Plan feasibility analysis

TerminateIs the idea prima faciepromising?

Preliminary

work

Yes

No

Prepare funding proposal

Conduct economic and ecological analysis

Is the projectworthwhile? Terminate

Evaluatio

n

Yes

No

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

Market AnalysisPotential market

Market share

Technical AnalysisTechnical viability

Sensible choices

Financial AnalysisRisk

Return

Economic AnalysisSocial cost benefit

Other impact

Ecological AnalysisEnvironmental damage analysis

Restoration measures

Market Analysis

1. Situational analysis and specification of objectives

2. Collection of secondary information

Obtain general market opinion Formulate the objectives clearly and comprehensively

National and economic information Industry-specific information

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 (con’t)

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 (con’t)

5. Demand Forecasting

Qualitative methods

Time series projection methods

Market Analysis (con’t)

6. Market planning

Basic pricing

Packaging

Promotion

Services

Market Analysis (con’t)

Technical Analysis

proximity to key locations in metropolitan area,

quality of surrounding environment,

existing housing/other structures,

schools, parks and recreational facilities,

amenities,

shopping,

public improvements.

1. Location and neighborhood:

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

Technical Analysis (con’t)

2. Size and shape

3. Accessibility and visibility

4. Site Conditions:

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

Technical Analysis (con’t)

5. Legal constraints:

6. Utility: water, sewer, electricity, gas, telephone, cable television.

Technical Analysis (con’t)

development climate,

impact fee,

future taking,

future road,

approval needed,

citizen participation/opposition,

approval process.

7. Zoning and regulatory environment:

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

2. Means of financing

Financial Analysis (con’t)

Share/equity capital

Term loans

Debenture capital

Deferred credit

Incentive sources

Miscellaneous sources

Financial Analysis (con’t)

3. Estimates of sales

Setting-up correct pricing At pre-launch During launching Progress after launching

Financial Analysis (con’t)

4. Working capital requirement and its sources

Calculate the amount of required working capital

Determine possible sources

5. Break-even Point

Break-even point = Fixed costs

Selling price - Variable cost

6. Projected cash flow statements

7. Projected balance sheets

Financial Analysis (con’t)

Economic Analysis

Social cost benefit analysis Other impact

Ecological Analysis

Environmental damage analysis

Restoration measures

Appraisal Criteria

Payback period (PBP)

Net present value (NPV)

Internal rate of return (IRR)

Benefit cost ratio (BCR)

Criterion

PBP < target period

NPV > 0

IRR > cost of capital

BCR > 1

Accept

PBP > target period

NPV < 0

IRR < cost of capital

BCR < 1

Reject

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