A feasibility study is a technical paper for program management and administration to determine the investment viability of the project. There are two kinds of feasibility study, those projects that are: (1) revenue generating project which is utilize for the establishment of business firm such as market, malls hospital, and other business entities (commerce and trade) that need financial assistance in the commercial banks as part of the equity and amortization of loans operation including development program that produce revenue of a given project; and (2) non-revenue generating project utilizes financial grants ,assistance and subsidies by the international funding institutions, government agencies, non-government organizations and other philanthropic associations which is more on social responsibility to uplift the life of the poor people.
A. Revenue Generating Projects
The feasibility study usually connotes the Return-Of-Investment (ROI) or profitability which is financially viable for the investment in the production of goods and services. It also needs to assess the cost and benefit through the return of investment in a given period of year. It has to support financial profitability indicators and varied financial statements of the project. The establishment of the business firm primarily needs feasibility study to assess the financial profitability; market shares; economic benefits; organizational and management support; and environmental scanning on the entire operation of the business. The financial assistance for the equity shares of revenue generating projects is thoroughly studied along the financial aspects. The financial profitability indicators such as financial fluidity; income flow statement; assets and liabilities; net present value, internal rate of return, cost-benefit analysis are included in the submitted technical financial paper of the business project.
B. Non-Revenue Generating Projects
The non-revenue generating project is undertaken to financially support the development programs for social services with purpose of achieving general welfare and improve quality of life. Usually the funding institution requires to submit feasibility study with estimated financial expenses and financial statements during the duration of the project. It also requires to submit log frame; profitability indicators like cost-benefit analysis with inclusion of net present value, internal rate of return and even payback. The social services translation in this service–oriented project is estimated based on cost-effective analysis (CEA) and cost-utility analysis (CUA). The project implementation of feasibility study for health services, educational services and other social services is computed based on the program costs and the projected social benefits which must be quantified on similar quantifiable projects.
Components of Feasibility Study
As a technical paper, the feasibility study requires to submit relevant data and information to evaluate the viability of the project. These are the market analysis, technical analysis, financial analysis, economic analysis, environmental analysis and organization and management.
1. Market Analysis
The market analysis presents the relevant data as to the clients or stakeholders on the designed project by conducting survey assessment and other research tools to know the actual population of the service area.
a) Demand Analysis
This is the most important part of the feasibility study as it requires to know the demand or the need of the project. The project must identify the demand based on the nature of the development project:
Identifying Determinants for the Demand of the Project
The demand analysis presents the potential market demand on the basis of the service area, demographic profile, stakeholders and clients, and other identifying demands of the project.
1. Geographical Location.It provides the scope of the service area (number of cities, towns or territorial area) of the feasibility study. For example, the establishment of supermarket, hospital, medical center, transportation terminal, and other development projects may utilize these establishments in a given population of the service area.
2. Socio-Demographic Profile. It entails the survey of relevant data as to the income, profession, gender distribution, age range, and other quantifiable demographic profile that may affect the implementation of the project.
3. Stakeholders and Clients Profile. The project must clearly identify the clients that need the products or services. The potential buyers and clients are the relevant data needed to present in this project. For example, the establishment of commercial enterprises such as malls, markets, and other commercial establishments may need to know who are the stakeholders and clients once the project is implemented.
4. Other Identifying Demand Analysis. Take note that the feasibility study must look into all possible data needed for the possible buyers of goods and services in the market.
The identifying demand determinants are conducted through research study through survey assessment, primary documents as to the socio-demographic profile, stakeholders and clients market shares and other relevant data that may have bearing to the project.
Past, Present and Projected Demand
After properly classify the identifying demand as to the relevant data available in this feasibility project. The project proponents must now look into the data along the past, present and future demand. The past demand reflects the actual data as to the past performance of the potentials stakeholders or buyers of the demand of the project. Usually, the past demand is statistically analyze trending analysis on the mean, median or percentage as to the actual growth for the past 3 years or 5 years. The present demand shows the sustainability of the demand which will be the basis of the future or projected demand performance.
b) Supply Analysis
The supply analysis shows the existing supply condition before the implementation of the project. The project must have detailed data as to the market shares in a given geographical location, demographic data, stakeholders and clients, and other related supply factors. The quantifiable translation of demand variables on market shares may now be translated into supply variables. Based on this supply analysis, it must show the past, present, and projected supply.
Past, Present and Projected Supply Analysis
After identifying the existing supply in the market, the relevant data will be analyzed as to the market shares of each suppliers in the service area. It must collate relevant primary data on the market shares as the basis to formulate marketing plan in the service area. It follows the same statistical analysis as to the use of mean, median, percentage, and other trending analysis tool including actual growth for the past 3 to 5 years.
Demand and Supply Gap Analysis
The most difficult part in the marketing analysis is combining the relevant data as identified in the past, present and projected demand and supply analysis. The importance of the data of the demand and supply shows the marketing gap. Take not that if there is still higher demand with the supply then the marketing analysis is viable. However, if supply is higher than the demand then do not continue the project. The market share for the demand provides the important basis on how to get higher market share once the project is operational. It is now the marketing plan that may fill in the higher market share in the service area.
After the presentation of the past, present and projected demand and supply gap analysis , the market analysis follows to design the appropriate marketing strategies and plan to promote the products or services. It includes the marketing promotion and advertising of the products in the target market.
1. It provides competitive marketing programs as to the price, quality of products and services.
2. The marketing facilities that area conducive to the target users.
3. The marketing promotion and advertisements as to the advantages of the products and services
4. The market segmentation and market share in the service area.
2. Technical Analysis
The technical analysis shows the size, location, technology and timing of the project .
1. Size. The alternative size must consider the markets share as to the production of goods and services. The practically of the size that is technically feasible in the production output. The production size may also affect the financial expenses as to the production cost. Remember that the market shares in the demand and supply analysis defines the size of the project .It also must fit with all the facilities and equipment needed to produce in the market
2. Location. The strategic location of the commercial establishment can attract increase the demand in the market. There are business firm usually is located in the business centers. The demand is usually concentrated in the commercial centers . The market behavior in the demand facilitates more on market shares.
3. Timing. The market timing is important for consumer behaviors. The seasonal market, market influence on media and time line provide better demand for the market share in the service area.
4. Technology. The technical aspect of the project provides the smooth operation of the enterprise. The presence of quality products and durability in the market. It must be workable, adequate and acceptable on its technical features.
The infrastructure support programs such as construction of office building, commercial facilities and equipment, and etc. should have the blueprint of the building and technical design of the project. The entire physical set-up, technical processes and systems should be presented in the technical analysis. Usually the construction of office building needs engineering consultants in the technical processes of the projects.
3. Financial Analysis
The financial analysis presents the expenses, revenues generated, amortization, administrative costs, miscellaneous expenses and other relevant financial accounting systems needed of the project. The international funding institutions, government agencies and commercial banks require the project to submit financial statements, cash-inflows, assets and liabilities, and financial liquidity.
The financial statement requires a detailed presentation of the financial expenditures and revenues of the project:
A. Financial Expenditures of the Project .The critical analysis in this aspect is the financial obligations in the operation of the project.
1) Amortization (principal and interest payments of commercial loans) as part of the financial equity of the project. This is the capacity to pay the loans in a certain period of time.
2) Administrative cost including wages and salaries of personnel, honoraria and other personnel compensation.
3) The depreciation including the maintenance and repair of building, technical project facilities and equipment.
4) The office expenses on electricity, water, telephone, and etc.
5) The tax payment for the products and services including income tax.
6) The other financial costs in the implementation of the project.
B. Financial Revenue of the Project. This entails the estimated revenue or income that the project will receive once it is already operational for a period of 5 to 10 years.
1) The estimated revenue of the products or services generated in the project.
2) The sources and classification of products or services along possible revenues of the project.
3) The other miscellaneous revenue of the project.
Financial Statements of the Project
The financial statement gives the projections of the overview of financial expenses and income in the estimated duration of time in the full operation of the project. It is expected that the preparation of the financial statement must need an accountant or bookkeeper . These are the financial statements needed of the project:
1) Income Statement
2) Cash Flow Statement
3) Statement of Financial Position
4) Other Relevant Financial Statements
It refers to the assessment of the project’s profitability and the capability to service its obligation. Financial analysis, however, is most relevant only to the projects of parts of projects, that generated commercially traded-goods and/or service and are, therefore, revenue generating.
4. Economic Analysis
The project must also present the economic benefits to show the net contribution along the social welfare of the country. It should consider the basic assumptions along the employment; wages and salaries; other economic benefits created in the operation of the project.
The usual quantifiable feasibility indicators needed in the economic analysis are the cost-benefit analysis; net present value; cost effective analysis; cost utility analysis; and other relevant national economic indicators .
It is the process by which the project’s desirability in terms of its net contribution ( whether favorable or unfavorable) to the economic and social welfare of the country as a whole may be determined. The effects of the project on selected development goals are measured and translated into qualitative feasibility indicators.
5. Environmental Analysis
The environmental analysis shows the acceptability of the project as to the possible conservation and preservation of the environment. The environmental compliance of the project entails the construction of buildings including the facilities and equipment that may produce environmental hazards.
Even the project is highly feasible on the marketing, financial and technical aspects if the operation does not warrant environmental friendly operation and could produce environmental hazards then the project may not continue.There are cases that the social acceptability of the project is also presented as it may affect certain environmental and social conditions of the community where the project is implemented.
6. Organizational/Operational Analysis
The organizational analysis provides the general organizational operation that may be appropriately fitted for this project. It requires to submit the following:
1. Organizational Vision, Mission, Philosophy
2. Organization Structure including the line and staff function
3. Departmental Supervision and Administration
4. Management level
5. Administrative Communication
In business and Industry, the submission of feasibility study requires to present the organizational analysis at the 1st part of the technical paper. It articulates the vision, mission, philosophy and objectives of the organization.