Project Feasibility Study Written Report

Project Feasibility Study

A Project Feasibility Study is the systematic investigation, which ascertains whether the business

undertaking is viable and if so, the degree of its profitability.

Objectives of the feasibility Study

The primary objective of PFS is to guide project promoters, business managers, and financial

executives in determining the actions they must take on a project in order to bring about its

successful operations. However, the projects set of objectives varies from one user to another,

since it can be prepared for several parties, such as:

To management of an existing firm

o To determine feasibility of expansion programs

o To determine the reasonable price of an existing business it is considering to take

over

To Stock Holders

o To evaluate if an investment on a project or existing enterprise should be made or

not

o To decide to sell or buy an existing company and if so, at what price

To promoters or proponents of new project

o To ascertain viability of new projects

o To choose from among the alternative projects or project to be pushed through

To banks or lending/financing institutions

o To ascertain whether financial assistance should be extended or not

o To determine the terms and conditions should the loan be given/granted

To government and its agencies

o To determine if the project is entitled to a government incentives and level of such

incentive

o To determine whether goals set in the economic plan and program can be achieved

through the emergence of these potential business undertaking

Basic steps in Preparing Project Feasibility Study

It generally involves:

Collection of data which are relevant and necessary to all aspects of the undertaking.

Evaluation and analysis of the data gathered

Formulation of recommendation

Basic Considerations in a Project Feasibility Study

Society and the Government

It must be ascertained that at point, there must be at least a compromising effect on

the needs of both sides. The needs of the society cannot be contradictory to that of

the needs of the government.

Constant state of evolution or revisions

Revisions are necessary to support the determination of its viability to arrive at an

honest evaluation of the undertaking

Time and cost involved

The time and cost involved depends largely on the type of the industry, the size of

the project, its purpose and the party engaged in the preparation of the study.

Scope and Limitation of Project Feasibility Preparation

The study is primarily based on forecasts of demand, prices, supply, new products that will come

out, technological developments, amendment to laws, changes in tariff and trade agreements, and

availability of financing. Such forecasts are based on available information, and on the opinion of

the party or the person preparing the project study. As a result, the study would be subject to

following limitations:

certain required information are usually or may not be available;

Error in judgment by the person preparing or making the project study either due to his

incompetence or inexperience may result in formulating wrong conclusions or

recommendations;

Uncertainties.

Significance of the Project Feasibility Study

Notwithstanding the inherent limitations of a project feasibility study, it still offers the advantage

of presenting a more realistic basis of possible actions based on the given information. This could

be the basis of determining the maximum degree of probability of evaluating a proposed

undertaking. It helps in minimizing the risk of business failures thus reducing the possible wastage

of valuable resources, such as money, other assets, efforts and time. Most common factors of

business venture failures are:

Unforeseen presence of existing or new products which are more superior that the project

products,

Inability to perfect the manufacturing process,

Inability to price products or services rightly (right price),

Inability to finance the current operations, and

Inability to introduce products or services on time.

Characteristics of a good Project Feasibility Study

The characteristics of a good project feasibility study are: comprehensiveness, propriety and clarity

of language, conciseness, fine visual presentation, coherence, clear-cut scope and assumptions,

reliable sources and appropriate methods of data gathering, logical derivation of projections, and

well premised conclusions.

To achieve comprehensiveness, the PFS must have adequate information to meet the needs of the

users, areas covered must be clearly defined and well investigated, and PFS must have all the

necessary facts to support the study and all the details must be properly examine and considered

to be helpful to the users.

To achieve propriety and clarity of language, PFS must present in the appropriate or proper

language that business people are using, language used must be clear and easy to understand.

Terminology used in the study, which is not common, must be given meaning for the context it is

used.

Conciseness can be achieved through clear and succinct word use for information and explanation.

It must be brief but concise and a lot of sentence. It must be specific but not too detailed. In either

to have a fine visual presentation, information that could be quantified must be presented in figures

such as tables, graphs or pictures and avoid to many narrative presentations.

Coherence means that information must be logically connected. Tables or figures and reports must

be in agreement with each other.

To achieve clear-cut scope and assumptions, PFS must show a precise range and basis for

discussion, list of assumptions for every aspect must be enumerated, where such assumptions are

based on common industry practices, if known. If such assumptions could be different to what is

observed, a justification must be presented.

In a PFS, sources must be reliable, source data must be valid, statistical tool used in determining

sample must be appropriate and questionnaire developed must be appropriate to target respondents.

As data are gathered and analyzed, projections will be logically presented in the financial aspect.

Projected financial statements, ratios and other performance measurements must be presented,

such as, ROIs, breakeven analysis, turnovers and other financial measures.

Based on the financial measures presented, conclusions could be developed. Though it is

quantitatively supported, the decision maker must use PFS with caution bearing in mind the

limitations mentioned.

The Project Feasibility Study Format and its Major Parts

Project feasibility study is divided into two parts. The first part (Part A) pertains to the summary

of the study which composes of: I. Name of the firm or project; II. Location: head office and

factory site, if any; III. Brief description of the project which includes the company background,

nature or kind of industry and type of organization; IV. Projects general objectives; V. Specific

objectives of the project and; VI. Executive/Project summary (highlights of each aspect) which

includes market study, technical study, management and legal study, financial study and socio-

economic study.

Part A- Summary of the study

I. Name of the firm or project

II. Location: head office and factory site

III. Brief description of the project

a. company background

b. nature or kind of industry

c. type of organization;

IV. Projects general objectives;

V. Specific objectives of the project

VI. Executive/Project summary (highlights of each aspect

a. Market study

b. Technical study

c. Management and legal study

d. Financial study

e. Socio-economic study.

Part B- detailed Presentation of All Aspects

I. Market Study

The market study is virtually the lifeblood of every project feasibility study, though

profitability is generally the focal point of every venture. It must answer the question,

Is there a demand for the project? Obviously, there can be no discussion of

profitability or other aspects anymore if there is no demand, thus market study is the

starting point of every project. It must contain the following:

The market study general objectives

To determine the general marketability of the product or service.

The market study specific objectives regarding:

o The appropriate marketing program for the product or service

o The supply situation, size of market, nature or type of market, growth of

total demand.

o Appropriate pricing strategies.

The product description must indicate the following:

o Name of the product popular and specific (if any) and the reason for

choosing such name.

o Product properties physical, chemical, and/or agronomic.

o Uses of the product as a finished commodity, as an input or raw materials

of another production activities.

o Major users of the product individual or firm; be able to differentiate users

and buyers.

The demand situation must indicate the following:

o Who and where is the market?

o Identify needs of the consumers and determine their willingness to buy for

the product.

o Analysis of past demands and considers population growth, price variations,

degree of urbanization, tastes and preferences, and income distribution of

the target market.

o The size, nature and growth of total demand for the product.

o Market segmentation according to type, manner of use, income

classification, location, age, etc. For example, the product is automobile,

segment the market by income classification, if machinery segment market

by type of industry growth.

o Total domestic demand and possible foreign market.

o Evaluation of demand growth patterns to come up with a projected demand

by applying appropriate projection methods or models.

The supply situation must indicate the following:

o Who and where are the direct competitors?

o Classification of supply as to size, product quality, location, performance,

and market segment performance.

o Existing type of competition Are there big firms controlling the supply,

or are there many small firms in the industry?

o Historical domestic supply as comprised by local production and

importation.

o Determine the historical supply patterns in the targeted countries, for

foreign market as comprised by their local production and importation for

export project.

o Evaluation of supply growth patterns and project future supply by applying

appropriate projection methods or models.

Sample Size

In case, a sample is to be used in the study, the need to determine the sample size

(n) is imperative. The most common formula to determine the sample size (n) is the

Slovens Formula:

=

1 + 2

Where:

n is the number of respondents

N is the population size; and

e is the margin of error usually 0.01 or 0.05

Sampling Techniques

There are two types of sampling techniques: probability sampling and non-

probability sampling. The difference between them is that in probability sampling,

every unit has a chance of being selected, and that chance can be quantified. This

is not true for non-probability sampling; every item in a population does not have

an equal chance of being selected.

Probability sampling involves the selection of a sample from a population, based

on the principle of randomization or chance. It is more complex, more time-

consuming and usually more costly than non-probability sampling.

Simple Random Sampling

To prevent the possibility of a bias or erroneous inference, a random

sampling is commonly recommended. Under the concept of randomness,

each member of the population has an equal chance to be included in the

sample gathered.

Systematic Random Sampling

The items or individuals are arranged in some way perhaps

alphabetically or other sort. A random starting point is selected; and then

every kth member will be the succeeding samples.

Stratified Random Sampling

In this type of planning a population is first divided into subsets based on

homogeneity called strata. Thus, in stratified random sampling, the strata

are internally homogenous as possible and at the same time each stratum

is different from one another as much as possible. Then samples are

selected proportionally from each stratum which can be done through

simple or systematic random sampling. This type has an advantage in

some cases to reflect more accurately the characteristics of the population.

Cluster Sampling

Can be done by subdividing the population into smaller units and then

selecting only at random some primary units where the study would then

be concentrated. It is sometimes referred to as an area sampling because

it is frequently applied on a geographical basis. In general, we can get

more precise results under cluster sampling when each cluster contains as

a varied mixture as possible and at the same time one cluster is as nearly

alike as the other.

Use of Questionnaire

The questionnaire has been used increasingly to inquire into the opinions and

attitudes of a group. It is a major instrument for data gathering in descriptive-survey

studies and is used to secure information from varied and widely scattered sources.

The questionnaire is particularly useful when the researcher cannot personally and

readily see all the selected respondents or when there is no particular reason to see

the respondent personally.

Criteria for constructing a questionnaire

o It must be short enough so that the respondents will not reject it completely

and so that it will not take too much time which might be a serious drain on

the work of the employees.

o It must be of sufficient interest and must have enough appeal so that the

respondent will be inclined to respond and to complete it.

o The questionnaire should contain in-depth questions in order to avoid

superficial replies. It is desired that the questions evoke real consideration

to the many factors which enter into a decision.

o The ideal questionnaire must not be too motivational or, on the other hand,

too unstimulating. This is particularly true with reference to choice.

o The questionnaire should elicit responses which are definite but not

mechanically forced. A response which is vague or ambiguous or

uncrystalized is not desirable unless it accurately represents the state of

mind of the individual.

o Questions must be asked in such a way that the responses will not embarrass

the respondent. They must be worded such that answering no or giving a

neutral response is just as respectable as giving an affirmative one.

o Questions must also be asked in such a manner as to allay suspicion on the

part of the respondent concerning any hidden purpose in the questionnaire.

o The questionnaire must not be too narrow, restrictive, or limited in its scope

or philosophy.

o The responses to the questionnaire must be valid and the entire body of data

taken as a whole must answer the basic question for which the questionnaire

was designed.

Experts in research emphasize that the vocabulary chosen should be simple within the grasp of the least intelligent in the group studied. As to the

arrangement of the questions, it is suggested that the questions that are easy to

answer should be placed first in the questionnaire. As to subject-matter

sequence, it is important that all questions pertaining to one subject should be

grouped together.

Demand

It is very essential to know the demand of our products in order to answer our

customer needs and wants. Knowing the demand will help us to determine the trend

for our products. Analyzing the demand thoroughly will give the projection of the

total number of quantity of each product that we are going to produce daily, weekly,

monthly and annually.

Past Demand

o For the Industry

Past demand for industry or the whole streetfoods is computed by getting

the target market population times the frequency of agreement. It increases

annually based on the annual growth of population. In the example below,

the annual growth rate of Paraaque City by 2.94%.

Since there is no statistical data recorded in NSO and DTI regarding the

demand for streetfoods, past demand is computed by getting the target

population in Paraaque City for the year 2006 2010 multiplied by market

acceptability which is obtained by getting the percentage of respondents

who are willing to eat streetfoods in a kiosk with 83.46% and multiplied to

the frequency of agreement or the times the customers avail the products

annually. It increases annually based on the annual growth of population of

Paraaque City by 2.94% and based on the percentage of every products on

the survey, we distributed the annual past demand to get the past demand

for every products.

Table 1: Past Demand for the Industry

Year M.A. Target Population F.O.A. Annual Demand

2006 83.46 159,344 75 11,529,309

2007 83.46 164,029 75 11,868,261

2008 83.46 168,851 75 12,217,166

2009 83.46 173,819 75 12,576,336

2010 83.46 178,929 75 12,946,023

o For Every Product

Since we determined already the computation for the industry, past demand

for every streetfoods that the respondents usually eat are computed to the

percentage of each products answered by the respondents multiplied to the

annual past demand of industry.

Table 2: Past Demand for the Products

Street Foods

Year Balut Adidas Chicken Skin Fishball Isaw

(4.51) (4.01) (7.02) (15.79) (7.77)

2006 449,834 399,963 700,184 1,574,916 774,991

2007 463,060 411,723 720,771 1,621,222 797,777

2008 476,672 423,826 741,960 1,668,881 821,229

2009 490,697 436,296 763,719 1,717,983 845,391

2010 505,123 436,296 786,244 1,768,489 870,245

Total 2,385,386 449,122 3,712,949 8,351,491 4,109,633

Street Foods

Year Calamares Kwek-kwek Pork Barbeque Total

(14.04) (23.56) (23.30)

2006 402,955 2,349,907 2,323,974 9,974,138

2007 414,803 2,418,998 2,392,303 10,267,395

2008 426,997 2,490,110 2,462,630 10,569,228

2009 439,560 2,563,375 2,535,068 10,880,199

2010 452,482 2,638,734 2,609,614 11,200,060

Total 2,136,797 12,461,124 9,860,959 52,891,020

Projected Demand

o For the Industry

The annual increase of demand for the years 2011 2015 is based on the annual

population growth rate from 2006 2010 by 2.94%. The annual projected

demand was obtained by multiplying the market acceptability which is 83.43 to

target population and to the frequency of agreement. Based from the obtained

demand, it was distributed again to every product in order to determine its

demand.

The projected demand for industry in 2011 2015 is as follows:

Table 3: Projected Demand for the Industry

Year M. A. Target Population F.O.A. Annual Demand

2011 83.46 184,189 75 11,529,309

2012 83.46 189,604 75 11,868,261

2013 83.46 195,178 75 12,217,166

2014 83.46 200,916 75 12,576,336

2015 83.46 206,822 75 12,946,023

For the Products

It is computed by multiplying the projected annual demand of industry to the

percentage of each product based on the survey.

Projected Demand

Table 4: Projected Demand for the Products

Street Foods

Year Balut Adidas Chicken Skin Fishball Isaw

(4.51) (4.01) (7.02) (15.79) (7.77)

2011 519,972 462,325 809,357 1,820,478 895,827

2012 535,259 475,917 833,152 1,873,998 922,164

2013 550,994 489,908 857,645 1,929,090 949,271

2014 567,193 504,311 882,859 1,985,803 977,181

2015 583,866 519,136 908,811 2,044,177 1,005,906

Total 2,757,284 4,451,597 4,291,824 9,653,546 4,750,349

Street Foods

Year Calamares Kwek-kwek Pork Barbeque Total

(14.04) (23.56) (23.30)

2011 1,618,715 2,716,305 2,686,329 11,529,309

2012 1,666,304 2,796,162 2,765,305 11,868,261

2013 1,715,290 2,878,364 2,846,600 12,217,166

2014 1,765,718 2,962,985 2,930,286 12,576,336

2015 1,817,622 3,050,083 3,016,423 12,946,023

Total 8,583,649 14,403,899 14,244,943 61,137,095

Supply

Based on the percentage of the population who already availed street foods from

our survey questionnaire, we determined our past supply.

o Past Supply

It was multiplied from the percentage of purchases which is 79.70%to the target

population and to the frequency of agreement. The increase in supply was also

based in the growth rate of population. It was also distributed per product to

know the past supply.

o For the Industry

Table 5: Past Supply for the Industry

Year Percentage of Purchases Target Population F.O.A Annual Past Supply

2006 79.70 159,344 75 9,524,788

2007 79.70 164,029 75 9,804,833

2008 79.70 168,851 75 10,315,192

2009 79.70 173,819 75 10,390,031

2010 79.70 178,929 75 10,695,481

o For Every Products

Table 6: Past Supply for the Products

Street Foods

Year Balut Adidas Chicken Skin Fishball Isaw

2006 429,568 381,944 668,640 1,503,964 740,076

2007 442,198 393,174 688,299 1,548,183 761,836

2008 465,215 413,639 724,126 1,628,769 801,490

2009 468,590 416,640 729,380 1,640,586 807,305

2010 482,366 428,888 750,823 1,688,816 831,039

Total 2,287,937 2,034,285 3,561,268 8,010,318 3,941,746

Street Foods

Year Calamares Kwek-kwek Pork Barbeque Total

2006 1,337,280 2,244,040 2,219,276 9,524,788

2007 1,376,599 2,310,019 2,284,526 9,804,833

2008 1,448,253 2,430,259 2,403,439 10,315,192

2009 1,458,760 2,447,891 2,420,877 10,390,031

2010 1,501,646 2,519,855 2,492,047 10,695,481

Total 7,122,538 11,952,064 11,820,165 50,730,321

Projected Supply

The projected supply will help to determine the total satisfied market or the total

number of customers who availed street foods for five years. It was obtained by

percentage of purchases to the target population with 2.94% growth rate to the

frequency of agreement and it was distributed per product to determine the total

satisfied market for every product.

o For the Industry

Computation of projected supply for product is the same in past supply per

product. It changed only in the target population based on the annual growth

rate of 2.94%.

Table 7: Projected Supply for the Industry

Year Percentage of Purchases Target Population F.O.A Annual Past Supply

2011 79.70 184,189 75 11,009,897

2012 79.70 189,604 75 11,333,578

2013 79.70 195,178 75 11,666,764

2014 79.70 200,916 75 12,009,753

2015 79.70 206,822 75 12,361,470

For the Products

Table 8: Projected Supply for the Products

Street Foods

Year Balut Adidas Chicken Skin Fishball Isaw

2011 496,546 441,497 772,895 1,738,463 855,469

2012 511,144 454,476 795,617 1,789,571 880,619

2013 526,171 467,837 819,007 1,842,182 906,508

2014 541,640 481,591 843,085 1,896,340 933,158

2015 557,502 495,695 867,775 1,951,876 960,486

Total 2,633,003 2,341,096 4,098,379 9,218,432 4,536,240

Street Foods

Year Calamares Kwek-kwek Pork Barbeque Total Supply

2011 1,545,790 2,593,932 2,565,306 11,009,897

2012 1,591,234 2,670,191 2,640,724 11,333,576

2013 1,638,014 2,748,690 2,718,356 11,666,765

2014 1,686,169 2,829,498 2,798,272 12,009,753

2015 1,735,550 2,912,362 2,880,223 12,361,470

Total 8,196,757 13,754,673 13,602,881 58,381,461

The Demand-Supply Situation

It is now essential to combine the findings on the demand and supply situations. It

must indicate the following:

a. Comparison of the demand and supply trends.

b. The amount of demand unsatisfied, especially in the projections. If demand

appears to fairly satisfied by supply, it is important to consider either or both

of the following:

1. Whether the factors affecting the market may disrupt the equilibrium as to

demand to grow faster than supply.

2. Whether the quality of the product is such that it may create additional

demand or redirect part of existing demand in its favor.

c. The share of the market by establishing the proposed production volume (could

be determined in the technical study) as against the total market size.

BALUT

ADIDAS

Year Demand Supply Gap

2011 462 325 441 497 20 828

2012 475 917 454 476 21 441

2013 489 908 467 837 22 071

2014 504 311 481 591 22 720

2015 519 136 495 695 23 441

519972

535259

550994

567193

583866

496546

511144

526171

541640

557502

440000

460000

480000

500000

520000

540000

560000

580000

600000

2011 2012 2013 2014 2015

UN

ITS

YEAR

BALUT

Demand Supply

Year Demand Supply Gap

2011 519 972 496 546 23 426

2012 535 259 511 144 24 115

2013 550 994 526 171 24 823

2014 567 193 541 640 25 553

2015 583 866 557 502 26 364

CHICKEN SKIN

Year Demand Supply Gap

2011 809 357 772 895 36 462

2012 833 152 795 617 37 535

2013 857 645 819 007 38 638

2014 882 859 843 085 39 774

2015 908 811 867 775 41 036

462375

475917

489908

504311

519136

441497

454476

467837

481591

495695

400000

420000

440000

460000

480000

500000

520000

540000

2011 2012 2013 2014 2015

UN

ITS

YEAR

ADIDAS

Demand Supply

FISHBALL

Year Demand Supply Gap

2011 1 820 478 1 738 463 82 015

2012 1 873 998 1 789 571 84 427

2013 1 929 090 1 842 182 86 908

2014 1 985 803 1 896 340 89 463

2015 2 044 177 1 951 876 92 301

809357

833152

857645

882859

908811

772895

795617

819007

843085

867775

700000

750000

800000

850000

900000

950000

2011 2012 2013 2014 2015

UN

ITS

YEAR

CHICKEN SKIN

Demand Supply

1820478

1873998

1929090

1985803

2044177

1738463

1789571

1842182

1896340

1951876

1550000

1600000

1650000

1700000

1750000

1800000

1850000

1900000

1950000

2000000

2050000

2100000

2011 2012 2013 2014 2015

UN

ITS

YEAR

FISHBALL

Demand Supply

OVERALL TOTAL

Year Demand Supply Gap

2011 11 529 309 11 009 897 519 412

2012 11 868 261 11 333 576 534 683

2013 12 217 166 11 666 765 550 402

2014 12 576 336 12 009 753 566 583

2015 12 946 023 12 361 470 584 553

The gap or the unsatisfied market is obtained by subtracting the projected demand

to the projected supply which shows the available market for street foods. It also

shows the number of persons whom we need to supply to answer their demand for

street foods. We now show the gap for every product using the data from the

projected demand and projected supply.

The Price Strategies

In economic theory, price is determined mainly by the demand-supply situation. An

increase in demand with supply constant will increase prices. The reverse would

result in lowering of prices. There are, however, other factors which exert some

influences on the price setting. Without any change in demand or supply, price may

go up if raw materials and other production input costs increase; if there are

government interventions. Keeping all of these in mind, price setting or strategies

must consider the following:

o The selling prices of all similar and substitute products

11529309

11868261

12217166

12576336

12946023

11009897

11333576

11666765

12009753

12361470

10000000

10500000

11000000

11500000

12000000

12500000

13000000

13500000

2011 2012 2013 2014 2015

UN

ITS

YEAR

OVERALL TOTAL

Demand Supply

o History of price variations (including range of fluctuations) and establish

factors that most influence their fluctuations over time.

o Responsiveness of demand to price changes (price elasticity). Will there be

great, slight, or negligible changes (increase or decrease) in demand if prices

are lowered or raised.

o Set the selling price taking into consideration the above plus the operating costs

and expenses and estimate increases as foreseen in the subsequent period.

Marketing Program/Strategy

The marketing program must be the end product of a market study. After deciding

market and price targets, the marketing program comes in as the implementing arm.

Marketing strategy is defined as the marketing logic by which business unit hopes

to achieve its marketing objectives. In designing the marketing program, the

following must be considered:

Type of marketing programs prevalent in the industry and their respective

effectiveness

Marketing plan

o Target market- A set of buyers sharing common needs or characteristics

that the company decides to serve

o Selling price- The sum of the values that consumers exchange for the

benefits of having or using the product or service

o Packaging of the product- The activities of designing and producing the

container or wrapper for a product

o Distribution net work- A set of interdependent organizations involved

in the process of making a product or service available for use or

consumption by the consumer or business user

o Sales management mechanism-The analysis, planning, implementation

and control of sales force activities; includes setting and designing sales

force strategy, and recruiting, selecting, training, supervising,

compensating and evaluating the firms salespeople.

o Advertising program- Any paid form of non-personal presentation and

promotion of ideas, goods or services by an identified sponsor.

Marketing experts suggestions

4 Ps 4Cs

1. Product Customer needs and wants

2. Price Cost to customers

3. Place Convenience to customers

4. Promotion Communication to customers

TECHNICAL STUDY

The technical study determines the feasible combination of manufacturing process,

machinery design, labor requirements, material to be used, utilities requirements, water

supply, plant location, plant layout, and other technical factors that will enable a project

to operate at minimum cost and/or maximum profit. Care must be observed in the

technical study as the consequences of errors or miscalculation can be extremely

serious and the project may suffer major capital losses.

Manufacturing process- The choice of the process presents no problem if only one

method of manufacturing the product is known. However, some industries have

two or more ways of making a product. The choice must be justified quantitatively

and qualitatively.

Machinery requirements- The machine design, specifications, rated capacity, spare

parts, expected useful life, labor, power and water supply requirements, overall

plant capacity, and costs of the machinery, as well as the arrangements with the

suppliers must be well presented.

Plant capacity- The key factor in determining the plant size or capacity is the initial

sales volume projected and its changes over the years as presented in the market

study.

Estimate of total cost- This comprises the total cost for the machinery requirements,

probable suppliers terms and conditions to project cash flows. Estimated annual

costs may include that of raw materials, processed industrial materials,

manufacturers, auxiliary materials, factory supplies and utilities.

Plant location- The selection of the plant location takes into account the various

factors affecting the costs of a project.

o Availability and cost of transporting raw materials from source to the plant

o Availability and cost of transporting finished goods from plant to distribution

center or to customers

o Availability and cost of power supply (electricity and water)

o Availability and cost of labor in the area

o General weather condition in the area

Plant layout- The layout refers to the arrangement inside the plant which will

minimize the time and effort applied in various phases of the operations. A good

plant and machinery layout results in a smooth flow of materials and minimum of

backtracking. On the other hand, an inefficient layout can hamper the productivity

of the workers, require extra materials handling equipment, and causes a high rate

of breakage or rejects. Aside from positioning the machinery, the layout must

provide allowances for future production expansion.

Production schedule- In making a decision about the production schedule,

budgeting can be a very helpful tool. That is, prepare the sales budget, followed by

production schedule, and materials purchase schedule. This includes the volume

requirements per year and if the product is seasonal, a monthly schedule is better to

avoid work delays for non-availability of raw materials and stock-out for non-

production.

Raw materials- The study must indicate the exact specifications and quality of the

raw materials, quantity or volume of requirements (in relation to storage problem

for inventory), selection of sources (local or imported), selection of suppliers (as to

terms and condition of payment as well as reliability of deliveries on time), and

selection of method of transportation or delivery.

Utility requirements- The plant utilities cover the power, water and waste disposal

system. The study must fully indicate the power and water requirements for

machinery and office use, and waste disposal system must be carefully laid out in

accordance with the prescribed rules and regulation of the locality or city and must

consider the environmental effects to the nature and the community.

Project scheduling- This refers to the identification and analysis of the activities

from the project planning stage up to the start of normal operations. This could be

best presented in a Gantt chart. The objectives of project scheduling are (1) to

determine the probable starting time of normal operations, (2) to pinpoint activities

which should be expedited faster so that the starting time of the normal operations

may be advanced or just in time, and (3) to identify dates when certain phases of

the construction work should be completed, and thus materials be made available.

Total project cost- This refers to the total cost of the project necessary to start

operation. This is in terms of needed investment cost, capital costs and initial

operating costs.

Management And Legal Study

This study is applicable to an entirely new firms entering in the business. If the project

feasibility is for an existing firm only related ruled and policies for the particular

venture would be indicated. Assuming that the project feasibility is for an entirely new

firm, the management study must include the following:

Organization Chart

The organization chart tailored made to the first number of projected operational

years. An allowance for expansion could be presented.

Management and Employees Duties and Functions

Summarized duties and responsibilities must be highlighted to identify any job

overlapping or work overload by each officer and employee

Internal Control

Administrative and accounting controls must be presented in summarized form as

highlighted in the officers and employees duties and functions

Company Rules and Policies

These are guides and basic rules formulated by management to govern actions at

all levels in the organization and are intended to achieve predetermined objectives.

The policies to be indicated are the basics only. Detailed ones could be ignored and

just presented in the comprehensive Company Rules and Policies. The basic

policies must be related to:

o Personnel

o Production

o Credit and Collection

o Financial Policies

Legal and Taxation Aspects

The companys rules and policies must be in accordance with the existing

government laws, practices not contrary to moral and values observed In the place

of where it is situated. References must be the following:

o Labor Laws

o Social Security Act and other related employee benefits

o Local tax codes in the respective locality

o Business and income tax laws

FINANCIAL STUDY

The final test for the feasibility of the project is consolidated and shown in the financial

study. This includes the following:

Projected financial statements for the number of years projected

o Balance Sheet

o Income Statement

o Cash Flows Statement

Supporting Schedules

To prove the correctness of the financial statements based on the projections made

as presented in the market study, technical study and management study, such as

o Sales schedule

o Production Schedule

o Purchase Schedule

o Labor costs schedule

o Operating costs schedule

o Business tax computations

o Any other schedule deemed necessary in the project, such as cost per unit,

time required to produce one unit or to serve one customer, etc.

Financial Evaluation Measures

Just like any actual operating results, the management evaluates the performance

of the company using different financial evaluation measures to come-up with a

decision, in this case is to go or not to go for the project:

o Rate of returns

o Turnovers

o Ratios

o Cost structure/common size statement

o Trend analysis for the total number of years projected

o Breakeven analysis

o Capital budgeting evaluation measure

o Payback period

o Accounting rate of return

o Net present value

o Profitability index

SOCIO-ECONOMIC STUDY

In any business undertakings, management should also consider not only its financial

empowerment but also its responsibility as part of Philippine society. The study must

indicate whether the project is to operate and earn according to the vision and mission

of the government in the realization of the governments thrust n the present time. This

must indicate whether the project will:

Enhance the standards of living of the community where the project is located and

to the Filipino people as a whole

Help preserve the environment

Help the nation in the form of taxes payment

Give the societys needs

CHARACTERISTIC OF GOOD PROJECT FEASIBILITY DEFENSE

To have an effective project feasibility study defense, the proponent, whether by a group

or individual must observe the following:

Effective planning and division of labor, if by a group

Impressive panel presentation

Enthusiasm of the proponents in defending their project

The ability to defend the findings and their recommendations

OTHER TYPES OF RESEARCHES AND STUDIES

Business Case

A business case is a tool that supports planning and decision-making including

decisions about whether to buy, which vendor to choose, and when to implement.

Business cases are generally designed to answer the question: What will be the financial

consequences if we choose X or do Y? A good business case shows expected cash flow

consequences of the decision over time, and it includes the rationale for quantifying

benefits and costs.

Case Study

A case study is the process of studying and analyzing a particular case, the purpose of

which is to apply concepts in analyzing issues faced by a specific company or firm. It

is used and has developed into a very effective method in improving an individuals

ability to analyze a situation, establish premises, arrive at valid conclusions, decide on

courses of action, and visualize consequences and results.

Industry Analysis

An industry analysis is used to account of what happened to a business or industry over

a number of years. It chronicles the events such as changes in the competitive

environment, and charts the responses by the industry.