Developing Feasibility Studies.notes

Hotel & Restaurant Association of Baguio September 10-12,2009 Baguio Country Club

Seminar Objectives: Give the Hospitality Students an Overview on How to Prepare and Develop Feasibility Studies Learn the various parts of a basic project feasibility study Be Familiarized with the formats of a project feasibility study

Lecture / Discussion Presentation of Feasibility Study formats

Definition of Terms “Feasible “ / “Feasibility” capable of being done, effected, or accomplished: a feasible plan. probable; likely: a feasible theory. suitable: a road feasible for travel. Capable of being accomplished or brought about; possible. Used or dealt with successfully; suitable: feasible new sources of energy.

Definition of Terms Feasibility Study: defined in a business context Is a thorough and systematic analysis of all factors that affect the possibility of success of a proposed undertaking Data, facts and other findings presented in the study then become the basis for deciding whether a project is to be pursued, abandoned or revised A synthesis of separate studies dealing with the market, technical, financial, socio-economic and management aspects of a project

Assumptions Feasibility Study Is not an antidote to failure It’s purpose is to enhance the probability of success of a specific undertaking It is a result of the belief that a carefully planned activity or project has better chances to succeed than an activity without a previous plan

Who May Conduct a Feasibility Study? An individual or group of individuals may conduct a feasibility study Experience in conducting feasibility studies Fair and neutral with no prior opinion about what decision should be made. It is important that all necessary data are collected and presented so that the best decision can be made.

What shall you study? New Business (Product or Service/Technology) Old Business that Needs Tweaking or Revitalization A Proposed Innovation of Products/Services / Structure A New Process / Procedure (Implementation) Location / Site Selections

Components : Executive Summary or Project Summary Should be included at the beginning of the report. Provides the reader with an overview of the feasibility study and will help them see the entire picture before they read the details In 2-3 pages, the main points of the feasibility study are summarized for a quick review by busy administrators and board members /officers. Thus, the executive summary should be concise and include the major findings of the study followed by a recommendation.

Outlined Format A. B. C. D. E. F. G.

Name of the Enterprise / Organization Location Descriptive Definition of the Project Project’s Long Range Objectives Feasibility Criteria Highlights of the Project Major Assumptions and Summary of Findings and Conclusion

A. Name of the Enterprise / Organization Briefly describe the reason for such choice of name

B. LOCATION Pinpoint the location •

Head Office ? / Main Branch? / Production Site ?

Factors affecting the Choice of Location are : • • • • • •

Sources of raw materials, labor, utilities City / Governmental Regulations Proximity to the market Nature of Available Transportation Cost of Land and Buildings / Rentals and Leases Choose a location where maximum efficiency can be attained at the lowest possible cost

C. DESCRIPTIVE DEFINITION OF THE STUDY • Related National Program (If Applicable) •

Is the Project in line with any governmentencouraged undertaking?

• Affinity to regional or sectoral studies •

Is the Project a result of encouraging findings in certain regions or sectors of the country?

• Project Potential & Proponent •

Give a conceptual description of the project’s potential worth and importance and the men behind it

D. PROJECT'S SHORT TERM & LONG RANGE OBJECTIVES

What does the project expect to achieve in 1 year / 3 years / 5 years / 10 years in terms of size, capacity, volume, worth, role in its industry and in the economy?

E. FEASIBILITY CRITERIA What were the most important guidelines used to judge the feasibility of the project? Profitability? Impact on Socio-economic environment?

F. HIGHLIGHTS OF THE PROJECT/STUDY 1. History How did the study/project come about?

2. Project Time Table and Status How long will it take before the project goes into operation?

3. Nature of the Industry Briefly describe the: Industry Product Lines, Demand & Supply Situation, History, Growth Patterns, Problems and Potentials, Role in the Economy

F. HIGHLIGHTS OF THE PROJECT/STUDY 4. Mode of Financing Sources of Funds Financing Terms Reasons for choosing such sources and terms

5. Investment Costs How much funds are necessary to make the project operational? How are these funds allocated?

G. MAJOR ASSUMPTIONS, SUMMARY OF FINDINGS & CONCLUSION ON THE FOLLOWING:

MARKET FEASIBILTIY TECHNICAL FEASIBILITY FINANCIAL FEASIBILITY SOCIO-ECONOMIC FEASIBILITY MANAGEMENT FEASIBILITY

G. MAJOR ASSUMPTIONS, SUMMARY OF FINDINGS & CONCLUSION ON THE FOLLOWING:

MARKET FEASIBILTY TECHNICAL FEASIBILITY FINANCIAL FEASIBILITY SOCIO-ECONOMIC FEASIBILITY MANAGEMENT FEASIBILITY

The Centerpiece of the Market Study is really the answer to these basic questions: 1. Is there a demand for my product or service? 2. If So, can my marketing program effectively meet this demand? • A NEGATIVE response to either questions prevents the project from materializing

Components of a Market Study Size, Nature, and Growth of Total Demand for the Product Description and Price of the Product / Service to Be Sold Supply Situation and Nature of Competition Factors affecting the Market of the Product / Service Appropriate Marketing Program for the Product / Service

Components of a Technical Feasibility Selecting the :

Production / Manufacturing Process Machinery Capacity & Design Machinery Supplies Production / Plant Location Production/Plant/Site Layout Structure Specification Raw Materials and their Sources

Components of a Technical Feasibility Determining the :

Quantity and Quality of the Products / Service Labor Requirements Utilities Required Waste Disposal Method Transportation Necessary (If Applicable)

Components of a Technical Feasibility Estimates of the Total Project Cost and Enumerating the Major Items of Capital cost Detailed Estimated Production/Overhead Costs that will go into operations Take into consideration the Technical Development in the industry which may affect the technical soundness of the project

Components of a Financial Feasibility Major Assumptions Total Project Costs Initial Working Capital Requirements Alternative Source of Financing Considered if any Sources of Financing the Project Beginning the pro-forma financial statements Financial Analyses (You may obtain the services of a competent accountant for this endeavor)

Components of a Financial Feasibility Major Assumptions Total Project Costs Initial Working Capital Requirements Alternative Source of Financing Considered if any Sources of Financing the Project Beginning the pro-forma financial statements Financial Analyses (You may obtain the services of a competent accountant for this endeavor)

Components of a Socio-Economic Study Employment and Income (Individual or Families) Taxes it will contribute to the Government / City Supply of commodities Demand for Materials, specifying the use of local materials to aid local producers

Components of an Organization/Management Study

Basic Considerations: Marketing Organizations (Market Study) Labor (Identified in the Technical Study) Finance & Administration

Draft Organizational Chart Qualifications & Functions Defined

Components of an Organization/Management Study

Form of Ownership Single Proprietorship Partnership (General / Limited) Cooperative Organization (Consumers, Producers, Marketing or Financing)

Officers & Key Personnel Project Schedule

Components of an Organization/Management Study

Officers & Key Personnel Project Schedule

Market Study Is there a demand for my product or service? Can My Marketing Program Meet this Demand?? A negative response to either question prevents the project from materializing

Technical Study Product / Service Quality – Can it compete with existing competing ones? Product / Service meets its intended use? Distinction from others of the same category

Technical Study Product / Service Quality – Can it compete with existing competing ones? Product / Service meets its intended use? Distinction from others of the same category Resource Availability & Accessibility Focal Point: Most efficient way of allocating resources to produce the desired product / service quality at the lowest possible cost Are they available in sufficient quantities and at reasonable costs?

Financial Study Financial Statements Preparation should boil down to Long Term Profitability / Sustainability Enough Sources for initial capital requirements? Financing Arrangements and Terms Reasonable and Viable?

Socio-Economic Study A matter of determining whether the society and the economy derive net positive gains from the project Effects of the Project on Environment, Morality & Socio-Economic Growth

Organization & Management Study Organizational Set Up Optimally Effective? Recommended Officers/Management are the best qualified under the circumstances? Optimum effectiveness refers to the ability of the organizational set up to carry out its functions effectively while having the lowest manpower level possible

Organization & Management Study Clear and precise identification of duties & responsibilities/flow of authority/manpower level requirements Fewest men possible shall be considered most appropriate for the project Examination of qualifications – suitability for positions in terms of ability to meet demands

Evaluate the Project Study for its Overall Success based on objectives.

“Focusing your life solely on making a buck shows a poverty of ambition. It asks too little of yourself. And it will leave you unfulfilled.” - US President Barack Obama

“Making your mark on the world is hard. If it were easy, everybody would do it. But it's not. It takes patience, it takes commitment, and it comes with plenty of failure along the way. The real test is not whether you avoid this failure, because you won't. it's whether you let it harden or shame you into inaction, or whether you learn from it; whether you choose to persevere.” - US President Barack Obama

PREPARED BY: EVANGELINE PAYNO Food & Beverage Outlets Manager Baguio Country Club For the Hotel and Restaurant Association of Baguio