The Islamic University of Gaza Faculty of Commerce Department of Economics Feasibility Studies and Projects’ Evaluation Prepared by Mohammed Othman 2014 / 2015

Chapter 1: Introduction to Feasibility Studies

What is a feasibility Study ? An analysis and evaluation of a proposed project to determine if it (1) is technically feasible, (2) is feasible within the estimated cost, and (3) will be profitable.

What is a Feasibility Study Is this a good business idea? Helps answer the question of whether to go forward with the business idea.

What is a Feasibility Study A feasibility study is valuable for:  Starting a new business  Expansion of an existing business  Purchasing an existing business

A feasible business will:  Generate cash flow and profits,  Withstand risks,  Remain viable in the long-term  Meet the goals of the founders

Reasons to Do a feasibility Study  Gives focus to the project.  Narrows the business alternatives.  Identifies new opportunities.  Provides valuable information for “go/no go” decision.  Increases probability of business success by identifying weaknesses early.  Helps receive funding from lenders, grant providers, etc.

Feasibility Study Phases Phase 1: A brainstorming for selecting the project Phase 2: Pre-feasibility Study Phase 3: Detailed feasibility Study Phase 4: Implementation phase Phase 5: Follow up and Evaluation phase

The detailed Feasibility Study includes Study 1: Marketing feasibility Study Study 2: Technical feasibility study Study 3: Legal and environmental study Study 4: Financing feasibility study Study 5: Financial and economical feasibility study Study 6: National Feasibility study

Major Questions before Preparing Feasibility Study  When to do a Study?  Who will do the Analysis?  How will Monitor the Study Progress?  How to Accept or Reject the Study?  How to Use the Results?

The feasibility study process involves making rational decisions about a number of enduring characteristics of a project, which may include:  Establishing project scope - stating exactly what the project is.  Vision/mission statement  Situation analysis, history and background of the product/service, industry and the organization

 The aims, goals and objectives of pursuing the opportunity  Market opportunities  Current market segments  Projected growth in each market segment  Customer profile and demographics

 Performance objectives expected  Estimation of customers and potential revenues  Critical success factors  Determination of competitive advantage  Barriers to entry, education, distribution channels, costs

 The time frames  The initial costs involved  Performance objectives expected  Financing and projected cash flows - where will the money come from?  Break even analysis  The pay back period

 Return on investment  A report of costs & benefits  Development of an action plan for the project to proceed  A summary of findings

Are you thinking about starting a business ?  How long have you been dreaming about starting your own business?  What steps have you taken toward making your dream come true?  Do you have family support to start your own business?

Are you thinking about starting a business ?  How much money do you need to make?  What kind of experience do you have in this industry?  Will this business help you realize your personal life goals?

How to Write the Aims and Objectives of your Feasibility Study You should commence your Feasibility Study by writing the aims and objectives you envisage for your study. Establish the scope of the Feasibility Study - state exactly what the project is and what it is intended to achieve.

Some aims and objectives for a Feasibility Study could be: The aims and objectives of this Feasibility Study are to investigate the feasibility of importing / selling / manufacturing a new type of flowers for sale to the Palestinian market, as well as investigation of the costs involved and the potential profits and return on investment.

The Pre-feasibility study : A detailed review of available alternatives must take place at the stage of the pre-feasibility study The detailed feasibility study should provide all data necessary for an investment decision with more details than the pre-feasibility study.

The feasibility study should include deep analysis for the following parts 1)Executive summary about the project and project background 2)Business environment analysis & Entry Timing 3)Market analysis and marketing concept 4)Material inputs 5)Location, site and environment 6)Engineering, 7)Technology and equipment 8)Human resources 9)Implementation planning and budgeting 10)Financial analysis and investment appraisal 11)National Feasibility Study 12)Legal study 13)Conclusion and recommendation

The Outlines of a detailed feasibility study The structure of a detailed-feasibility study should include the following components: 1)Executive summary about the project and project background  Project history  Cost of studies and investigations already performed  Project sponsors  Definition of the basic idea of the project, objectives and strategy 2) Business environment analysis & Entry Timing:  SWOT analysis.  Best entry timing of the project

The Outlines of a detailed feasibility study 3)Market analysis and marketing study:  Demand and market, includes the following: A.Structure and characteristics of the market B.The estimated existing size and capacities of the industry (specifying market leaders), C.The estimated future growth (specifying major programs of development), D.Major problems E.Analysis of Competitors F.Demand forecasting

The Outlines of a detailed feasibility study G.General quality of goods H.Past imports and their future trends, I.Prices J.Role of the industry in the national economy and national policies, K.Priorities and targets related to the industry L.Approximate present size of demand, M.The past growth of demand, N.Major determinants and indicators

The Outlines of a detailed feasibility study  Marketing concept, sales forecast and marketing budget includes the following: A.Description of the marketing segments, B.Selected targets and strategies C.Anticipated competition for the project from existing and potential local and foreign producers and supplies D.Localization of markets and product target group E.Sales program F.Estimated annual sales revenues from products G.Estimated annual costs of sales promotion and marketing

The Outlines of a detailed feasibility study  Production program required, includes the following: A.Products, B.Wastes (estimated annual cost of waste disposal) C.Capacity utilization & Capacity utilization rate 4)Material inputs (approximate input requirements, their present and potential supply positions, and a rough estimate of annual costs of local and foreign material inputs):  Raw material  Processed industrial materials  Factory supplies

The Outlines of a detailed feasibility study 5)Location, site and environment, includes the following  Pre-selection, including, if appropriate, an estimate of the cost of land  Preliminary environmental impact assessment 6)Project engineering:  Determination of factory capacity  Quantitative relationship between sales, factory capacity and material inputs  Maps and layouts

The Outlines of a detailed feasibility study  Civil engineering works, includes the following: A.Rough layout of civil engineering works, B.Arrangement of buildings, C.Short description of construction materials to be used, D. Site preparation and development E.Buildings and special civil works F.Outdoor works Rough estimate of investment cost of civil engineering works (local and foreign), classified as above.

The Outlines of a detailed feasibility study 7) Technology and equipment, includes the following: A.Technologies and processes that can be adopted, B.Technology description and forecast C.Environmental impacts of technologies D.Rough estimate of costs of local and foreign technology E.Rough layout of proposed equipment (major components): E.1. Production equipment E.2. Service equipment E.3. Spare parts, wear and tear parts, tools Rough estimate of investment cost of equipment classified as above.

The Outlines of a detailed feasibility study 8)Human resources:  Estimated human resource requirements  Estimated annual human resource costs 9)Implementation scheduling:  Proposed approximate implementation time schedule  Estimated implementation costs 10)Financial analysis and investment:  Total investment costs Rough estimate of working capital requirements Estimated fixed assets

The Outlines of a detailed feasibility study  Project financing Proposed capital structure and proposed financing (local and foreign) Cost of finance Production cost (materials, personnel and overhead costs, fixed and variable costs) Financial evaluation based on the above-mentioned estimated values : Payback period Simple rate of return Break-even point Internal rate of return Sensitivity analysis

The Outlines of a detailed feasibility study 11) National Feasibility Study National economic evaluation (economic cost-benefit analysis), includes the following: Foreign exchange effects Value-added generated Absolute efficiency Employment effects

The Outlines of a detailed feasibility study 12) Legal Study, includes ( Registrations, Contracts, Agreements, …etc) 13) Conclusions and Recommendations