Module – 3Feasibility Analysis and Crafting

Business Plan

Chetan T.R

Feasibility Study

The Feasibility study is an analytical tool used during the project planning process, shows how a business would operate under an explicitly stated set of assumptions.

The Feasibility study of a project can be ascertained in terms of technical factors, economic factors or both.

It is documented with a report showing all the ramifications of the project viz., inflows, outflows of fund, technology, market, environment etc.

Y Feasibility analysis?

Helps in determining profitability of businessHelps to gather broad data for members of management

to take decision.Helpful for showing out projects which are consistent

with business’s objectives.Helps analyze the cost benefit approach, as it considers

all the costs of the projects.Helps identify the SWOT and unforeseen circumstances

that might affect the success and sustainability of the business

Helps in estimating the financial, human and technological resources that are required to ensure successful launching of the business

Steps in Feasibility study

Identify and recognize the people or firms that will be involved in preparing the various aspects of the study.

Examine the feasibility factors like., market feasibility, Technical, Technology and system feasibility, Legal Feasibility, Operational Feasibility, Economic Feasibility, Resource feasibility, Cultural feasibility, and Financial feasibility study

Proceed with Management studyIf it is a government project, social desirability has to be

assessedPrepare the summary of the feasibility study including brief

description and major assumptions made.

Types of Project Feasibility

Types of Project

Feasibility

Technical

Managerial

Economical

Financial

CulturalSocial

Political

Environmental

Market

Technical Feasibility

Input Analysis

Throughput

Analysis

Output Analysis

Managerial Feasibility Analysis

Management SupportEmployee involvementCommitment

Economic Feasibility Analysis

Project costs Benefit-cost

Fixed and Variable costs

Revenue

Financial Feasibility

Expenditures

Expected Cash Flows

Rate of return on Investment

Cultural Feasibility

Deals with the compatibility of the project with the cultural environment of the project

Laborers/EmployeesCustomersStake holdersShareholders

Social Feasibility

Eg., Dye units, in Ahmedabad have mushroomed and are polluting and generate effluents which are not acceptable to the society. The government has ordered closure of all dye units unless suitable effluent treatment in implemented

Market Feasibility

Product, scope of the market and competitionUSP, quality and pricingDemand ProjectionsExport facilitiesAdequate marketing infrastructure and

principal customersSelling arrangementsTrends in price

Product or service feasibility analysis

Concept test:- Description of the Product/Service Intended Target market Benefits of the product/service Description of how the product will be positioned Description of how the product will be sold or

distributed

Elements of Technical Feasibility

System PerformanceSystem InterfaceDevelopment ProcessesRisk assessmentStaff qualificationFailure ImmunityCustomer supportSecurity

Feasibility Report

Includes the analysis of various factors and viability of the project with the assumptions

FSR – Feasibility Study Report Is formally documented output of feasibility study that

summarises results of the analysis and evaluations conducted to review the proposed solution and investigate project alternatives for the purpose of identifying if the project is really feasible, cost-effective and profitable

Steps to write a FSR

Write Project Description

Describe possible solutions

Evaluation Criteria

Write conclusion

Propose the most feasible

Solution

Importance of Feasibility Report

Helps to list all details that are required for your idea to work

Identifies the problems and possible solutionsDevelop marketing strategies to convince the

investor that your idea is worth considering an investment

Serves as a solid foundation for developing the Business plan

Project Report

The Project report is prepared by the entrepreneur or by the consultants or associates in order to present relevant facts before the decision makers to enable them to decide whether the project is worthwhile the investment or not

The Project report includes Preparation of detailed designs, specs, plant layouts,

Process designs, and time schedules for the execution of the project

Collection of details or a complete work plan for various processes or the project to be implemented after the proposal has been finalized by the entrepreneur

Objective of a Project report

Facilitates business planning and planning the future course of action

Enables an entrepreneur to compare different investment proposals and select the most suitable project

Provides a SWOT analysis In case of public sector projects this report

would enable the concerned authorities to take an objective decision on the project

Facilitates the appraisal of the project in regards to financial, economic and technical feasibility

Contents of a Project report

Sources of Finance (Long term and Short term)

Availability of machineryTechnical Know-howMarket potentialOverall profitabilityProject schedule

Advantages of a Project report

Helps entrepreneur in establishing techno-economic viability

Helps in getting term loans from banks and financial institutions.

Helps in getting working capital loanShows feasibility of the project and possibility

of achieving profits

Problems faced in preparation of a Project Report

Strict conditions of promoter’s contribution may dampen

Lending institutions demand a lot of documents

Assessment of working capital due to unrealistic assumption

Time overrun results in cost overrunGovernment rules and regulations

Model project report for a new venture

Sequence of standard format to be followed in Preparing New Business Project reportI. Background of the BusinessII. Customers profileIII. Long and short term corporate Objectives

I. To perform a viability assessment of the proposed new business ideas in terms of marketability , technical feasibility, financing and authorities

II. To be able to prepare a relevant business planIII. To recognize fundamental start-up issues

IV. Market AnalysisI. Brief discussion on the type of market, chief influencers, players

etc.II. Market descriptionIII. Reasons for starting business in a particular marketIV. Target ClientsV. Advantages of the services offered by the new businessVI. Market consumption patternsVII. Past and existing supply locationVIII. Production prospects and limitationsIX. Exports and ImportsX. Price structureXI. Flexibility of demandXII. Client behaviour, purposes, intentions, impetus, approaches,

inclinations and needs.XIII. Supply network and marketing rules formulated by the

governmentXIV. Government and technical limitations imposed on the promotion

of the product

V. Financial Assessment I. Investment expenditure and value of the entire

projectII. Methods of investmentIII. Anticipated productivityIV. Money flows of the project reportV. Investment value evaluated in context of different

points of meritVI. Estimated financial ranking

VI. Marketing AssessmentI. ProductII. PriceIII. Place IV. Promotion

VII.Operational PlanI. Business models II. Production of goods and services

VIII.Financial PlanIX. Management StructureX. Business Structure(Ownership, staff etc)XI. SWOT AnalysisXII.Appendices

I. Break-even analysisII. Profit and Loss synopsisIII. Fund flow summary

Business Plan

A Business Plan is a written statement of what an entrepreneur hopes to achieve in one’s business and how is one going to achieve it.

Set of documents prepared by a firm's management to summarize its operational and financial objectives for the near future (usually one to three years) and to show how they will be achieved.

It serves as a blueprint to guide the firm's policies and strategies, and is continually modified as conditions change and new opportunities and/or threats emerge.

Business plan headings

Owner detailsDescription of the businessOutline of the marketEvaluation of competitionHow the business will be organisedProposed marketing mixPremises and equipmentSources of capitalCash flow forecastFuture plans

Significance of a business plan

Used for planning out specific details of business To define what business is or what the business is or what it intends

to be over time Clarifying the purpose and direction of business Helps to plan for changes in the market, growing or slowing trends

and new innovations or directions to take as the company grows The development of a comprehensive business plan shows whether

or not a business has the potential to make a profit Act as sales tool to attract partners, secure supplier accounts and

attract executive level employees into the new venture Conveys the organizational structure of a business, including the

titles of directors or officers and their individual duties. Also Acts as a management tool that can be referred to regularly to

ensure business is on course with meeting the gals, sales targets or operational milestones

Guidelines to prepare a Business Plan

Do understand that the planning process is critical to run a successful business

Do utilise the business outline to determine what to include in your plan

Ensure the plan fits youBe clear in your objectivesDo include market researchDo include a financial plan and projectionsExplain both Strengths and weaknesses of business

ideaDo reserve and modify your plan as circumstances

change

Format of a Typical Business Plan

1. The Executive Summary2. Description of the business3. Product/Service4. Management5. Financial requirements6. Organisation description7. Industry8. Marketing strategy9. Product/Operations Plan10. Ownership11. Key personnel12. Accounting records13. Financial information14. Appendices

Objectives of Business Plan

To give direction to the vision formulated by the entrepreneur To Objectively evaluate the prospectus of business To monitor the progress after implementing business plan To persuade others to join business To seek loans from financial institutions To visualise concept in terms of market availability, organisational,

operational and financial feasibility To guide entrepreneur in actual implementation of plan To identify actual strength and weakness of plan To identify challenges in terms of opportunities and threats from

the external markets To clarify ideas and identify gaps in management information

about their business, competitors and market To identify the resources required to implement

Business Plan Process

Idea Generati

on

Environmental

Scanning

Feasibility

Analysis

Project Report

Preparation

Evaluation,

Control and

Review

1: Idea Generation

Consumers/CustomersExisting companiesResearch and DevelopmentEmployeesDealers and Retailers

2: Environmental ScanningExternal Environmental Factor

Political Economical Social Technical Natural Demographical

Internal Environment Raw material Production/Operation Finance Market Human Resource

3: Feasibility Analysis

Market AnalysisTechnical Analysis

Material Availability Material requirement planning Plant location Plant capacity Machinery and equipment

Marketing PlanProduction Plan/Operation PlanOrganizational PlanFinancial Plan

4: Project Report preparation

5: Evaluation, control and reviewCompany has to operate in dynamic environment, it has monitor ad review the strategies and policies to stay in line with competition existing in market

Marketing Plan

Refers to plan that describes market condition and strategy related to how products and services will be distributed, priced and promoted in market.

Marketing aspects of a Business plan

Marketing Aspects

Well defined market

Channel Strategy

Positioning statement

Pricing strategy

Communication

Strategy

Sales Strategy

Characteristics of an Effective Marketing Plan

•Should provide strategy for accomplishing the company mission and goals.•Should be based on facts and valid assumptions

•Optimum utilization of existing resources•Should provide for continuity

•Should specify performance criteria that will be monitored and controlled•Should short and simple•Should be flexible to adapt for dynamic market

Production/Operations Plan

A Production Plan is that portion of intermediate business plan that manufacturing/operations department is responsible for developing

The plan states in general terms the total amount of output that the manufacturing department is responsible to produce for each period in the planning horizon

Operational aspects of Business Plan

Operational Aspects

Operations Strategy

Scope of

operations

Ongoing

Operations

Organization Plan

Is the process f identifying an organization’s immediate and long-term objectives, formulating and monitoring specific strategies to achieve them.

An Organization chart should include: Hierarchical structure How business is structured Legal form of ownership The Chain of command

Four stages of organizing a Business

Establish a list of the tasks using the broadcast of classifications possible

Organize these tasks into departments that produce an efficient line of communication between staff and management

Determine the type of personnel required to perform each task

Establish the function of each task and how it will relate to the generation of revenue within the company

Financial Plan

Is a comprehensive evaluation of an investor’s current and future financial state by using currently known variables t predict future cash flows, asset values and withdrawal plans.

Financial aspects of a Business Plan

Expected sales and expense figure for the first three years at least

Cash flow figures for the first three yearsCurrent balance sheet figures and proforma

balance sheets for the first three years

Different Financial Projection Techniques available to an Entrepreneur

Proforma Income statementProforma Cash flowBalance Sheet

Assets Liabilities Owner equity Break even point Proforma sources an applications of funds

HRM aspects of a Business Plan

Top level managementMiddle level managementOperational level managementSupporting staffAdvisors

Below points provide clarity No and Type of employees Pay Structure Training methods Job description

Technical aspects of Business plan

Accounting, taxes and financeOrder taking and trackingInventory managementDatabase managementPresentationsInternet Marketing

Social Aspects of Business Plan

Consider the society’s welfareFocus on societal valuesOptimise the use of resourcesProtect environment, ecology by undertaking anti-

pollution measuresCSR activities like social welfare programmes,

charitable contributions, undertake social forestry and adopt villages to develop basic infrastructure

Share the profit with stakeholders of the businessAssist in the establishment of domestic social order

Errors in Business Plan formulation

Errors

Capacity utilisation estimates

Capacity Computation

Market study

Machinery selection

Project pruning and

Resource straining

Cash flow in initial

year

Selling price

Location selection

Project cost

Technology oriented products

Assignment

Prepare a Business plan with the above given parameters included for your own Business of interest