University of Nigeria Research Publications

ADEMIJU, Samuel Adebayo

Aut

hor

PG/EMBA/98/0001

Title

Importance of Feasibility Study in the Realization of Project

Objectives

Facu

lty

Business Administration

Dep

artm

ent

Management

Dat

e

May, 2001

Sign

atur

e

IMPORTANCE OF FEASIBILITY STUDY IN THE REALISATION OF PROJECT OBJECTIVES. "AN

EMPIRICAL ANALYSIS OF SOME SELECTED PROJECTS".

'\

ADEMIJU SAMUEL ADEBAYO CMD/UNN/PG/EMBA/98/000 1

DEPARTMENT OF MANAGEMENT FACULITY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA, ENUGU CAMPUS,

ENUGU.

MAY 200'1

IMPORTANCE OF FEASIBILITY STUDY IN THE REALISATION OF PROJECT OBJECTIVES. "AN EMPIRICIAL ANALYSIS OF

SOME SELECTED PROJECTS".

ADEMIJU SAMUEL ADEBAYO CMD/UNN/PG/EMBA/98/0001

BEING A RESEARCH PROJECT SUBMITTED TO THE DEPARTMENT OF MANAGEMENT, FACULTY OF BUSINESS

ADMINISTRATION, UNIVERSITY OF NIGERIA, ENUGU CAMPUS, ENUGU IN PARTIAL FULILAMENT OF THE

REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION (MBA) DEGREE IN MANAGEMENT

MAY 2001 - \

CERTIFICATION

ADEMIJU, Samuel Adebayo, a postgraduate student in the Department of

Management, Faculty of Business Administrated with Registration number

CMDKJNN/PG/EMBA/98/000 1 has satisfactorily completed the

requirements for the award of the degree of Master in Business

Administration (MBA)

The work embodied in this report is original and has not been submitted in

part or in full for any other degree or award of this university or any other

University

............................ Professor E.U.L. Imaga Supervisor

............................. C.0' ~ ~ ~ u k w u Head of Department

DEDICATION

TO MY WIFE AND CHILDREN

iii

ACKNOWLEDGEMENT

It is a saying that "to give honour to whom it is one is an honour for which

no one can sue". I so give glory to the Almighty God who spiritually

strengthened me to successfully completed the programme.

I am indeed highly indebted to my supervisor, Prof. E.U.L. Imaga for his

assistance, patience understanding, advice, inspiration, encouragement and

support throughout the course of the project may the merciful God continue

to shower His households, Amen.

My appreciation also goes to my wife and children for their understanding

and support throughout the duration of the programme.

Finally, I my appreciation goes to Mr. Mark C. Ukegbu for the for the

excellent promotion of this study. More blessings of the Lord, Amen.

Samuel Ademiju May 200 1.

ABSTRACT

Business involves risk and as such, it requires systematic planning. The whole idea of feasibility studies revolve around conscious efforts at business planning, hence a feasibility study is a comprehensive and rigorous business planning process

Many investors especially in developing countries embark on industrial projects without pre-investment studies to across the viability of the venture. Even where investment decisions were preceded by pre-investment studies, the standard and depth of such studies are often not adequate

The problem of improper identification of business opportunity resulting in wrong choice of project implied with wrong timing has led to many project failures

The objective of the study is to highlight the importance of feasibility studies in the realisation of project objectives

The survey research method using questionnaires and hypothesis was adopted in eliciting data from the respondents for this study.

The major findings are:

Financial commitment to a project has something to do with the success or otherwise of the project.

Feasibility study do assist in determining the viability of a project feasibility study is an excellent told in achieving project objectives

A project will not achieve optimal financial success unless it is properly, efficiently and effectively planned and operated with respect to its technical, social, commercial and financial requirement.

In meeting the above requirement, it is expected of an entrepreneur to endavour to carryout a feasibility of any project to be embarked upon so as to determine its viability.

TABLE OF CONTENTS

Title page

Certification

Dedication

Acknowledgement

Abstract

Table of contents

CHAPTER ONE Introduction

1.1 Background to the study

1.2 Statement of problem

1.3 Objectives of the study

1.4 Formulation of Hypothesis

1.5 Significance of the study

1.6 Definition of terms

CHAPTER TWO Review of Related Literature

2.1 introduction and Definition

vii

Typical structure for a Feasibility study 14

Stages leading to the Development of Feasibility study 19

Factors to be considered when conducting a

feasibility study 22

Computer Feasibility Study 25

Feasibility study and prospects 28

The summary of the Review of the Related Literature 28

References

CHAPTER THREE Research Methodology

3.1 Introduction

3.2 Research Design

3.3 SourcesofData

3.4 The Population

3.5 Sample Size

3.6 Sampling plan

3.7 Instrument for Data collection

3.8 Tools for data Analysis

. . . Vll l

3.9 Scope of the study 38

CHAPTER FOUR Data presentation and Analysis 39

4.1 Introduction 39

4.2 An Empirical Analysis of four Selected Projects 52

CHAPTER FIVE Discussion of Results 74

CHAPTER SIX Summary of Major Findings, Conclusion & Recommendation

6.1 Summary of Major Findings 84

6.2 Conclusion 92

6.3 Recommendations 93

6.4 Area for Further Research 94

Bibliography 95

Appendix - Questionnaire 97

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY:

Many investors, especially in developing countries, embark on industrial

projects without necessary pre-investment studies to assess the viability of the

venture. Even where investment decisions were preceded by pre-investment

studles, the standard and depth of such studies are often adequate. As a result

of this deficiency, many industrial ventures had run into critical problems or

even folded up within a short spatx of time after the start - up of operation.

The first positive step in business planning is feasibility study. To minimise the

rate of industrial mortality, it is absolutely important for prospective investors

to seek the services of professionally qualified and experienced consultants to

carry out a feasibility study on the proposed project to determine if it is a

worthwhile venture. / i

Feasibility study has been variously defined by authors, analyst and

consultants. In a nutshell, however, a feasibility study is a scientific

investigation and analysis of a proposed project in order to determine its

economic desirability, or value, technical feasibility, organisation and

manpower requirement, financial logistics, commercial viability and

profitability. Thus, a feasibility report is a comprehensive business plan.

Feasibility reports are highly valued world wide. Apart from their common use

as business planning documents, these reports are put into various other related

uses. For instance, owing to a very high poverty level, most prospective

investors reply on feasibility reports as the basic document for finance

sourcing.

Infact, since the advent of the structural Adjustment Programme (SAP), a

number of Loan packages have been available to Nigeria Investors, especially i

in the area of Agriculture, ago allied, Industrial support services, mining and

manufacturing enterprises. These packages have come under various

programmes such as the small and Museum Enterprises Loan Scheme (SMES),

the National Economic Reconstruction Fund (NERF'UD) the National Risk

Fund (NRF) the National Directorate of Employment W E ) and Family

Economic Advancement Programme (FEAP), for which a total of N7.4 billion

has now been earmarked. All these programmes stimulate the demand for

feasibility studies.

For project execution, monitoring and supervision, feasibility reports constitute

authoritative refiee materials. In fact, a project is 'usually implemented in

accordance with the provisions of its feasibility reports. It therefore serve as a

guide for project monitors and supervisors.

In general terms, a feasibility study consist of research into the possibility of a

solution to a problem.

1.2 STATEMENT OF PROBLEM

Inspite of the unassailable and nature value of feasibility studies is to the

3

realization of project objectives following problem are identified as a set back:

Improper identification of a business opportunity or wrong

choice of project to be executed.

Timing of the proposed project. Some project are conceived at

a wrong time with improper feasibility study carried out based

on the project will not work.

Inflation is another problem of using feasibility study for project

realization.

The use of quack or dubious consultant for the preparation of

feasibility study can erase the importance of its use in the

realization of project objective.

(e) Political Interest supersede feasibility study in public sector.

1.3 THE OBJECTIVE OF THE STUDY

Thls study attempts to show the important of feasibility stuhes in the

realization of project objectives. At the end of thls study it will be established

that feasibility studies are not all plain sailing. The conclusion may be

4

reached that the proposed project would be uneconomic and not in the best

interest of the organisation.

The fact still remain that the amount spent on feasibility study is not wasted

whether the project is camied out or not. It will be established in thls project

that it pays not to carry out a project that will later be abandoned. The amount

to spend on such project will be more the amount paid for feasibility

studies.

1.4 FORMULATION OF HYPOTHESIS:

The following hypothesis can be formulated in relation to the topic under study:

1. Null Hypothesis m) There is no significant relationship between feasibility study and project failure or success. Alternate Hypothesis

(HI) there is significant relationship between feasibility study and

project failure or success.

2. Null Hypothesis @&,) Financial commitment to a project has nothing

to do with feasibility study.

Alternate Hypothesis (HI) Financial commitment to a project has

something to do with feasibrlity study.

3. Null Hypothesis &) there is no significant relationship between the

steps taken to achieve project objectives and feasibility study.

Alternate Hypothesis (HI) there is significant relationship between the

steps taken to achieve project objective and feasibility study.

1.5 THE SIGNIFICANCE OF THE STUDY:

Tlus study is carried out with the hope that the following parties will benefit

fiom it.

Government agencies will find this study useful as it shows the

extent to which feasibility study is useful before embarking on

any project.

Researcher will find the information in this study useful as

additional data for their research.

Student of management will benefit from this study. Reading it

will enable them to know the practical side of the topic.

6

4. Consultants can use the mformation in this study as additional

input to their consultant jobs.

5. Business men/Entrepreneur will benefit greatly from this study as it

serves as eye opener to other essential aspect of management tool.

6 . Investors can make use of this study as a guide to any investment, to

invest in any venture there is need for further plan. This can best be

found in the feasibility studies.

7. Financial Institutions who lend money for business venture will find the

information in this study useful. It will show the fact that not every

feasibility studies can be relied upon for giving loans

1.6 DEFINITION OF TERMS:

Importance: When we say something is important we mean it is of great

influence, something that need to be treated seriously and having a great effect.

Feasible: When somethmg can be done or can be managed and that is

convenient, is described as feasible. The noun form of this is feasibility.

Studv: This mean devotion of time and thought to getting knowledge of

7

something. It also mean close examination of a subject.

Realization: This is the act of converting (a hope, plan etc.) into a fact.

Project: A project can be defined as a scientifically evolved work plan devised

to achieve a specific objective within a specified period of time.

Obiective: Objective constitute the basic purpose of a firm. The aim, target or

pursuit of an organisation is its objective. Objective are the ENDS toward

which all activity is directed.

CHAPTER TWO

THE REVIEW OF THE RELATED LITERATURE

2.1 INTRODUCTION

There are many definitions of feasibility study from different Authors. The fact

is, the definitions are similar, but having subtle distinctions; John E. Walsn Jr.

gave many defhtions, five of them are that;

A feasibility is an inquiry which result in the determination of that

project which will give the maximum return on invested capital.

It is an inquiry which result in the determination from all available

possibilities of that project which is the most economical producer of

the chosen commodity.

A feasibility study examines the practicability or success of a business or

undertaking.

It is a document which clearly describes with a minimum of bias, the

project being studied in a logical and orderly fashion. 1

It is the projection of a series of balance sheet and income statement of a

tentative project.

9

Mr. Chidi Agubs, a management consultant based in Lagos in one of his

write up defines the term feasibility study as a scientific investigation and

analysis of a proposed project in order to determine its economic desirability or

value, technical feasibility, organisation and man power requirement financial

logistics, commercial viability and profitability.

E.U.L Imaga described feasibility study as the investigation to determine the

viability, desirability or practicability of an undertalung.

Steven Pauley wrote extensively on feasibility reports. Before he gave the

feasibility report structure, he described what it means by the word feasibility.

According to him change in industry is a sign of stability; firms must change in

order to remain competitive. Fierce competition with other h s demand that

companies constantly develop faster, more economical method of producing

their product. Because of the emphasis on innovation, change is not only a sign

of stability, it is the most stable thing in industry; if firms can be certain of

10

nothing else,. they know that tomorrow will bring change.

He want further to say that when one proposal is presented, the company must

decide whether to act upon it; if several are presented, the base one must be

selected. Separating the good ideas &om the bad, and the practical ones from

the spectacular requires extremely thorough investigation. The function of

judging proposed ideas and recommending whether they should be acted upon

belongs to feasibility reports. In industry "feasibility" implies more than

"possibility" a feasible idea must be supported by evidence that it will succeed.

A department which wants to make expensive changes must often demonstrate

the feasibility of its suggestions. For larger matters such as expansion,

development of a new product or purchase of new system, a team investigate

all aspects of the proposed change before making a recommendation.

Andrew Parkin described a feasibility as the activities in the first phase of a 1 i

new project after it has been initiated. The feasibility report is not only for a

yes or no decision. It is also to allow management an opportunity to

11

modifl specific weaknesses or to take advantage of strengths not previously

recognised to check out for side effects which only the management are in a

good position to predict and to weigh up their confidence in the feasibility

reports.

Linus Osuagwu, feasibility study in business management is a part of the

planning process. He defined it as an examination of all factors surrounding the

making, production, marketing, staffing and financial aspect of a business

venture. According to him, feasibility study do not only answer the questions

of whether the ideas for a new or expanded business operations are expedient.

The studies go further to identify those actions that if taken or followed, will

help assure success of new business venture or the continued success of the

existing business ventures.

If the idea for the new business venture is practicable, a good feasibility study

provides a blue print for planning. For non-practicable, business ventures, a

good feasibility study discourages the business venture. Feasibility go

further to indicate those factor that will create unusual high risks and probably

lead to business losses and failure.

Ralph Von Gersdorff in his article "The making of feasibility studies" describe

the need for feasibility study before start of project. According to him

feasibility studies are needed by firms and institution which ant to expand old

lines or start new production lines. Projects or the finding of suitable projects

may be suggested by individual (businessmen, bankers, officials, politicians,

engineers, scientist) or by institutions (firms, private, associations, development

banks, government, development boards, political parties international

institutions). Suggestions may be based on spontaneous discoveries of needs

or demand, or existing studies and development plans or simply on the desire

for economic growth. Proposals for simple projects may already be

accompanied by feasibility studies e.g profitability tests for expansion of an

enterprise, but mostly feasibility studies will be made before a project is /

\ proposed, elaborated, and started. They are examined not only by the firm or

institution concerned but also by engineering and management

13

consultants, banks, and government officials, if financing and licences have to

be applied for.

Gerald A. Silver on his own said "The systems department has developed a

sophisticated means of evaluating the practical aspect and details involved in

implementing a new or modified system. This analysis is called a feasibility

study". According to him it purpose is to gather analyse and document the data

needed to make an mformed, intelligent decision regarding a systems

practicality.

2.2 TYPICAL STRUCTURE FOR A FEASIBILITY STUDY;

According to John E. Walsh Jr., vital judgments are required in structuring a

feasibility study since each study is concerned with adifferent project usually

in a different city or section of a country.

He submitted that in practical terms, feasibility study have been structured to

include four major aspect: Economic, Techcal, Financial and Managerial.

14

Imaga described the structure as include market Technical, Financial, Social

profitability analysis.

Osuagwu on his own part gave eleven features of a business feasibility: They

The product or service

The market size of product or service.

The management team.

The production or operation process and plan

The marketing plant

Manpower requirement

Estimated capital expenditure

Estimated working capital

Cash budget

Projected Balance sheet

Profitability analysis and evaluation of the project.

The last point is described as the point of decision making on whether to

engage in the business or not. Certain guidelines that will help in taking a

decision are given as:

(a) Break-even analysis

(b) Determination of pay back period

(c) Determination of annual rate of return.

Steven Pauley on his own part gave three hypothetical situation to show the

structure of a feasibility study. They are:

A) Problem: a city needs additional airport facilities

Alternatives: (1) expand the present airport

(2) build a new airport at site A.

(3) build a new airport a site B.

Criteria: (1) cost

(2) capability:

a) Land and air space available

b) access to highways and commercial centres

c) ecological effect (air, water, noise pollution)

B) Problem: a firm needs a data-processing system

Alternatives: Various-sizes computer systems.

Criteria (1) cost

(a) Initial (b) Operating (c) Maintenance

(2) Capability

(a) to meet fh present requirement

(b) to meet requirement if firm expand

(C) Problem: The site for a branch plant must be selected.

Alternatives: Proposed sites in various region of the country.

Criteria: (1) Cost

(a) Construction (b) Transportation (c) Labour

(d) Taxes

(2) capability of local utilities.

He concluded by saying that good feasibility reports include all

17

pertinent criteria, but as the example suggest, the criteria can often be grouped

into the major categories of "cost" and capability. These criteria do not apply

to all feasibility problem but an effort should always be made to limit the

number of major criteria; doing so helps organize both the investigative and

writing aspect of a feasibility study.

Ralph Von Gersdorff described the structure of a feasibility study as check list

for the collection of data. He explained that feasibility studies should start with

a check list of data sought. This list can be broken down into six sections: (1)

Materials and supplies (2) Market factors (3) Economic and technical

factors (4) Personnel (5) Financial factors and (6) Social factors.

2.3 STAGES LEADING TO THE DEVELOPMENT OF A FEASIBILITY STUDY

Walsh Jr. described the stages and activities leading to the development of a

feasibility study as intuitive stage which aptly describes what take place in I /

arriving at an idea for a project.

Pre-feasibility study which is the process of gathering a reasonable percentage

of facts and opinion, weighmg them and taking into account unknown

information for the purpose of determining whether a tentative project is worth

pursuing more deeply:

The pre-feasibility study is likened to a "mini feasibility study" with the basic

purpose of quickly evaluating areas essential to the project decision. The basic

purpose of the preofeasibility study is to eliminate unnecessary time and

expenses.

Gerald A. Silver explained that implementing a new or modified system is done

in three phases. The first, called the Preliminary study in concerned with

determining whether or not the direct or indirect benefit gained fiom the new

system will be greater than the cost involved. If the answer is no, the feasibility

study ends there and the project is temporarily or permanently abandoned.

If the answer is yes, the analysis enter the phase the investigative study. There

the problem is carefully defined and all details in the solution are specified.

The last phase of the feasibility study according to him is the final report. It

fully documents the work done during the first two phase. All expected cost,

benefit and outcomes are shown. It tells how and hen the new system should

be implemented. After the completion of a pre-feasibility study, it is possible

the prospects will appear so outstanding and the risk so small that a feasibility

study is not required while situation like this are extremely rare they do occur

for example, when the invested capital is small and can be paid back in a short

time - say from six months to a year. It is also possible the prospects can be so

utterly dismal that the project is eliminated from further consideration, and this

kind of result is more typical than the first.

Without question, most project will require more detailed information and a

careful, systematic analysis, hence, after the completion of pre-feasibility study

a company would be ready to conduct a feasibility study, provided of course

the results obtained were inconclusive or positive.

Image described the various stages of a feasibility study as:

Identification Staae which involve the establishment of the objective to be

attained.

P P r of In this stage a decision should be made

of whether it is advisable to examine in detail the feasibility of a project.

Where there is a long list of project opportunities, and because a complete

study is time consuming and expensive, it may be desirable to perform a pre-

feasibility analysis in order to narrow down the possibilities.

Analysis Stage: The various alternatives in marketing technology and other

consideration must be studied at this stage. This will include, Market,

Technical, Financial and social feasibility analysis.

Subseauent Stape: Once the decision has been made that the project is

feasible, then the implementation stages are embarked upon.

2.4 FACTORS TO BE CONSIDERED WHEN CONDUCTING A FEASIBILITY STUDY

Another important area discussed in literature is the factors to be considered

when conducting a feasibility study.

John E. Walsh Jr. list five factors, they are:

(1) All feasibility studies must be based on practical grounds.

(2) They must be presented in a logical order.

(3) They should be written in a conversational manner.

(4) They should show how they are related.to broader planning.

( 5 ) All feasibility studies should consider all major alternatives.

Agubas in one of his write up put forward important factor. This is the

inclusion of professionals in the team that prepare a feasibility study.

According to him, owing to the inter-disciplinary requirement of feasibility

studies, the team should be made up of professional in relevant fields. As

recommended by the United Nations Industrial Development Organisation

(UNIDO) the team should comprise the following numbers: an Industrial

economist, market analyst, engineer or technologist in the appropriate industry, /

structural or civil engineer (if required) and an industrial i

management/accounting expert.

Ralph Von Gersdorff listed maintenance, Transportation and distribution

services as factors influencing feasibility. According to him, maintenance cost

are usually high in underdeveloped countries, owing to a lack of maintenance

enterprise, absence of training (and resulting damage of machines through

ignorance and neglect) and shortage of spare parts. Unduly high rates of

depletion and waste of scarce capital assets are the rule rather than the

exception.

Many projects can be carried out only if other facilities are available or are

provided at the same time. For instance, the establishment of an iron are mine

and or a steel industry is practicable only if there are adequate facilities to

transport the raw material and the finished products. Feasibility studies must

take into account not only the usual types of protection in force, such as

imposition of import duties or quotes for infant industries, but also limitation on

Distribution services are often inadequate in underdeveloped countries. Profit

are mostly made on exaggerated mark ups rather than on the expansion of

turnover. There are many monopoly or quasi-monopoly positions which could

be knocked out by efficient competition. Investigators should not only study

the existing services and their costs and prices but also consider the possibility

of establishing alternative services for a manufacturing project.

2.5 COMPUTER FEASIBILITY STUDY

Other area that need to be review in literature is the computer feasibility study.

This is a specific area of feasibility study.

D. Fiehd make a comprehensive survey of all the areas which should be

considered before decision whether an installation is likely to be worthwhile.

He was of the view that before electronic computer can be installed, very

careful and most detailed examination of existing procedures must be

undertaken.

In his opinion computer feasibility study start with prospective and approach.

By this he explained that it is of major important that the mind of the

investigators are in correct perspective for a larger scale examination of this

nature. They will have problem to face during the course of their studies.

Perhaps the most important is how to make the right approach to the

examination.

He broke down that is involve in computer feasibility study into: the

establishment of objectives, selecting the investigating team, deciding where to

start, preparation, the detail, individual functions and charting the details.

Andrew Parkin gave examples of feasibility report content as consist of the

following:

Term of Reference: As modified.

Justifications: Statement of system objectives and scope. (This should specify /

what messages will be supplied by the system, what processes will be

controlled, what decisions are to be supported, operational messages,

monitoring information and decision support infomation listed) Major

alternatives considered and preferred solution (assumptions and unknown

influencing choice should be emphasized).

Fit with long-and medium terms plans. Cost and benefit summary, project

target. Limitations of preferred solution. Other implication or side effects of

interest to management.

Present system: Summary of procedures, skdling, equipment. Outline design

of the imputs, outputs and business procedures. Data dictionary or summary of

the data base content, listing the entities and relationships and their attributes

which are to be recorded by the system. Control, integrity and security and

security features.

Conversion: Conversion requirement and conversion plan.

Future Plan: Overall project plan. Detailed plan for the analysis phase.

Recommendations for participation in the next phase.

26

Avvendices: References to document read or mentioned in report. Supporting

detail of present system, proposed system, conversion plans, volumes,

estimates costs, benefit, hardware, software, data transmission, terminal

network etc. being mainly copies of or extracts from the standard system

documentation files.

2.6 FEASIBILITY STUDY AND PROSPECTUS

John E. Walslh Jn. explained the relationship between feasibility study and

prospectus. He pointed out that unless a company has internal sources of

funds, it must borrow money to build a plant buy land, machine tools,

equipment, material and obtained technical assistance for long term capital

loans. All lending institutions such as the International Finance Corporation

(IFC), The Private Investment Corporation and Development Bank require the

borrower to submit a prospectus. The prospectus according to him is simply

feasibility study except it point of view has a built in biase - a biase favouring the borrower. The prospects should be a total and comprehensive and give due

recognition to every aspect of the company over the short and long run

27

that is relevant for the lending Institution to determine whether loan should be

granted.

2.7 THE SUMMARY OF THE REVIEW OF THE RELATED LITERATURE REVIEW

From the review of related literature, it was established that feasibility study is

the first step in business planning. In fact every forward loolung entrepreneurs

appreciate the importance of feasibility study as a guide to achieving project

objectives. So, we can summarise the definition simply as the process

designed to check the validity of the business opportunity decisions. The

literature review have shown that a feasibility report is a comprehensive

business plan. The study may be carried out by potential investor especially if

the business proposal is a simply one.

But the business trend today is rapidly changing. Investment in transportation,

manufacturing, agriculture, food processing, local and international trade,

telecommunications, etc. have witnessed an upsurge in the number of

commercial outfits such as assorted corporations, mergers, acquisitions and

conglomerates. Business is therefore becoming more complex.

The literature review enable us to know that feasibility studies dig into the past,

examine the present and project into the fbture, analjysing the trends including

the strengths, weaknesses, opportunities and threats in a particular industry or

proposal for instance, a feasibility report on newspaper publishmg must

examine the history of the newspaper industry, even if briefly; identifj. both

successed and failures in the business trends, as well as weakness, strength and

prospects.

The topic of this research is the importance of feasibility study to the

realization of project objective. After the feasibility study have been prepared,

it has to be analysed. Most business opportunity decisions do not survive the

feasibility analysis phase without being revised in a major way. Infact, a fairly

\

high percentage of business opportunity conclusion will be proven invalid

during this analysis, and dropped completely. It is a lot cheaper to find

29

out at this stage that a new business is not worth a company's investment than

to discover the bad news after major resources have been committed.

For a feasibility study to be useful for the realization of a project objective it

must pass through various analysis; these are market or Economic, Technical,

Financial, Social profitability feasibility analysis. The analysis should provide

enough information to co&ont the decision; "Is there a valid business

opportunity?"

REFERENCES

1. Batty J., Development in office management page 207 p 219.

2. John E. Walsh Jr. Preparing feasibility studies in Asia. Published by

Asian productivity organisation - Tokyo.

3. Imaga E.U.L, production and operations management with practical

feasibility studies. Pages 147 to 150.

4. Deverall C. S., A GEES study book:

Management Techniques in Administration and Finace, Aids to

Decision making pages 204 - 208. 5 . Unamka P.C. and Ewunun U. J.F; Business Administration (page 3)

6. Ralph Von Gersdorff; (1%5) Graw-Hill Mc series in International

Development. International Hand book of Management.

7. Andrew Parkin; systems Management. Published by Edward Arnold

(Publishers) Ltd.

8. Linus Osuagwu - Business Research Method Principles and Practice.

Published by Grey Resources Ltd, Iiorin.

9. Steven Pauley - Techn.mil Report writing today pages 192-224.

10. Horby: Oxford Advanced Learner Dictionary

1 1. Brockington R.B (1 987) Financial Management page 1 -3.

12. Gerald A. Silver, Introduction to system analysis pages 160-166.

13. Chen, Kung K. (1 98 1) Financial mgt vol. 10 No 1 198 1 pp5 1-60.

14. The Guardian, Tuesday 17, 1999, August 3 1 1999 and September 21,

1999 pages 45, 52 and 55 respectively.

15. Management in Nigeria SeptemberIOctober 1991 Edition Vol. 27 No

5, page 23.

16. Management in Nigeria August 1985 Vol. 2 1 No 8 pages 3 8-43.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This type of research make use of both secondary or historical and Primary

data. Secondary data refers to data collected and assembled for some project

other than this one. Examples or such data were extracted from Newspapers,

Libraries, Annual reports, Financial Statements of companies and various

feasibility studies and proposals.

From the secondary data the nature and purpose of feasibility studies was seen.

Those studies that were used to realise the objective of a project and those that

was not used because the project proved not to be viable as a result of the

feasibility study analysis carried out.

The Primary data are those gathered and assembled specifically for this project.

For the purpose of this, a research process was carried out which finally

produced a report.

3.2 RESEARCH DESIGN

For the purpose of carrying out this research, survey research method was

used. This require asking people who are called respondents for information,

using both verbal and written questioning. For this purpose, Questionnaires

and Interviews were utilized to collect the data necessary for this research.

Sample survey which shows the representative sample of the target population

was used in the course of carrying out this project.

3.3 SOURCES OF DATA

(a) Primary Sources: Data were collected fiom consultancy firms, Auditing

firms, manufacturing companies Oil Industries, Insurance Companies,

Financial houses, Private and Public sector in Lagos State. Feasibility

studies of five of these companies were collected for an empirical

analysis.

Many business men, Sole trader,chahan of business organisation,

Directors in both private and public sector were interviewed as to the -

role which feasibility studies played in the execution of projects in

34

their organisation. The result of all these were used as Primary data.

(b) Secondary Sources: My secondary source of data collection include

Newspapers, text books, journals and other publications. In the Agency

for International Development, Government of the USA publication, Q

checklist was presented to be used to appraise a feasibility study prior to the

actual launching of industrial venture (appendix 11). A conceptional

fimework for a feasibility study was also extracted fiom "preparing

feasibility study in Asia" (Appendix 111). From the Guardian Newspaper of

Tuesday August 17, and 3 1, 1999. Agubasi president of the National

Association ofIndustria1 Consultants (NAICON) wrote about the secret of

feasibility studies. This was used as secondary data.

3.4 THE POPULATHINi

The population for this study comprises firms, Executive and Directors in both

public service .and private sector, self employed Tradesmen, self-employed

professional, and Traders. The study make use of Lagos state as base. So,

35

all the above organisations are those based in Lagos state only.

Generally, fifty different organisation were used as the population for the

study.

3.5 SAMPLESIZE DETERMINATION:

For the purpose of this study, five different organisation were studies as

representative of all the Fifty organisation that make use of feasibility studies in

Lagos State. The result obtained showed what is obtained in other companies.

3.6 SAMPLING PLAN:

For this type of research, a systematic sampling method was used. This means

out of fifty different organisation that makes use of feasibility studies only five

different organisations were selected for study. By the systematic

sampling method adopted, our population was fifty organisations fkom

Lagos State. The sample size is five. With this plan, when a list of all the 50

organisation were supplied, we shall pick 10th name fiom the list, that is,

loth, 20th, 30th, 40th and 50th would be selected.

36

3.7 INSTRUMENT FOR DATA COLLECTION:

The instrument used for this research was questionnaire and standardized

interview. In order to make the results obtained valid and reliable, the scoring

were made to be accurate and systematic. The interview carried 60% while

questionnaire carried the rest.

3.8 TOOLS FOR DATA ANALYSIS:

The tool used involve calculation and interpreting descriptive statistics. By this

method, the frequency distribution of scores will be determined by the

presentation of data in percentages.

3.9 THE SCOPE OF THE STUDY:

The study covered the organisations in Lagos State only. Five different

organisation were selected for study.

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

This chapter deals with presentation, analysis and interpretation of data

collected through the questionnaire. The presentation was based on the

working hypothesis postulated for this survey. Through the questionnaires, the

respondents gave their opinions about the use of feasibility study to achieve

project objectives.

Out of 100 questionnaire distributed in a period of one week only 45 were

completed and returned. The low response can be attributed to the fact that

most of the executives don't count the questionnaire as important thereby

misplaced them. Some of the respondents travelled and many were unable to

get to me in time. Below are the findings fiom the questionnaire.

Table 1 The use of feasibility in carrying our project

0- Frequency % Frequency

a Yes 33 73%

b No 12 27%

From this presentation, it was discovered that many businessmen have used

feasibility study in one way or the other before. The 73% that chose "yes" for

answer were mostly in private sector. The 27% that took 'No' for answer were

mostly public sector and some Enterprenuer.

Table 2 Preparation of Feasibility study.

Options Frequency % Frequency

a Auditor 18 40

b Management Consultant 15 33

c The Promoters 5 11

d Investment department 7 16

Majority of the respondents make use of their Auditors for the preparation of \

the feasibility study. 40% of the respondent confirmed that Auditor prepare

feasibility for them. 35% make use of management consultant, 11% said the

promoters prepared the study for them and 16% said it was their analysis was

that majority of the respondent prepared the study for expansion purposes.

Most Government parastatals like Federal Auport Authority of Nigeria make

use of their investment department to prepare it.

Table 3:The main purpose of preparing feasibility study

Options Frequency

Processing application for Loans 15

For viability and feasibility of a project 9

Execution, monitoring and supervision of 4 project Business expansion 11

For prospective Investor 6

% Frequency

33

20

9

24

14

It was discovered fiom the above table that most people prepared feasibility

study purposely to obtain loan. This account for why 33% of the respondent

picked processing of application for loans. Next to this was the business

40

expansion. Most of the companies that prepared feasibility study for execution,

monitoring and supervision are construction and Engineering companies.

Table 4 Sources of fund used by business organisations.

Options Frequency O h Frequency

Loans fiom financial Institutions 13 29

Fund fiom selling of shares 11 24

Statutory allocation and Taxes 3 07

Subvention fiom Government 4 09

Donation, gift and fund fiom parent 5 11 companies Profit fiom business transaction 9 20

The above table shows ways of getting funds for business operation. Most

companies depend on loans fiom banks and other financial Institutions to

survive. 29% of the respondents agree that they use loans fiom financial

Institutions. Selling of share came next and carried 24% of the respondents. /

Most small scale business make use of the profit generates fiom business i

transaction to increase their fund. This account for 20%. Ministries and

41

extra-rninistries establishment depend on statutory allocation and taxes.

Tables 5:

Excellent

Good

Fair

Poor

Evaluation of the use of feasibility study in achieving

project objective

Options Frequency % Frequency

18 40

16 36

9 20

2 04

In evaluating the use of feasibility study, most people describe its use in their

business organisation as excellent. This account for 40% of the respondents.

Other people describe its use as good. This group account for 36%.

Table 6: Question as to whether the respondent know other company that

make use of feasibility study;

options

Yes

No

Frequency

32

13

% Frequency

71

29

From the response received on this question, majority Knew other company

that made use of feasibility study. 71% picked 'yes' for answer while 29%

have not known any other company that use feasibility study.

Respondents provided different answers to the purpose of preparing the

feasibility studies in other companies. Majority gave processing of application

for loans as the main reason. W e r said the purpose was to determine the

possibility of expanding business. Another reason gave by respondents was to

determine the viability and feasibility of a project.

Table 7 Question as to whether feasibility is important in the

achievement of project objectives.

Optiolrs Frequency % Frequency

Yes 31 69

No 14 31

He we saw that majority of people believed that feasibility is important in the

achievement of project objectives. 69% gave 'yes' as answer. Most of the

people that answered 'No' are from public sectors. Some of them don't even

know what feasibility is.

Points given by respondent that are very important in the achievement of

project objectives apart from feasibility study are:

1) Proper supervision of the project

2) Availability of experience and dedicated staff

3) Availability of adequate funds

4) When there is peace in the country

5) Stability of government

6) Acceptance of the project by the community.

Table 8 Question as to whether an organisation have ever embark

on project that was abandoned or rejected.

Options Frequency % Frequency

a Yes 21 47

b No 24 53

It was discovered fiom this analysis that most organisations had in the time past

abandon some projects. 47% of the respondents agreed to the fact that there

had been abandon projects.

Notes on what led to tbe ~roiect ahdoament

The following are the reasons the respondents gave for the abandonment of

project:

1) Inadequate funds

2) Improper planning

3) Rejection of the feasibility evaluation

4) Lack of peace - communal rivalry and disturbances

5) Instability of government

6) The use of incompetent hands

The above points still explains the importance of feasibility in achieving project

objectives. Before a project is embark upon, there has to be proper planning.

With the preparation of feasibility study, all the points raised by the respondent

would have been addressed.

Table 9: Question as to whether lack of feasibility study can lead

to project failure.

Options Frequency % Frequency

a Yes 27 60%

b No 18 40%

This table shows that most people believe that lack of preparation of feasibility

can lead to project failure 60% of the respondent agreed to thls fact. Most of

the 40% who answered 'No' are executive from public sectors and some non-

profit making organisation.

Table 10 How organisations handle technical aspect of business.

Options Frequency %Frequency

a The use of Technical partners 11 24

b Sub-contract to professionals 14 31

c Our staff are technically capable 10 22

d Employment of contract staff 7 16

e Others 3 7

From the above table, majority of the respondent sub-contract techcal aspect

of their business to other professionals. This carries 31% of the whole

respondents next to his is the use of Technical partners which 24% chosed.

The three people who picked "others" did not know the meaning of technical

aspects of their business.

Table 11 Areas of feasibility study that is most important to the

achievement of project objectives.

Options Frequency % Frequency

a Techcal Aspect 8 18

b Economic or Market 12 27

c Financial Aspect 14 31

d Managerial Aspect 11 24

It was discovered that 14 out of the 45 respondent which represent 3 1% of the

respondent picked Financial aspect as the most important aspect in the

achievement of project objectives. This account for the reason why most

businessmen prepare feasibility study purposely to get loan fiom financial

institutions.

Table 12: Ranlung of factor h t i n g the use of feasibility study.

Options .

(a) Wrong choice of project to be executed

48

(b) Timing of the proposed project

(c) The use of incompetent and dubious consultant

(d) Political, ethnic and religious factors

(e) The use of outdated feasibility study.

Rank 1 Freauencv %Freauencv

(a) The use of incompetent and dubious consultant)

(b) Political, ethnic and religious factor 1 15 33

(c) Timing of the proposed project 1

Rank 2

(a) Wrong choice of project to be executed

(b) The use of incompetent and dubious consultants 17 38

(c) Political, ethnic and religious factor

Rank 3

(a) The use of outdated feasibility study (b) Political, ethnic and religious factors

(c) Wrong choice of project to be executed

Rank 4

(a) Timing of the proposed project

(b) Political, ethnic and religious factors

(c) Wrong choice of project to be executed

Respondents ranked these factors based on individuals experience. What

actually limit the use of feasibility study depend on the prevailing situation in

the country or the environment in focus.

Table 13: Reasons why business men in developing countries fail to

make use of feasibility studies.

Options Frequency % Frequency

a Lack of awareness 12 27

b Cost of the study 15 33

c Illiteracy 10 22

d Presence of small scale business 8 18

The main reason why most business man in developing countries fail to use

feasibility study is the cost of preparing the study. This account for 33% of the

respondents. Next to this is the lack of awareness which took 27%. Illiteracy

and presence of small scale business account for 22% and 18% respectively.

4.2 AN EMPIRICAL ANALYSS OF FOUR SELECTED PROJECTS

1) Establishment Of Aero Mcrebat Bank Limited

International Auports Consultants Limited is a subsidiary of the Federal

Purports Authority of Nigeria. It was incorporated in 1986 as w o r t s

Consultant.

In 199 1 it conducted a feasibility for the establishment of Aero Merchant

Bank. The company and some other professionals combined to promote

the bank and sell the idea to Federal Auports Authority of Nigeria

(NAA) The major objective of this bank was to address the financial

problem inherent in the investments and financing of transport/ aviation

projects.

In the opinion of the promoter of this bank, the existing commercial and

merchant banks have over the years tried to finance project in aviation

sectors, but .they have not been specilised enough to adequately help the

sector to get off' the ground. They also observed that because

52

most projects in the transport and aviation sectors require huge capital

outlay, individuals and corporate bodies have not been able to source

finance through the existing bank for their investment projects.

The feasibility study was prepared based on the standard required by the

central bank of Nigeria. The study was divided six chapters a and a

conclusion chapter. There were seventy five pages in all.

Chapter two gave the Nigeria Economic profile. This chapter was

divided into seven sub-headings namely, Background, population,

Agriculture, Petroleum, manufacturing, Impact of "SAP" on the

Economy and the assessment of performance under SAP. Each of these

sub-headings were discussed at length.

Chapter three discussed the Nigeria financial system. This chapter

described the nature of the Nigeria financial system under five sub-

headings. The introduction which discussed the peculiar Nigeria

circumstances. The circumstances which characterise the situation of

underdevelopment. Other subheading include Historical background,

Banking Legislations, Development roles of Banks in Nigeria and the

need for Banking services in Nigeria.

The name, Aero Merchant Bank Limited was described in chapter four

under six sub-headings. The Background showed why the bank was

conceived. The promoter explained that the bank will take initiative of

mobilizing resources and d o t the sponsorship of heavy investment in

key sectors of the economy, especially the transport and Aviation

sectors.

Objectives of the bank which were said to be contained in its memorandum and

Articles of Association make the second sub-heading. The third sub- heading

was the organisation structure. The proposed bank was designed to adopt a

corporate structure that was consistent with and necessary to achieve its goals

and objectives. The structure was designed to consist of three main

departments, namely;

(a) Corporate Banking

(b) Corporate Finance and

(c) Corporate services

Under this sub-heading, Board of Directors, Managing Director,

Assistant General Manager, company SecretaryLegal Adviser, other

management staff were discussed and their schedule of works were

analysed. (See next page for proposed organisation structure)

The forth sub-headmg was on departments into which the bank was

expected to be divided. The fifth sub-heading explained in details the

proposed career development and training while the sixth sub-headings

dealt with capital structure and funding. The extract fiom the main study

that shows the funding structure is presented below:

"The fully paid-up share capital of N4O million will be used in

fundmg the project as follows;

TABLE 4 PROPOSED ORGANISATIONAL STRUCTURE

BOARD OF DIRECTORS

MANAGING DIRECTOR 0 COMP, SECRETARYJLEGAL ADVISER

MANAGER - INTERNAL AUDIT & CONTROL

MANAGER - ADMINISTRATION

MANAGER - ACCOUNTSJFINANCE

CORPORATE FINANCE

LOAN SYNDICTATIONS PROJECT FINANCE

CORPORATE CORPORATE

RADE FINANCE ORRESPONDENT

BANKING F PORTFOLIO MANAGEMENT DISCOUNTABLE INVESTMENTS , MANAGEMENT SERVICES MEGER & ACOS INVESTMENT BANKING DOMESTIC & INTERNATIONAL REASURY FX PROCESSING

SPECIALISED LIVERAGED . FUNDING

CREDIT POLICY & LOAN REVIEW

MARKETING

Capital Expenditure

Pre-operational Expenses

Fund available for working capital

Total

Chapter five narrated the financial estimates. It consist of two sub-headings

only. They are (1) Bases and Assumptions underlying the financial (2)

Accounting policies.

The last chapter of this feasibility study is chapter six which showed the

financial projections of the project and conclusion. The whole chapter was

divided into fourteen sub-headings, namely;

(1) Loans and Advances (2) Loan policy (3) Deposit Generation

(4) Foreign Exchange Transactions (5) Equipment on lease

(6) Letter of credit, International collections and Transfers

(7) Interest Ratepolicy (8) Investments (9) Gross Earnings

(1 0) Interest Expenses (1 1) Balance sheet projection

(12) Profit and loss projection (13) Cash flow projection and

(1 4) Conclusion.

In the concluding part of the study it was clearly emphasized that the main aim

of Aero Merchant Bank was to introduced innovation in Merchant Banlung in

Nigeria by specializing in the provision of banking services to the transport and

aviation industries.

The central Bank of Nigeria accepted this feasibility study. A letter was issued

to the promoter of the bank to subrmt documents for the insurance of licence to

operate (see appendix 11) for the copy of the letter. In the letter, 120 copies of

the feasibility study were required to be submitted. This shows the important

of feasibility to the existence of a bank.

Inspite of the lot of money spent on this study, it was found not to be feasibility I at that time. l'he project was confirmed that N80,000.00 was spent on the

preparation of the study.

4.2.2 THE ESTABLISHMENT OF TRANS WEST AFRICAN AIRLINES (TWAAL)

The establishment of Trans West Afiican Airline was conceptualized by some

professional fi-iends in the viability or otherwise of the object was embark upon

for presentation to interested shareholders.

The feasibility study was divided into five chapters. Executive summary was

placed in the whole of chapter one. The executive summary summarised the

detailed study in few words. It explained the need for an airline that afford

businessmen to have their luggage checked in as baggage rather than cargo.

The promoters decided to use B707 combined and they proposing to make use

of routes mostly patronised by businessmen.

The Executive summary also gave brief explanation of the Technical and /

Management consideration. A total of 51 qualified staff were proposed for i employment. The board would be responsible for formulating policy for the

airline, Financial and viability analysis was presented in the executive summary

chapter as well. The total captalisation for the project was estimated at

N122,000,000 The equity contribution would be N30,000,000. While total

loadoverdraft would amount to N92,000,000. A profit before tax figure of

N28,729,760, N42,050, 400, N53,957,070, N67,090,080 and N81,582,230

was expected for the first 5 years of operation.

The viability analysis of the project revealed a pay back period of five(5) years

and an internal rate of return of 26%.

In the concluding part of the Executive summary, it was stated that the study

had given consideration to the market, management, technical and financial

aspects of the proposed airline project.

Chapter 2 discussed the Economic and Historical background. The chapter

was divided into 4 sub-headings, namely, Nigerian's socio economic

background, pioject concept stated that the airline was to provide both

passenger and cargo transportation services wihn the ECOWAS countries out

the initial stage and will complement the service of existing airlines on the

routine.

Market study was placed in chapter 3. This chapter concerned itself with the

demand, supply and competition in the aviation industry and the implication of

establishing an airline that proposed to operate both cargo and passenger

services using B707 combi aircraft. The promoter made use of the inability of

the Nigeria Airways to embark on cargo operation on the West Coast route.

Statistics on cargo freight and cargo move were presented in the study. Both

revenue fi-om cargo and passenger showed that there was prospect in the

proposed airline. From cargo alone, a conservative estimate of N62,400,000

was expected to be realised every year.

From the configuration of combi B707 aircraft, a total number of 80 passengers

could be airlifted. Using a load factor of 50% and an average tariff of N3,SOO

per sector, and considering 5 flights a week, a revenue estimate of N700,OOO is

expected per week and N36,4000,000 per year respectively (40 x 5 x

61

N3500 x 52).

In chapter 4 we have techcal and management considerations. It was

explained that the airline business usually succeeds, when there is a high

technical competence, back up by good technical and consultancy services with

regards to aircraft brokerage. The need for an overseas technical partner was

taken very seriously in the study.

The management of the airline was discussed and analysed. The Board of

Directors was expected to formulate and evolve policies and guidelines

including stating clearly the objectives of the airline. The General Manager and

his management team would be responsible for the implementation of policies

to achieve the goals and objectives of the organisation. The Board of

Directors was expected to comprise seven (7) members, as outlined below;

Project promoters 3

Technical partners

Major shareholders

The organigram proposed for the airline has three (3) major divisions:

(a) Finance/Administration

(b) SaledMarketing

(c) Operations

The study recommended three(3) Managers for the take off of the venture.

These are operations FinancidAdministration and saleslmarketing. (see next

page for the organigram)

Chapter 5 focused on the financial sb-ucture and project capitalisation for the

proposed airline. The project was proposed to have an initial capital outlay of

N122 million as indicated in the Financial consideration and viability analysis

in the next page. Other financial consideration include capital structure,

Estimate of working capital, office furniture and Equipment, loan and interest

payment schedule, projected capital allowance, projected Income statement,

cash flow statement, profit and viability analysis.

The profit and viability of the project showed that payback period for the

project is less than 5 years. The return of Investment (ROI) was calculated to

be 39.34% Internal Rate of return was 26.8% the Internal rate of return for the

project was 26.8% and this was higher than the expected cost of capital at that

time whch was 21%. In the final analysis the project was considered to be

viable moreso when the discounting factor of 21% (Interest rate) gives a

positive net present value for net cash inflow.

BOA= OF DIRECTORS

CHIEF PILOT

PILOTS

GEENUAL MANAGER

ACCOUNTANT CONFIDENTIAL SEC

OPERATIONS MANAGER

CO-PILOTS ACCOUNTS CLERKS TYPISTS MARKETING/SALES OFFICER

FLIGHT ENGINEERS MESSENGERS

MAINTENANCE ENGINEERS DRIVER

FINANCE a ADMIN, MANAGER

STATION OFFICER CLEAENRS

'MARKETINGISALES MANAGER

FUGHT STEWARDS

LOAD MASTERS

Based on this feasibility study, individual and financial institution provided

funds for the project. Aircraft were leased to the promoter and the flight

operation began in 1992 with operational license obtained in

65

Gambia (see appendix 111) This shows the importance of feasibility study in the

realization of project objectives.

4.2.3 EFUNPO PHARNA S m S LIMITED

Feasibilitv Sfudv For E m Purpose

Kunle Ladejobi and company a firm of Chartered Account had been the

Auditor of this company since incorporation. The company was incorporated

as a Limited Liability Company on 26th January, 1983 vide incorporation

certificate No RclOlO87.

The company since inception had been operating as a pharmaceutical company,

that is, buying and selling of drugs, both on wholesales and retail basis. Before

1989, the company had two main stores within Lagos metropolis and they are

duly registered with the pharmacist Board of Nigeria. The company later

ventured into a small scale production and packaging of proprietary drugs

under the trade name of HALLE - HEALTH, BOL - GENERICS.

Gambia (see appendlx 111) This shows the importance of feasibility study in the

realization of project objectives.

4.2.3 EFUNPO PHARMA STORES LIMITED

Feasibili S

Kunle Ladejobi and company a firm of Chartered Account had been the

Auditor of this company since incorporation. The company was incorporated

as a Limited Liability Company on 26th January, 1983 vide incorporation

certificate No RclOlO87.

The company since inception had been operating as a pharmaceutical company,

that is, buying and selling of drugs, both on wholesales and retail basis. Before

1989, the company had two main stores within Lagos metropolis and they are

duly registered with the pharmacist Board of Nigeria. The company later

ventured into a small scale production and packaging of proprietary drugs

under the trade name of HALLE - HEALTH, BOL - GENERICS.

The company's Directors decided to change the name of the company from

Efunpo Pharma Store Limited to Efunpo PHARMA LIMITED after a board

was passed in 1989. This explained why the company needs additional funds

for the business. Kunle Ladejobi and Co., was mandated to prepare a

feasibility study to get h d s for the expansion.

The feasibility study was prepared with eight (8) chapters, this include, brief on

the company, brief on the directors, brief on the pharmaceutical manufacturing

plant, organisation chart, brief on various drug to be manufactured market

consideration, financial evaluation and man-power requirement. The appences

included at the end of the study include;

- Schedule of Equipment and cost

- schedule of disbursement

- Project balance sheet (5years) - Projected Profit and Loss account(5years)

- manpower requirement and cost - schedule of loan repayment and interest

- projected five years annual sales

This study was presented to the United Bank for Afiica to find the project.

Based on this study, UBA gave lcun to the company. The proposed

expansion has now become a reality. The pharmaceutical plant comprise

two basic production lines

(1) Tabulating lines

(2) Liquid lines.

4.2.4 A FEASIBILITY STUDY ON THE MODERNISATION AND EXPANSION OF BUT DENTAL POWER PROJECT.

Dannac Investment company Nigeria Limited Commissioned Ibegbu Osadebe,

a consultant in 1992 to conduct a feasibility study to determine the desirability

of widering and upgrading its existing productive facilities towards meeting the

demand of its enlarged local market.

The study was divided into seven (7) chapters and the opening page was taken

to be the executive summary of findings. The study covered a lot of topics;

wluch include objectives of the study, Investment environment, market

consideration, Technical consideration, Financial consideration, Profitability

analysis and socio-Economic Analysis. The study also include appendices

wluch shows the profonna Income statement, casMow projections and

profonna balance sheet.

The project was conceived and established in 1989 as a down steam project for

the production of dental powder of high quality with over 60% local content.

Ever since its coming on steam the project has witnessed years of successful

and prosperous operations, establishing a large clienteles all over Lagos State

through its high class quality products and efficient customer service.

The company is now desirous of widening and up-grading its operation through

a planned programme of modemisation and expansion on its existing

productive facilities towards meeting the demands of its enlarge local market.

To enable it achieve this objective, the company is seeking to avail itself of the

opportunity presented through the National Economic Recovery Fund

(NERFUND) to secure funding assistance from institutional investors.

It is pertinent to note that the data used throughout this study comprised actual

operation parameters sieved out &om the company's books and extrapolated,

where need be, as well as data derived from verified information and authentic

publication.

In analysing the investment environment, the consultant wrote extensively on

Nigeria resources, population and labour force, Agricultural resources, mineral

resources, Industrial Wastructure, Transport facilities, communication

facilities, power supply, fuel, water financial Institutions, Technological

factors, political environment and Industrial incentives. Having analysed all

these situations, it was concluded that favourable Investment climate exists in

the country.

/

The financial consideration covered the project cost financial plan and the

analysis of ope;ating costs. The details of the estimated for the total investment

requirement for the implementation of the project were provided. What

attracted attention was the comparison of the existing assets with the assets to

be required. In summary, the total project cost was presented as follow;

Item Descriphn Existing as To be Total at 3014192 required

N N N

01 -06 Total Fixed Investment cost 60,000 2,873,000 2,933,000

07 preliminarylpre-operative 70,500 8 1,000 151,500 expenses

130,500 2,954,000 3,084,500

08 Working capital Provision 90,000 253,203 343,203

Total 220,500 3,207,203 3,427,703

Chapter 6 of this study dealt with profitability Analysis. Cash flow analysis,

pay back period, projected Debt service, Net present value and profitability

Index were clearly shown.

The payback period of the project was one year six months employing that the

initial investment outlay on this project could be recouped in less than 2 years

of operation, hence ensuring fast rate of capital recovery and enhanced

liquidity. The annual ability to service debt ratio was calculated thus; Year 1

1.58; Year 2 4.81; year 3 7.66; year4 8.79 year 5 10.08. Therefore, debt

service coverage ratio @.S.C.R) average = 6.58. This with an impressive debt

service ratio, rising even from first year, the project was capable of liquidating

the debt obligation far in advance of contractual maturities.

Net present value was calculated to be positive at 21% discount rate. This

indicates that the project had the potential for making positive contribution to

the overall wealth of its . shareholders. By and large, it had been aptly

demonstrated fro the foregoing analysis that the project satis@ all criteria for

technical and economic feasibility as well as commercial viability and

profitability. Based on this study, the company was able to get loan for its

expansion programme.

CHAPTER FIVE

DISCUgSiON OF RESULTS

The topic under discussion is ''the importance of feasibility study in the

realisation of project objectives; an empirical analysis of some selected

projects. In discussing the topic, data were presented and analysed. The result

obtained shows various areas to which feasibility study can be used to achieve

the project objectives.

In chapter one of this paper, a project was defined as a scientifically evolved

work plan devised to achieve a specific objective within a specified period of

time. Most organisations visited for the purpose of this research work believed

that facility study played an important role in the achevement of project

objectives.

The analysis of four selected projects explained in practical terms, the use of

feasibility study. The first one was that of the establishment of Aero Merchant

Bank Ltd., The promoter prepared a good feasibility study which was

presented to and accepted by the Central Bank of Nigeria. When the feasibility

study was analysed by the parent company, it was rejected on the basis that the

project was not viable.

We learn from this analysis that not all feasibility studies can be relied upon for

the execution of a project. It has to be subjected to serious evaluation of a

project. It has to be subjected to serious evaluation. If the bank was

established then, is likely it wouM have been one of the distressed ones by

now. For this reason the cost of the feasibility study for this project was not a

waste if compared to what would have been wasted if the bank was distressed.

In the case of feasibility report on the establishment of Trans West Mean

Airline, the feasibility was used to raise funds. Subsciber found the project to

be viable in all aspects. Aircraft were leased and the flight began. This was a /

case where feasibility study was used to achieve the project objectives.

Other business organisation selected for analysis was Efmpo Pharma Stores

Ltd. This shows a situation where feasibility study was prepared for business

expansion. The firm of chartered Accountant prepared the study to obtain loan

for the manufacture of pharmaceutical products. This project became a reality

when United Bank of M c a (UBA) accepted the feasibility study and gave

loan for the execution of the project. What made this project possible was the

feasibility study prepared for the loan.

The fourth project analysed was the modernisation and expansion of Best

Dental Powder Project. A consultant was commissioned to conduct a study to

determine the desirability of widening and un-grading its existing productive

facilities towards meeting the demand of it enlarged local market. Based on

the feasibility study, the company was able to obtain loan to enlarge its

productive facilities.

From these four project we can see the role played by feasibility study whether

a new project is being conceived or an existing project want to expand. It

shows the direction to follow, it gives the potential investors the confident to

invest in the project, it is also a planning tool for the executives.

From the questionnaires administered and the Interview conducted, we are able

to bring out more fact about the use of feasibility study. Different question ere

asked and the answers given by respondent enable us to know how important

feasibility study is to the achtevement of project objectives.

73% of the respondent agreed that they have used feasibility study in carrying

out a project before. My research shows that those who had not been using the

study are mostly found in the public sector. In this kind of environment,

political interest takes place of feasibility study. Proper planning is not

necessary before embarking on project in most of the public sector. This

account for why most project were abandon before completion.

It was discovered that the main purpose of preparing feasibility study is for the

processing of application for loans. This account for 33% of the respondents.

Next to this is for expansion purposes which took 24%. Other reasons include

for viability and feasibility of the project for execution, monitoring and

supervision of project and prospective investors.

In practical term we can see that the main reason why business men prepare

feasibility study is to get loans fiom financial Institution or to expand their

business. Thls can be seen in the four project analysed in chapter 4.

The question as to who prepared the feasibility study was answered based on

the options given. In the four o@ons given 40% picked Auditors as the person

who prepared feasibility study while 33% accepted that management consultant

prepared it. This proved a point that it was professionals that can prepare an

acceptable respect to who prepared feasibility study are use of investment

department 16% and the promoters 1 1 %. The summary of this that most

companies prepare feasibility on the advice of their Auditors and consultants.

When asked about the main purpose of preparing feasibility study, five options

were given. 33% of the respondent picking processing application for loans

and next to this was for the business expansion which 24% of the respondent

picked. What I observed f i m all these was that feasibility study can be

prepared before the beginning of a project or when the project was going on.

From the responses received fiom business executives about the source of fund

by business organisations, it was discovered that loans from financial

institutions carried the highest percentage of 29% of the six options given. The

next one was fund from selling of shares which carried 24Y0 and profit from

business transaction took 20%. Donation, gift and funds from parent

companies carried 11%; while subvention fiom government took 9% and

statutory allocation and taxes carried the least percentage of 7% of the

respondents. Based on this result, we can see the reason why majority use

feasibility studies only for processing of application for loans.

It was also established in this study that the use feasibility study was an

excellent tool in achieving project objectives. 40% of the respondent ranked it

as excellent while 36% ranked it as been good 20% ranked it as fair and 4%

ranked it poor.

To be sure of how important is the use of feasibility respondents were asked if

they know other company that made use of feasibility study apart from their

own. 71% of the respondents picked "yes" for an answer while the rest 29%

picked "No". This gave us the assurance that many companies made use of

feasibility study. When asked further the purpose preparing the study, the

reason given were the same as was given earlier. That is, to process

application for loan, for expansion of business and to determine the viability

and feasibility of a project.

Respondents gave their support for the use of feasibility in the achevement of

project objectives, a question was asked whether the study is important. 69%

of the respondents choose "Yes" for an answer. The rest 31% disagreed.

They argued that other points like proper supervision of a project, availability

of experience and dedicated staff, availability of adequate funds, peaceful

atmosphere stability of government and the acceptance of the project by the

community concern, are also important in the achievement of project

objectives. It is pertinent to note that that feasibility study still plays an

important role, which others follow. It is the foundation upon which a business

rest.

Questions as to project abandonment were asked. 47% accepted that they had

embarked on project that was abandoned or rejected before. The reasons for

the abandonment as given by the respondent are inadequate funds, Improper

Planning, rejection of the feasibility study evaluation, lack of peace, instability

of government and the use of incompetent hands. The fact still remains. If

proper study was carried out it would have solved most of the problem listed as

reasons for the project abandonment.

Can lack of feasibility lead to a project failure? This was a question which

respondents answered. 60% of the respondents answered "Yes" while the rest

40% said "No" The fact is, business that doesn't prepare feasibility study

before the beginning of the business may not be standing on a solid foundation.

It may need the study as the business proceeds in order raise more funds to

expand the business. As the business proceeds, the need for expansion and

need for more h d s will arise which will call for feasibility study.

Talking about the area of feasibility study that is most important in the

achievement of project objectives, four options were given. 31% of the

respondent picked financial aspect, 27% picked Economic or marketing aspect,

24% picked Managerial aspect and 18% picked Technical aspect. From the

above result, the financial aspect took the highest percentage. This proved the

fact that majority of the business in Nigeria need more fund to survive.

The last aspect of the research question which is relevant to this discussion is a

question why many business men in developing countries failed to make

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use of feasibility study inspite of the benefit derive from it . Four option were

provided, 33% picked the cost of the study, 27% picked lack of awareness,

22% picked illiteracy and 18% picked presence of small scale business. The

fact here is, those who know the important of feasibility study are running away

from the cost. That was why m y project were not completed or rejected

alone the way.

CHA?TER SIX

SUMMARY OF MA- FIIWINGS CONCLUSION AND RECOMMENDATIONS

6.1 SUMMARY OF MAJOI FINDINGS

This chapter deals with the summary of all the previous chapters in thls write-

up. Its aim is to give a compacted view of the whole project in its most brief

manner.

It is an evaluative study of the use of feasibility study in achieving project

objectives. In achieving the objective of this project, the writer employed

many methods, Interview were conducted, Questionnaire were administered,

Feasibility studies of four companies were analysed, many related books and

journals were consulted. The summary of findmgs are now presented as follow;

The first chapter introduced the study. This chapter gave the /

background to the study, problem statement objective of the study, \

formulation of Hypothesis and the significance of the study. The

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first positive step in business is feasibility study. This was explained in

the background to the study. Nearly all business project decision entail

choosing among alternatives or options; including the decision to do

nothing or maintain the stahquo. The alternative business option chosen

should be a matter of guess work, hunch or intuitor. Feasibility studies

help in taking a decision on whether to accept, modifjr or reject a

business project based on the analysis of the project's merit and demerit.

The problem that can limit the use of the feasibility study were identified as

(i) Improper identification of a business opportunity

(ii) Timing of the proposed project (iii) Inflation and

(iv) The use of quack or dubious consultant for the study was stated as

feasibility study. The main objective of the study was stated as been the

examination of all factors surrounding the making, production, marketing

staffing and financial aspect of a business venture. It was established

that if the idea for the new business venture is practicable, a good

feasibility study provide a blue print for planning. For non-

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practicable business venture, a good feasibility study discourages the

business venture.

Three hypothesis on which the whole feasibility study was based were stated

as;

There is a significant relationship between feasibility study and

project failure or success.

Financial commitment to a project has something to do with

feasibility study.

There is a significant relationship between the steps taken to

achieve project objectives and feasibility study.

The introduction chapter also shows the partial that will benefit from the

project as government agencies, researchers, student of management,

consultants, Business men~Entrepreneur, Investors and Financial Institutions.

The focus of the introduction chapter is to show the reader what the whole

project is all about.

The second chapter is the review of related literature. Many books, journals

and other research work were contacted for review. The review was conducted

under seven heading. Many definitions of feasibility study were given by

different Authors. What is important to note is that feasibility study is an

inquiry, it is an investigation, it is a projection and it is a document.