Feasibility Analysis

Mohammad Shafiur Rahman Chowdhury

Assistant Professor
Department of Accounting
University of Chittagong
 Chapter Objectives
1. Explain what a feasibility analysis is and why it’s important.
2. Discuss the proper time to complete a feasibility analysis
when developing an entrepreneurial venture.
3. Describe the purpose of a product/service feasibility
analysis and the two primary issues that a proposed
business should consider in this area.
4. Explain a concept statement and its components.
5. Describe the purpose of a buying intentions survey and how
it’s administered.
6. Explain the importance of library, Internet, and gumshoe
research.
 Chapter Objectives
7. Describe the purpose of industry/market feasibility analysis
and the two primary issues to consider in this area.
8. Discuss the characteristics of an attractive industry.
9. Describe the purpose of organizational feasibility analysis
and list the two primary issues to consider in this area.
10. Explain the importance of financial feasibility analysis and
list the most critical issues to consider in this area.
 What Is Feasibility Analysis?
• Feasibility Analysis
– Feasibility analysis is the process of determining whether a
business idea is viable.
– It is the preliminary evaluation of a business idea, conducted
for the purpose of determining whether the idea is worth
pursuing.
 When To Conduct a Feasibility Analysis

• Timing of Feasibility Analysis

– The proper time to conduct a feasibility analysis is early in
thinking through the prospects for a new business.
– The thought is to screen ideas before a lot of resources are
spent on them
• Components of a Properly Conducted Feasibility
Analysis
– A properly conducted feasibility analysis includes four
separate components, as discussed in the following slides.
 Feasibility Analysis

Role of feasibility analysis in developing business ideas.

Outline for a Comprehensive Feasibility
Analysis
 Product/Service Feasibility Analysis

• Product/Service Feasibility Analysis

– Is an assessment of the overall appeal of the product or service
being proposed.
– The idea is that before a prospective firm rushes a product or
service into development, it should be confident that the
product or service is what its prospective customers want.
Product/Service Feasibility Analysis
 Product/Service Desirability
First, ask the following questions to determine the
basic appeal of the product or service.
 Product/Service Desirability
• Second, Administer a Concept Test
– A concept statement should be developed.
– A concept statement is a one page description of a
business, that is distributed to people who are asked to
provide feedback on the potential of the business idea.
– The feedback will hopefully provide the entrepreneur
• A sense of the viability or the product or service idea.
• Suggestions for how the idea can be strengthened or
“tweaked” before proceeding further.
 Product/Service Desirability

New
Venture
Fitness
Drink’s
Concept
Statement
 Product/Service Demand
• Product/Service Demand
– Their are two steps to assessing product/service demand.
– Step 1: Administer a Buying Intentions Survey
– Step 2: Conduct library, Internet, and Gumshoe research
 Product/Service Demand
• Buying Intentions Survey
– Is an instrument that is used to gauge customer interest in
a product or service.
– It consists of a concept statement or a similar description
of a product or survey with a short survey attached to
gauge customer interest.
– Internet sites like Survey Monkey make administering a
buying intentions survey easy and affordable.
Product/Service Demand
 Product/Service Demand
• Library, Internet, and Gumshoe Research
– The second way to assess the demand for a product or
service is by conducting library, Internet, and gumshoe
research.
– Reference librarians can often point you towards resources
to help you investigate a business idea, such as industry-
specific trade journal and industry reports.
– Internet searches can often yield important information
about the potentially viability of a product or service idea.
 Product/Service Demand
• Gumshoe Research
– A gumshoe is a detective or an investigator that scrounges
around for information or clues wherever they can be found.
– Be a gumshoe. Ask people what they think about your
product or service idea. If your idea is to sell educational toys,
spend a week volunteering at a day care center and watch
how children interact with toys.
 Product/Service Demand
• Gumshoe Research
– A gumshoe is a detective or an investigator that scrounges
around for information or clues wherever they can be found.
– Be a gumshoe. Ask people what they think about your
product or service idea. If your idea is to sell educational toys,
spend a week volunteering at a day care center and watch
how children interact with toys.
 Product/Service Demand
• One of the most effective things an entrepreneur can do to
conduct a thorough product/service feasibility analysis is to
hit the streets and talk to potential customers.
• This potential entrepreneur is administering a survey about a
new product idea.
 Industry/Target Market Feasibility Analysis
• Industry/Target Market Feasibility Analysis
– Is an assessment of the overall appeal of the industry and
the target market for the proposed business.
– An industry is a group of firms producing a similar product or
service.
– A firm’s target market is the limited portion of the industry it
plans to go after.
Industry/Target Market Feasibility Analysis
 Industry/Target Market Feasibility Analysis
• Industry Attractiveness
– Industries vary in terms of their overall attractiveness.
– In general, the most attractive industries have the
characteristics depicted on the next slide.
– Particularly important—the degree to which
environmental and business trends are moving in favor
rather than against the industry .
Industry/Target Market Feasibility Analysis
 Industry/Target Market Feasibility Analysis
• Target Market Attractiveness
– The challenge in identifying an attractive target market is
to find a market that’s large enough for the proposed
business but is yet small enough to avoid attracting larger
competitors.
– Assessing the attractiveness of a target market is tougher
than an entire industry.
– Often, considerably ingenuity must be employed to finding
information to assess the attractiveness of a specific target
market.
 Organizational Feasibility Analysis
• Organizational Feasibility Analysis
– Is conducted to determine whether a proposed business
has sufficient management expertise, organizational
competence, and resources to successfully launch a business.
– Focuses on non-financial resources.
Organizational Feasibility Analysis
 Organizational Feasibility Analysis
• Management Prowess
– A firm should candidly evaluate the prowess, or ability, of
its management team to satisfy itself that management has
the requisite passion and expertise to launch the venture.
– Two of the most important factors in this area are:
• The passion that the solo entrepreneur or the founding
team has for the business idea.
• The extent to which sole entrepreneur or the founding
team understands the markets in which the firm will
participate.
– An indication of passion is the willingness of a new venture
team to complete a comprehensive feasibility analysis.
 Organizational Feasibility Analysis
• Resource Sufficiency
– This topic pertains to an assessment of whether an
entrepreneur has sufficient resources to launch the
proposed venture.
– To test resource sufficiency, a firm should list the 6 to 12
most critical nonfinancial resources that will be needed to
move the business idea forward successfully.
• If critical resources are not available in certain areas, it
may be impractical to proceed with the business idea.
 Organizational Feasibility Analysis
Examples of nonfinancial resources that may be critical to
the successful launch of a new business
 Financial Feasibility Analysis
• Financial Feasibility Analysis
– Is the final component of a comprehensive feasibility
analysis.
– A preliminary financial assessment is sufficient.
Financial Feasibility Analysis
 Financial Feasibility Analysis
• Total Start-Up Cash Needed
– The first issues refers to the total cash needed to prepare
the business to make its first sale.
– An actual budget should be prepared that lists all the
anticipated capital purchases and operating expenses
needed to generate the first $1 in revenues.
– The point of this exercise is to determine if the proposed
venture is realistic given the total start-up cash needed.
 Financial Feasibility Analysis
• Financial Performance of Similar Businesses
– Estimate the proposed start-up’s financial performance by
comparing it to similar, already established businesses.
– There are several ways to doing this, all of which involve a little
ethical detective work.
• First, there are many reports available, some for free and
some that require a fee, offering detailed industry trend
analysis and reports on thousands of individual firms.
• Second, simple observational research may be needed. For
example, the owners of New Venture Fitness Drinks could
estimate their sales by tracking the number of people who
patronize similar restaurants and estimating the average
amount each customer spends.
 Overall Financial Attractiveness of the
Proposed Investment
• Overall Financial Attractiveness of the Proposed Investment
– A number of other financial factors are associated with
promising business startups.
– In the feasibility analysis stage, the extent to which a
business opportunity is positive relative to each factor is
based on an estimate rather than actual performance.
– The table on the next slide lists the factors that pertain to
the overall attractiveness of the financial feasibility of the
business idea.
Overall Financial Attractiveness of the
Proposed Investment

Financial Factors Associated With Promising Business

Opportunities
 First Screen
• First Screen
– Shown in Appendix 3.1, is a template for completing a
feasibility analysis.
– It’s called “First Screen” because it’s a tool that can be
used in the initial pass at determining the feasibility of a
business idea.
– If a business idea cuts muster at this stage, the next step is
to complete a business plan.
 Warning!

• Never use these slides as a substitute of your

Entrepreneurship Development text books.
• These slides should help to keep you on track, as a guiding
assistance of reading text books that has come to you along
with these slides.
• Please use the relevant sections of the following text books in
reading the slides.
• “Entrepreneurship – Successfully Launching New Ventures” -
Bruch R. Barringer& R. Duance Ireland