How to conduct a project feasibility study

How to conduct a project feasibility study

How to conduct a project feasibility study
How to conduct a project feasibility study

Do you have a great idea for a new product or project, but aren't sure that there is enough demand in your area to determine that your project is worth your money, time, and effort? To determine the feasibility of your idea you need to conduct a feasibility study. What is the concept of feasibility study? How do you conduct a feasibility study?

According to Wikipedia, the feasibility study shows the required investments, the expected return and external influences on the project, such as state laws, competition and technical and technical development. Which ultimately enables the investment decision to be taken to establish the project, in other words accepting or rejecting the project.

Simply put, a feasibility study is a process in which you test the feasibility of an idea: will it succeed? Although the specific questions you will have to address will vary depending on the nature of your project or idea, there are some basic steps that apply to all feasibility studies. Read on to learn the basic steps of an initial feasibility study and how to conduct a detailed feasibility study.

How to conduct an economic feasibility study for a project

In the case of starting from the idea of a new investment project, the process of preparing an economic feasibility study for the project passes through three basic stages:

-Define idea
-Initial feasibility study
-Detailed feasibility study
The feasibility study could be in the following cases:

-Renew an existing project.
-Develop an existing project.
-Expansion of an existing project.
-Changing the field of production or activity.

1. Define the project idea

At this stage, the project begins as an idea, then the elements governing the implementation of this idea are identified - and this stage ends with defining the project. Information on:
• There are no legal, technical, marketing, financial, social or environmental obstacles, and the project's objectives do not conflict with the objectives of public policies.
Ensure that the project falls within the priorities of the concerned sector.
The existence of a general conception and definition of the project, its investment and production size and its location.
Ensuring that the project represents the best proposed alternatives in terms of technical, economic, social and environmental aspects.
The project has the ability to continue.
Identifying the beneficiaries of the project, directly or indirectly.
•Details related to the project and anticipated problems have been appropriately identified.
Monitoring the information gap and identifying the sources of its completion.

How do you find the idea?

By noting your environment: unsatisfied or satisfactory demand, defects in available products or services, keeping track of developments...
Turning a talent or passion into a business idea
Absorbing and being inspired by a foreign idea

Sources for eliciting a project idea

These sources are many, including:

Relying on knowledge capital, knowledge of the market and the economic environment
Orientation to invention or innovation in the field of specialization
Restore an existing activity
Approaching well-known brands with great potential
Demand and unsaturated needs and the required production to meet these needs.
The existence of unused material and human resources, and there are opportunities or possibilities to use them for productive purposes.
Lack of marketing facilities for goods such as transportation, storage, manufacturing or packaging. These points give the investor ideas for projects.
Applying your idea lies in summarizing it accurately:

What are the characteristics of the intended product or service?
What is its benefit and purpose? What need or necessities do you satisfy?

2. How to conduct a preliminary feasibility study

Before investing time and money in a detailed feasibility study, you need an initial study and realistic evaluation, to determine whether there is a need or demand for your idea or not. If there is a need, you can continue to study the idea in depth and detail. If not, you need a new idea.

We need an initial feasibility study, either for an initial evaluation that is sufficient to justify the justification for choosing the project and to identify opportunities to move forward for a comprehensive study or not, or for the initial selection of one idea among the list of proposed project ideas.

The initial feasibility study requires a preliminary knowledge of the market in which you will enter your journey and the field you are heading to.

An initial market survey can be conducted by:

Knowing the actors in the market: the type of customers (nationality, purchasing power, number…), suppliers (their importance and size…), competitors (their number, position in the market, etc.)
Evaluate the commercial potential of this project by getting an idea of ​​the market's ability to accommodate your offer, customer response and competitor strength, regulatory constraints…etc.
Product Study

Determine the product or service that you want to provide to your customers in the future: offer, use, working conditions, technical specifications…

Market study and target sector

Familiarity with the target market (size, stage of development and growth, geographical distribution, etc.)

Study request

Potential clients can be known to direct the project towards growth sectors and avoid market risks. This study should include:

The needs and expectations of the product/service
Understand the behavior of potential customers
Define customer segments
Offer study (direct and indirect competitors)

Identify direct and indirect competitors (make a different offer that meets the same need).

The main topics to focus on for each competitor are:

The product or service offered and complementary products and services
Associated Prices
Distribution and marketing methods
trade mark
Policy alliances with other actors
Market trends study

The market study must be constantly updated, even after the company is launched in order to anticipate changes in the market. The path has to monitor developments in the market environment in terms of economic, technological, organizational, social and cultural aspects.

3. How to do a detailed feasibility study
The detailed feasibility study for any project consists of:

-market study
-The technical study
-financial study

A- Market study (marketing feasibility)

A set of methods, foundations and estimates that aim to identify the different aspects of the product/service market that the project is going to produce in order to estimate the volume of current and prospective sales, and to formulate appropriate marketing policies (pricing, promotion, distribution, etc…).

The marketing feasibility study is one of the most important studies that can be carried out on the project, as the decision to continue the technical and engineering study or stop and search for other alternatives to the project depends on it.

The objectives of the market study are as follows:

Estimate the size of the expected demand for the project's products, its growth rates, the expected market size and the segment (the project's share).
Structure, type of market, degree of competition and market segmentation.
Price pattern and trends.
Identification of marketing opportunities.
Defining and planning advertising campaigns.
The elements of the marketing study include the following:

Marketing opportunities for the project: the available demand, the demand that can be developed, the competitive advantages of the project, and the prospective sales.
Offer size and specifications: current and expected offer, current and expected capacities, new projects, projects under implementation.
The size of the demand and its specifications: the local demand and its specifications, the external demand and its specifications, market shares, the main and secondary markets, the competitive position of the project.
Market analysis according to SWOT analysis: Strengths, Weaknesses, Opportunities and Risks:

Project Strength: What sets you apart from others? (Competition - Customs - Location - Points of Sale - Guarantees - Prices - Quality - etc.)
Weakness of the project: What are the expected weaknesses (competition - inventory - prices - locations - customs duties - regulations - etc.)
Opportunity Opportunity Opportunities in the market for a good or service?
Threats: What are the expected risks? Example (seasonal - perpetual - systems - etc.

Market study summary:

What are the proposed channels for your products (place and methods of distribution)?

-The product is distributed
-The product is distributed as follows: through points of sale in major cities, through distributors, or --through electronic sales
Who are the competitors and similar projects?

What are the competitive advantages of your products or services?

The product has a quality guarantee for a period compared to its counterparts in the market, or there is no guarantee (example)
The product has different shapes without its counterparts in the market
the service

b- Technical study

In the light of the marketing study, the parameters of the technical study of the project are determined. The technical study means everything related to the establishment of the project, the construction of its sections, the establishment of its machines, the identification of its needs for production requirements, and the estimation of investment costs and operating costs for the standard year. In general, the technical study of the project deals with the following aspects:

Engineering study of the project:

Study and analysis of the project site.
Study the production process and determine the required spaces.
Determine the project's needs of machinery and equipment.
Determine the project's needs of raw materials and supplies.
Estimate the project's energy needs.
Estimating the project's needs for furniture and transportation.
Estimating the project's direct labor needs, supervisory and administrative needs, and its organization structure.
Project costing:

The cost study of the project focuses on preparing financial statements that enable the assessment of financial needs. The study of project costs includes:

Estimating the investment costs of the project.
Estimate operating costs for a standard year.

Any project requires the following technical information to study and analyze the project, including:

Study the production process and determine the required spaces.
Determine the project's needs of machinery and equipment.
Determine the project's needs of raw materials and supplies.
Estimate the project's energy needs.
Estimating the project's needs for furniture and transportation.
Estimating the project's direct labor needs, supervisory and administrative needs, and its organization structure.
Therefore, each element mentioned above will be the focus of measurement to determine the costs of the project.

c- Financial study

The financial feasibility study focuses in its analyzes on the level of the project as an independent unit from the point of view of the investors (in case a feasibility study is prepared to be submitted to the potential investor or financier).

It is concerned with measuring the direct effects of the project without extending to measure the indirect effects that affect different aspects of economic and social life. Financial feasibility is measured in the form of a numerical analysis based on data, most of which are prepared during the first phase of the study.

Financial Analysis Objectives:

Measuring the ability of the project - through the net cash flows - to recover the investments that it will bear, and within an acceptable payback period.
Measuring the profitability of the project and its ability to achieve an acceptable return.
Measuring the project's ability to fulfill its obligations towards others, in particular towards external sources of financing (banks or individuals).
Stages of a financial feasibility study:

The first stage: preparing the financial statements
The second stage: selection of criteria
The third stage: application of standards and preparation of recommendations

1. Capital cost of the project

Components of the investment costs of the project:

First: Pre-operating expenses:

Expenditures for project studies.
Registration and licensing expenses.
Costs of trials and start-up.
The benefits of the construction period.
Pre-employment wages.
Pre-employment transportation and travel costs.
Introductory advertising campaign.
Temporary constructions.
Other expenses.

Second: Fixed Assets:

The cost of the land and infrastructure, which is represented in: the purchase price of the land, the improvement and leveling of the land, the basic environment that the project may need.
Buildings and constructions: machinery, equipment and means of transportation.

Third: Working Capital:

Liquid cash that is sufficient to meet cash expenses, for example: wages, administrative and marketing expenses, and others, such as expenses for electricity and water consumption, maintenance, transportation, and others.
Inventory: Take into account that no commodity stock is formed during the first years (construction) because there is no need to store without need, and the appropriate time to form commodity stock is the few months after the start of operation.

2. Operating costs

They are the current costs related to production, marketing and management operations, and they represent sacrifices in exchange for obtaining services and benefits that ultimately lead to the generation of revenues for which the project is established. Each production cycle, which acquires the status of current due to its periodicity and repetition, is represented in three basic items:

Operating expenses:

Raw materials and supplies
Packaging, shipping and transportation costs, fuel
Administrative and marketing expenses. Wages and insurances. maintenance.
Study of income and flows:

Income Estimates
cash flow estimates

3. Cost-benefit ratio

One of the criteria used as an indicator of the financial evaluation of the performance of production units is the ratio of returns to costs. This meaning does not differ from the net present value of the investment in its uses in terms of the information required to evaluate past performance through records. It searches for indicators to correct financial problems, if any, and support the positive elements in the project's practices from a financial point of view. The return on costs is calculated as follows:

Cost-return ratio = Total returns over a given period / Total costs over the same period

All of this is denominated in the present value, whether in terms of returns or costs.

What after the feasibility study?

After it becomes clear that the idea is suitable for investment, the implementation phase comes. The preparation of an action plan is necessary to enhance the chances of success of the project. It reviews the overall procedures and means to achieve your goals and launch your business. The importance of the business plan lies in clarifying the parameters of your project and verifying its continuity.