Prof. Matias L. Mercado, Jr. MBA, DBA Cand.

Definition of
Feasibility Study
 A feasibility study is a preliminary
investigations into the potential benefits
associated with undertaking a specific activity
or project. The main purpose of the feasibility
study is to consider all factors associated with
the project, and determine if the investment of
time and other resources will yield a desirable
result. While considered a preliminary study, it
is not unusual for a feasibility study to be
highly detailed (Tatum, 2008)
 A feasibility study is designed to provide an
overview of the primary issues related to a business
idea. The purpose is to identify any “make or break”
issues that would prevent your business from being
successful in the marketplace. In other words, a
feasibility study determines whether the business idea
makes sense. A thorough feasibility analysis provides a
lot of information necessary for the business plan. For
example, a good market analysis is necessary in order to
determine the project’s feasibility. This information
provides the basis for the market section of the business
plan (http://www.agecon.uga.edu/~gacoops/info6.htm)
1. Executive Summary

2. Market Study

3. Management Study

4. Technical and Operational Feasibility

5. Financial Feasibility
6. Socio-economic Feasibility
1.1 It is the lifeblood of any project
feasibility study

Although, profitability is the main concern of any

project study, the determination of market demand
and supply is the most basic issue. As you all know,
you cannot determine your profitability if there is no
demand at all for your product/service. Therefore it
is imperative that you first determine the market
demand and supply situation of your intended
product or service.
1.2 The market study must give a detailed
discussion of the following:

1.2.1 Description of the product or service to be sold

1.2.2 Size, nature, and growth of total demand for the
intended product
1.2.3 Supply situation (competitor and raw materials)
1.2.4 Factors affecting demand and supply
1.2.5 Industry/ Market analysis (Porter’s Model)
1.2.6 SWOT analysis
1.2.7 Appropriate marketing program for the product
or service
1.3 Determination of Demand and Supply

1.3.1 When historical data are available and were used in the study.
When data presented are historical in nature (coming from industry or
any reliable source), subject the data to the following mathematical
methods of projection to determine standard deviations (sensitivity test)

> Arithmetic straight line

> Arithmetic geometric curve
> Statistical straight line
> Statistical parabolic
Note: The most favorable mathematical method in projecting the future is
the one which has the lowest computed standard deviation.

Example: Arithmetic straight line = 25.00

Arithmetic geometric curve = 20.00*
Statistical straight line = 24.00
Statistical parabolic = 30.00
1.3.2 Absence of historical data. When no historical data are available and
data presented are results of a survey conducted, then the following steps
must be taken into consideration:

Step1. Assess the questionnaire used. Find out if the questions asked
can determine the following:

 Market share of the product/service based on the number of

respondents

 Demand in your target area

 Supply in your target area

Example of questions that you can ask to determine the

above requirements:
1. Determination of Demand and Supply:

Total Population of Target Area = 2000 household

Based = 200 respondents

1. Do you eat chicken? 150 YES 50 NO

Q1 determines the market share for chicken among 200

respondents. It shows a 75% market share for chicken among
200 respondents.

2. Do you buy/eat lechon manok? 130 YES 20 NO

Q2 determines the market share of lechon manok among 150

respondents who answered YES in Q1. It shows a 87% market
share for lechon manok among 150 respondents.
3. What is your average monthly consumption of lechon manok?
If one household respondent answers 5 lechon manok / month,
then that is their monthly consumption

Q3 determines the monthly demand for lechon manok per respondent.

Therefore you have to add all the number of lechon manok the
respondents can consume in a month to get the total monthly demand for
lechon manok.

4. Where do you buy lechon manok?

Q4 determines the supplier or your potential competitor. This will also give
you the idea of the market share of your competitor

5. Do you wish to buy lechon manok from us if we will open in your area?
65 YES 65 NO

Q5 will give you your potential market customer

Determination of Supply:

1. How many hours do you operate?

The above question will give you the idea of your competitor’s business
hours

2. What is the average number of lechon manok sold per day?

The above question will give you the average number of lechon manok
that your competitor can sell per day

3. What is the maximum number of lechon manok that you can cook per day?
The above question will give you idea on the maximum capacity of your
competitor. This would be the basis of supply

Example: Assuming there are 2 lechon manok in your target area

Store A = 70 lechon manok

Store B = 60 lechon manok
Total maximum supply per day = 130 lechon manok
Step 2. Determine the current demand in your area and make a 5 year
demand projection of your product. Construct a table

Assume that average consumption per month is 5 lechon manok per

household respondent.

Current monthly demand per 200 population

= 120 x 5 = 600 lechon manok

Current monthly demand (2000 population)

= (Total population / 200) x 600 = 6000 lechon manok

Demand
Year 1 Year 2 Year 3 Year 4 Year 5 Total
Daily 200 210 221 232 243 1105
Monthly 6000 6300 6615 6946 7293 33154
Yearly 72000 75600 79380 83349 87516 397845
Assume 5% annual increase
Step3. Determine the current supply and make a 5 year projection of
supply based on your competitor’s capacity. Construct a table
Supply

Year 1 Year 2 Year 3 Year 4 Year 5 Total

Daily 130 137 143 150 158 718
Monthly 3900 4095 4300 4515 4740 21550
Yearly 46800 49140 51597 54177 56886 258600
Assume 5% annual increase

Step4. Determine 5 year demand-supply gap. Construct a table

Annual Demand and Supply Gap Analysis

Demand Supply Gap
Year 1 72000 46800 25200
Year 2 75600 49140 26460
Year 3 79380 51597 27783
Year 4 83349 54177 29172
Year 5 87516 56886 30630
Assume 5% annual increase
1.4 Determination of your target market share from the
gap (based on the demand and supply gap). Construct a
table

Assume a 50% target market share of the gap (unserved market)

Gap Target Market Share

25200 12600
26460 13230
27783 13892
29172 14586
30630 15315

This will be the basis of your annual sales for your financial statement
1.5 Determination of factors affecting demand and supply

 Demand maybe affected by population growth, income change, taste

and preferences, price of substitutes or complementary products and
level of marketing activities such as promotion, advertising etc.,
 Supply maybe influenced by technology, cost of raw materials,
government policies, unforeseen calamities

1.6 Industry/ Market Analysis- to determine whether the market is

attractive or not attractive. (Use Porter’s 5 Forces Competition Model for
this)

1.7 SWOT Analysis- to determine the industry and your project strengths,
weaknesses, opportunities and threats.
Note: separate analysis for industry and for your project

1.8 Determination of the appropriate marketing program. This

includes the detailed discussion of 4 P’s in marketing as well as the
construction of a Gantt Chart showing the project marketing activities.
1.8.1 Discussion of 4P’s of marketing:
• Product description- discusses in detail the nature of the product. This
includes the size, packaging, labeling, etc.. Present the discussion in
tabular form if possible
• Price- present your competitive advantage by making a comparative
table of your competitors price against your price. Make a brief discussion
Year1 Year 2 Year 3 Year 4 Year 5
Store A 150 158 165 174 182
Store B 145 152 160 168 176
My
Store 140 147 154 162 170
Assume 5% annual increase

• Promotion – you discuss in detail the different promotional activities that

you would like to do
• Place- you discuss your location. Cite the advantage of your location.
Also include discussion of your distributors, if there is any

NOTE: You must present the units of your figures consistently.

Example: if you start with pieces as your unit, all units must be
expressed in pieces. Do not use packs or bundle at the end.
2.1 Management study consists of the detailed discussion of the following:

2.1.1 VMG statement- you need to present your VMG

statement. This will give you your direction, and will tell you your
purpose in entering the business.

2.1.2 Form of ownership- you need to determine the type of

ownership your study has. You have to explain why you chose
such type of ownership

2.1.3 Organizational Chart- you have to make an

organizational chart of your business project detailing the
different position and division/department

2.1.4 Lists of officers and other personnel- you have to

present the names of the officers who will lead your business
project, as well as the supporting staff.
 2.1.5 Job specifications and job requirements - you have to
list all the job specifications and requirements of each personnel
needed as well as defining their duties and responsibilities.

2.1.6 Remunerations and other fringe benefits to be offered -

you have to list down all the remunerations and fringe benefits your
employees will receive. Remember that you have to follow strictly labor
laws governing such remunerations and benefits.

2.1.7 Basic organizational policies - you have to present the

basic organizational policies that you have formulated. Discussion
may include the policies on punctuality and absences, working
hours, wearing of prescribed uniforms and others
3.1 Technical and operational
study involves the discussion of
the following:

3.1.1 Project cost estimate- you provide the total

estimated project cost and you must enumerate the
major items of capital cost

3.1.2 Production cost estimates- list down in details

the estimated production and overhead cost of
production. You need to determine the cost to
produce one unit of output: Therefore, you have to
determine the following: raw material cost, labor
cost, fixed coat, variable cost and other pertinent
costs to produce one unit of output.
3.1.3 Product specification - you describe the product
manufactured or service rendered. The description
must specify the products physical, mechanical and
chemical properties and identify the product use. You
must also describe the product quantity and quality . If
service, describe the type of service to be rendered

3.1.4 Manufacturing process (tangible products) or

business/systems process (service) - the
manufacturing process or business process must be
described in a simple but clear manner. It is advisable
that processes must be presented using flow charts
and diagrams and explain each step in the process.
3.1.5 Plant / Machinery capacity and design - You must
present the machinery and equipment required. You must
also individually give its specifications, capacities, and
cost. Also, you must discuss the minimum and maximum
capacity of the plant or the machinery. The minimum
capacity is that level of production where the resources
are not fully used but employed at a minimum economical
level. The maximum capacity is that level of production
where all the resources are fully used. To be included in
your discussion is your operational hours, number of
shifts per day if any, and the number of operating days in
a year, and your production schedule. You must present a
5 year projected production schedule and this must be in
line with increase in demand and supply (competitors and
raw materials).
3.1.6 Plant/ office location and layout – you
need to explain the competitiveness of your
chosen location. This will include the discussion of
the accessibility to and availability of raw
materials, utilities, proximity to target
customers/areas and distributing outlets. Maps
and chart of the chosen location must be
presented. The plant layout must be clearly
presented using diagrams and descriptions. The
suggested layout is one that has minimum
material handling, effective space utilization,
smooth workflow, safe and conducive area for all
workers, sanitation facilities and flexible to
rearrangement
3.1.7 Sources and lists of raw materials - you
must identify the source of your raw materials as
well as, listing them down. Descriptions, costs
and availability and continuity of the raw
materials must be provided. The volume of raw
materials for each phase of production must be
clearly stated.

3.1.8 Manpower needed (labor requirements) -

you must determine the number of skilled and
non-skilled workers needed in your operation.
3.1.9 Utilities required – you must determine the
amount, cost and sources of electricity, fuel, water,
telephone, internet services. This must be determined in
relation to the production schedule (maximum and
minimum capacity).

3.1.10 Waste disposal – it is important for you to

describe the quantity, manner of disposal and the cost
involved in disposing waste materials from production

3.1.11 Transportation needed – you must discuss the

transportation requirements of your business. This
includes the discussion of how you will transport your
raw materials and how will you transport your finish
product.
4.1 Financial study of the project includes
the discussion of the following:

4.1.1 Major assumptions in the study - you discuss

the major assumptions that you have in your study.
This will include assumed increase in demand, supply,
price, cost of production, etc.

4.1.2 Initial working capital requirements - you need

to determine the initial working capital requirements of
your project. Present it.

4.1.3 Sources of financing - you need to identify the

sources of financing and you have to discuss in details
how it can be sourced.
4.1.4 Financial statements (5 year Projection) - you
need to give a presentation of 5 year projected Income
Statement, Balance Sheet, and Cash Flow. The
number representing the supporting schedules must be
written right after each item.

Example
Revenues (schedule 1)
Cost of Goods Sold (schedule 2)

4.1.5 Financial analysis - you need to have a

presentation of financial analysis in order to measure
the project’s profitability, liquidity, cash recovery and
growth over time. Most common financial ratios used
are Test for Profitability, Test for Liquidity, Break even
analysis, payback period, and Internal Rate of Return.
5.1 This part of the study serves as an aid in
determining the possible socio- economic
contributions of your project study. You need to
discuss the following:

5.1.1 Contribution to employment (local and national)

5.1.2 Contribution to increased revenues (taxes) to local
and national government
5.1.3 Contribution to increase demand and supply of
commodities
NOTE: By generating employment, your study undoubtedly has contributed
much to the economy. The project directly benefits individuals and families.
Having gainfully employed and with income, individual and families increase
their demand for other goods and services thus stimulating the production
of these goods and services thereby generating more employment and
income to other people. Therefore, the socio economic aspect evaluates and
determines whether the society and economy has derived net positive gains
from the project.
 This presents only the highlights,
descriptive definitions, long, medium
and short range objectives, history,
and basic of the project under study.
It entails the discussion of the
following:
You have to explain briefly
why such name was chosen
Cite exactly the location of
your plant/office and give
the reason why it was
chosen
Describe whether the project is
related national program, a
result of encouraging study, or
very potential in nature
You discuss the expected long,
medium, and short range objectives
of your project in terms of size,
capacity, role in the industry and in
the economy
This includes a brief discussion
of the history of project,
nature of the industry you
belong, mode of financing and
investment costs.
 market study, management
study, technical and operational
aspect, financial aspect and
socio economic aspect
The End