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The issue of feasibility evaluates whether the chosen strategy can be implemented successfully. The resources the organisation has at its disposal will obviously determine this. To save time, simply think about the6Ms. Those are material, market, manpower, money, machinery, management.
Before preparing any feasibility one should assess and foresee, immediate working capital financing requirement and expected return on investment of new product/service.
You should also know various other key areas for a feasibility study, like:
- Your client base (market cap). Complete Market & product/service research
- Your competition, (competitiors/other market players) close within your geographies and outside as well.
- Your product market suitability. Complete Product specification and product drill-down
- Complete Product/service costing/pricing.
- Product/Service range
- Product/Service integeration & product/service life cycle studies (Upward, Downward & mid stream)
- SWOT Analysis - (Strenght, Weakness, Opportunities, Threats)
- Local bye-laws, which include import duties & regulations etc. (if trading business)
- Arrangement of excess funds (if any from your core business proceeds) for a new product/service, or new equity or new loan financing or venture investments.
- Other Financial/Accounting aspects & KPIs (key performance indicators) studies which include for each product/services range wise and overall analysis, such as:
> ROI = Return on Investment
> Product/Service EBITA (Earning before interest & Tax)
> Payback period
> Project IRR (internal rate of return) / NPV (Net present Value), ARR (Accounting Rate of Return) etc.
> Cost-benefit analysis etc.
> GAP analysis
Accounting department has to provide product all cost components (smallest to largest components):
- Overheads, material & labour cost (Product)
- Service cost components
- Allocation of overall cost to new product/Service and exisiting product
The important areas are:
1. Technical
2. Operational.
3. Selling
4. Marketing
5. Financial
6. Human Resources and
7. Information Technology
The accountants need:
Sales / Revenue Plan
Production / Cost of Revenue Plan
Detail of Operational Expenses
Detail of Capital Expenditure
Cost of Human Resources
Then they will determine the profitability and cash flows position of the project under review.
Based on income and cash flow they will calculate:
Discounted Cash Flows
Return on Investment
Internal Rate of Return - IRR
Payback Period
Sensitivity Analysis
Each feasibility study should contain major areas of study which are Technical, Finance, and marketing , within this, there are six major parts you should consider when preparing a feasibility study:
The study scope to defind the opportunities and problems.
The current analysis, to define the implementation method.
The requirements to defind the object of the project.
The approach to reach the recommended solution.
The evaluation, to select the best solution among the alternatives.
The review, to review the selected solution with the stakeholders.