feasibility analyses

7/28/2019 Feasibility Analyses

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Project Formulation

Type of Objectives in Project formulationi. General Objectives

ii. Operational Objectives

Stages of Project Formulation:1. Feasibility Analysis2. Economic Analysis

3. Technical Analysis

4. Input Analysis5. Financial Analysis

6. Social cost-benefit analysis

7. Pre-investment analysis


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FEASIBILITY ANALYSIS


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What Is Feasibility Analysis?

Feasibility Analysis

Preliminary evaluation of idea to determining if its worth

pursuing

Provides more secure notion that a business idea is viable Did analysis, feasible business: Intuit (Quicken, Quickbooks, etc.)

Personal experience, observed others, surveyed customers

Did analysis, not feasible: Retailing Insights (grocery cart)

Determined not a sufficient scale for advertising, needed large proportion

of grocery stores Dropped idea, focused on core competency, developed Trakus

No analysis, failed firm: Iridium (satellite phones)

Too complex technology, too long to develop, new technology took over,

line of sight to satellite, large phone, low battery power


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Preparing a Concept Statement

Components of Concept Statement (similar to elevatorpitch components)

Description of the product or service

Description of target market

Benefits of the product or service (value proposition)

Description of product/service differentiators

Description of how product/service sold/ distributed

Description of the founder(s) of the firm


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When To Conduct a Feasibility Analysis

Timing of Feasibility Analysis

After concept statement evaluation

After opportunity recognition, before business plan

Before a lot of resources are invested


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Feasibility Analysis

Figure 3.1

Role of feasibility analysis in developing successful business ideas


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Overview of Full Feasibility Analysis(4 forms of feasibility analysis)

Product/Service Feasibility Composed of two primary tests

Concept testing

Usability testing

Industry/Market Feasibility Three primary issues a proposed business should consider:

Industry attractiveness Market timeliness

Identification of a niche market.

Organizational Feasibility There are two primary issues to consider in this area:

Management prowess

Resource sufficiency Financial Feasibility

The most important issues to consider at this stage are: Capital requirements

Financial rate of return

Overall attractiveness of the investment


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Product/Service Feasibility

Product/Service Feasibility Analysis

Assessment of overall appeal of proposed

product/service

Main idea: before rushing to development, be sure

product/service is what prospective customers want

Two components of product/service feasibility

analysis:1. Concept testing

2. Usability testing


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Product/Service Feasibility: 1st Component

Concept Testing

Purpose: Gauge customer interest, desirability, purchase

intentions

Involves showing a representation of product/service toprospective users

Occurs before the prototype stage

Websites and graphic designs are taking this to a new level

Concept test concept statement

Concept test: tests feasibility of specific product/service idea

Concept statement: is a preliminary evaluation of entire business idea


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Product/Service Feasibility: 3 reasons to conduct

1. Validate underlying premises of product/ service idea

Use phone interviews, focus groups, watch consumers perform tasks,customer advisory boards

Ex: PepsiCo developed model of 5 types of teens and tries to predict

how trends move through teen populations

2. Help developing idea

Iteratively show idea to potential customers and make changes alongthe way

Ex: IDEO product development firm3. Estimate potential market share

Survey questions

Market research surveys

Caution: Numbers always optimistic


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Product/Service Feasibility: 2nd Component

Usability Testing

Purpose: determine ease-of-use and users perceptions of

using product

While tempting to rush a product/service to market usability tests aregood investments of resources

Eliminate potentially frustrating aspects of product/services

Involves creating a physical prototype and giving it to users,

measuring usage results, and making modifications as necessary Iterative in nature

Also called: user tests, beta tests, or field trials


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Product/Service Feasibility: 5 Benefits

1. Getting product right the first time

2. Create a beta (or early adopter community)

3. Avoid obvious flaws in product/service design MobileStar wireless hotspots

4. Use time and resources more efficiently

5. Potentially identify complementary product/

service offerings

iPod accessories


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Overview of Full Feasibility Analysis


Composed of two primary tests Concept testing

Usability testing


Industry attractiveness

Market timeliness Identification of a niche market.


Management prowess

Resource sufficiency

Financial Feasibility The most important issues to consider at this stage are:

Capital requirements




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Industry/Market Feasibility Analysis

Industry/Market Feasibility Analysis

Purpose: assess overall appeal of the market

3 primary issues to consider:1. Industry attractiveness,

2. Market timeliness, and

3. Identification of a niche market


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Industry/Market Feasibility Analysis:

Industry Attractiveness

Issue 1: Industry Attractiveness Primary determinant of feasibility is attractiveness of

industry chosen

Characteristics of attractive industries:

Large and growing (growth is very important)

Industries are important to customers (e.g., must haves vs. likes)

Early in the industry lifecycle to avoid price competition

Industries are not crowded with competitors

How to assess industry attractiveness?

Forces in the broad environment (e.g., technological,sociocultural/demographic, political/legal, economic, global trends)

Porters Five Forces analysis (well cover next week)

Other primary and secondary research


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Market Timeliness

Issue 2: Market Timeliness Will the market be receptive to the product/service?

If its a modification on existing offerings (e.g., cell phoneswith cameras) ask:

Is the window of opportunity open?

Are customers buying?

Are competitors making money?

If its a breakthrough product/service (e.g., Yahoo with

internet search engines, eBay with online auctions, etc.) ask: Can we capture a first-mover advantage?

Example: Microsoft in computer operating systems

Will we suffer from a second-mover advantage?

Example: IBM vs. Dell in personal computer retailing


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Niche Markets

Issue 3: Identification of a Niche Market

Niche markets are places in larger market segments that

represent narrower groups of customers

2 reasons for new firms to sell to niche markets: Allows a firm to establish itself in industry and avoid competing

against major competitors (e.g., specialty retailers vs. Wal-Mart)

Allows a firm to focus on serving specialized markets very well

Avoids trying to be everything to everybody in a broad market

Successful example: buyandhold.com and small scale

investments

Problematic example: Iridium and satellite phones (tried to

serve everyone)


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Usability testing



Market timeliness



Management prowess







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Organizational Feasibility Analysis

Organizational Feasibility

Purpose: determine if business has sufficient

skills/resources to bring product/service to market

successfully

Non-financial factors important to consider here

2 primary issues to consider:

1. Management prowess

2. Resource sufficiency


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Organizational Feasibility Analysis:

Management Prowess

Issue 1: Management Prowess

Firm must evaluate the ability of the management team

Determine if has the passion and expertise to launch theventure

2 most important factors in this area:

Passion the solo entrepreneur/founding team has for the idea

Extent the entrepreneur/founding team understands the markets inwhich the firm will participate

Ventures with established networks have an advantage Successful Example: eBay

Failed Example: Garden.com (e.g., no gardening/ gardeningretail expertise


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Organizational Feasibility Analysis:

Resource Sufficiency

Issue 2: Resource Sufficiency Assessment of resources needed to launch proposed

venture

Focus is on nonfinancial resources:

Availability of affordable office or lab space, Likelihood of government support,

Labor pool quality,

Proximity to key suppliers, customers, and similar firms (clusters)

Likelihood of strategic partnerships,

Likelihood of attaining IP

To test resource sufficiency: list critical nonfinancialresources needed to move idea forward successfully

If resources not available, it may be impractical to proceed with the

business idea


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Usability testing



Market timeliness



Management prowess






feasibility analyses

Documents