Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Big Picture in Focus: ULOd. Understand the basic
procedures in developing Feasibility study particularly on
the economic aspect of the feasibility study.
Metalanguage
In this section, the most essential terms relevant to the study of curriculum and to
demonstrate ULOd will be operationally defined to establish a common frame of reference
as to how the texts work in your chosen field or career. You will encounter these terms as we
go through the study of taxation. Please refer to these definitions in case you will encounter
difficulty in the understanding educational concepts.
1. Feasibility Study. Is an analysis that takes all of a project's relevant factors into
account—including economic, technical, legal, and scheduling considerations—to
ascertain the likelihood of completing the project successfully. Project managers use
feasibility studies to discern the pros and cons of undertaking a project before they
invest a lot of time and money into it.
Essential Knowledge
To perform the aforesaid big picture (unit learning outcomes) for the first two (2) weeks
of the course, you need to fully understand the following essential knowledge that will be laid
down in the succeeding pages. Please note that you are not limited to exclusively refer to
these resources. Thus, you are expected to utilize other books, research articles and other
resources that are available in the university’s library e.g. ebrary, search.proquest.com etc.
I. Understand the complete components of Feasibility Study
1.0 The Importance of Feasibility Studies
✓ Feasibility studies are important to business development. They can allow a business
to address where and how it will operate. They can also identify potential obstacles
that may impede its operations and recognize the amount of funding it will need to get
the business up and running. Feasibility studies aim for marketing strategies that could
help convince investors or banks that investing in a particular project or business is a
wise choice.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
2.0 Basic Components of a Feasibility Study
2.1 EXECUTIVE SUMMARY
The executive summary provides an overview of the content contained in the feasibility
study document. Many people write this section after the rest of the document is
completed. This section is important in that it provides a higher level summary of the
detail contained within the rest of the document.
2.2 DESCRIPTION OF PRODUCTS AND SERVICES
This section provides a high level description of the products and/or services which
are being considered as past of the feasibility study. The purpose of this section is to
provide detailed descriptions of exactly what the organization is considering so this
information can be applied to the following sections of the document. It is important
that this description captures the most important aspects of the products and/or
services that the organization is considering as well as how it may benefit customers
and the organization.
2.3 TECHNOLOGY CONSIDERATIONS
This section should explain any considerations the organization must make with
regards to technology. Many new initiatives rely on technology to manage or monitor
various business functions. New technology may be developed internally or
contracted through a service provider and always result in costs which must be
weighed in determining the path forward.
2.4 PRODUCT/SERVICE MARKETPLACE
This section describes the existing marketplace for the products and/or services the
organization is considering. It may describe who the target market consists of for
these products or services, who the competitors are, how products will be distributed,
and why customers might choose to buy our products/services. Most marketplaces
are dynamic environments in which things change constantly. To enter a new
marketplace blindly will usually result in an organization not fully understanding its role
and not maximizing its resulting benefits.
2.5 MARKETING STRATEGY
This section provides a high level description of how the organization will market its
product or service. Some topics which should be included are: how does an
organization differentiate itself from its competitors; types of marketing the
organization will utilize; and who the organization will target. Marketing efforts must
be focused on the right target groups in order to yield the greatest return on
investment.
2.6 ORGANIZATION AND STAFFING
With many new products or services there may be a need for additional staffing or for
an organization to restructure in order to accommodate the change. These are
important considerations as they may result in increased costs or require an
organization to change its practices and processes.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
2.7 SCHEDULE
This section is intended to provide a high level framework for implementation of the
product or service being considered. This section is not intended to include a detailed
schedule as this would be developed during project planning should this initiative be
approved. This section may include some targeted milestones and timeframes for
completion as a guideline only.
2.8 FINANCIAL PROJECTIONS
This section provides a description of the financial projections the new initiative is
expected to yield versus additional costs. Financial projections are one key aspect of
new project selection criteria. There are many ways to present these projections. Net
present value (NPV), cost-benefit calculations, and balance sheets are just some
examples of how financial projections may be illustrated. This section should also
provide the assumptions on which the illustrated financial projections are based.
2.9 FINDINGS AND RECOMMENDATIONS
This section should summarize the findings of the feasibility study and explain why
this course of action is or is not recommended. This section may include a description
of pros and cons for the initiative being considered. This section should be brief since
most of the detail is included elsewhere in the document. Additionally, it should
capture the likelihood of success for the business idea being studied.
3.0 KEY TAKEAWAYS
✓
✓
A feasibility study assesses the practicality of a proposed plan or project.
A company may conduct a feasibility study if it's considering launching a new business
or adopting a new product line.
✓ It's a good idea to have a contingency plan in case of unforeseeable circumstances,
or if the original project is not feasible.
4.0 ECONOMIC ASPECT
4.1. Demand and Market Analysis
1. Effective demand represents the total quantity of a specific product purchased at a
given price in a particular market over a given period.
2. The first step in project analysis is a detailed estimate of the size, structure and
demand characteristics of the product to be manufactured.
3. The size of demand during the life span of a proposed project is a function of several
variable factors such as the composition of the market, the competition from other
sources of supply of the same product and substitutes, income and price elasticity of
demand, market responses to socio-economic patterns, distribution o=channels and
consumption growth lines.
4. The demand and market study should provide the following basic information:
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
a) Size and composition of present demand in a market whose geographical limit
should be defined.
b) Market segments identified by end use, consumer groups or geographical
division.
c) Demand projection of the overall market and of the segments over a certain
period, preferably 5 to 10 years of the potential life of the project.
d) The market penetration ratio that the project is expected to achieve over the
projected period in the context of developing competition, domestic and global
and changing consumer response.
e) The broad pricing structure on the basis of which projections of growth and
market penetration are made.
f) The conditions of sales promotion and sales organization to be established.
4.2. Demand Projection
This is the most significant and certainly the most complex element of market and
demand analysis because it is critical factor for determining both the viability of a
project and the appropriate plant capacity.
4.2.1. Demand Forecasting Techniques
▪ Trend (extrapolation) Method
This relatively common technique is based on extrapolation of past data and
involves
a. The determination of trend, and
b. The identification of its parameters.
▪
Regression models
Forecast are made on the basis of a relationship estimated between the
forecast (or dependent) variable and the explanatory (or independent)
variables.
▪
Consumption coefficient or End-run method
This method is particularly suitable for assessing intermediate products.
▪
Consumption level method
This method considers the level of consumption using standard and defined
coefficients and can be usefully adopted when a particular product is directly
consumed.
▪
Market survey
A market survey is an expensive and time-consuming way to forecast demand
for a particular product.
4.3. Sensitivity Analysis
It is only by a systematic approach that uncertainly is reduced to a minimum. This
approach is provided by statistical sensitivity analysis by which calculations are made
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
of the degree of uncertainty. The objectivity of sensitivity is to determine the impact on
the size of demand, aggregate or by segment, if the factors influencing demand turn
out to be more or less favorable than has been assumed.
4.4. Sources of Data
Sources of information have to be identified and located in each case. Considerable
information may be available from official published data, including:
(1) Statistical handbooks
(2) Census reports; resources, area or sectoral opportunity studies conducted by
governmental and institutional agencies
(3) Publications of chambers of commerce.
4.5. Sales Forecast and Marketing
An analysis of sales and income for sales is essentially an extension of the initial
demand analysis on the basis of which a project is developed. The parameters of
market size and anticipated market penetration, which would be defined in the demand
study, should be further refined and projected in terms of specific sales volume during
different periods after a project goes into production.
4.6. Product Pricing
Product pricing has a significant impact on the volume of sales and on the income
from such sales. The base of any pricing should be the production costs and the
market structure for a particular product.
4.7. Marketing Strategy
4.7.1. Promotional measures
Sales promotion, the design and creation of a distribution system and the
related costs are important in product marketing. The sales promotion efforts
required and the target for market penetration should be broadly defined.
4.7.2. Distribution system
The sales and distribution organization for marketing a particular product
should be broadly defined and its cost of operation estimated. Details regarding
marketing and distribution have to be worked out during the post
implementation stage. The appropriate marketing structure should be defined
in the feasibility study.
4.8. Sales Revenue Projection
Projections of sales can only be made according to the market structure, market
requirements and marketing strategies that are followed. Such strategies have to be
defined and an assessment made of the implications in terms of product pricing,
production program, promotional efforts and the sale and distribution mechanism.
Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
Self Help: You can also refer to the sources below to help
you further understand the lesson.
Cabrera, M.E (2017). Management Accounting: Concepts and Applications. GIC Enterprises
& Co.
Bobadilla, D. (2015). Comprehensive reviewer in management advisory services. Manila,
Philippines: Lares Bookstore.
Guia, M. B. M.(2016). Basics of managerial accounting. Ma-a, Davao City: MS Lopez Printing
& Pub.
Let’s Check
Activity 1. Differentiate Feasibility study over a Business Plan
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Let’s Analyze
Activity 1. Discuss the importance of a Feasibility Study
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Department of Accounting Education
Mabini Street, Tagum City
Davao del Norte
Telefax: (084) 655-9591, Local 116
In a Nutshell
In this part you are going to jot down what you have learned in this unit. The said statement of yours
could be in a form of concluding statements, arguments, or perspective you have drawn from this
lesson.
Now it’s your turn!
1. ________________________________________________________.
2. ________________________________________________________.
3. ________________________________________________________.
4. ________________________________________________________.
5. ________________________________________________________.
Q and A
In this section you are going to list what boggles you in this unit. You may indicate your
questions but noting you have to indicate the answers after your questions is being raised
and clarified. You can write your questions below:
Questions/ Issues
1.
2.
3.
4.
5.
Keywords
✓ Feasibility Study
Answers