theeconomic and commercial aspect of a business idea, a startuP is requiredt
o condut t
feasibility study.
16.1 MEANING OFFEASIBILITYANALYStS
Feasibility Analysis refers to the process of examining the viablity of a busin
means assessment of the potential and
practical applicability of business
usiness idea.
idea ess idea. h
idea
It
concerned with product
or service but it is studyof business is not ug
viability as a [Link]
analysis helps in identifying possibility, practicality, capacity and achievability of Feas
thbly
A prospective
entrepreneur having creative and innovative idea must Conducthe proen
analysis. It may not only add vitality to the viability of the underlying business b feas
but also add vision to the business
opportunity.
The following points equips an entrepreneur to decide if he should
existing business idea or not continue a the
(a) Is this business
possible?
b) Is this business
practicable?
(c)Probability of success of business in future?
(d) Do Ihave
access to all the resources required to start the business?
Feasibility analysis helps to critically analyze the business concept in detail. It
of both
primary as well as secondary data. requires ne
Primary data can be collected from potential customers,
secondary data can be collected through previous studies (if industry experts etc. while
and feedback taken other firms.
by any), published sources, reports
161.1 Need for feasibility analysis
a.
Feasibility analysis helps in providing guidelines for
Through feasibility study, Shortcomings/gaps if anypreparing
b. business plan.
can be detected and measures
can be taken to resolve them.
C. It helps in
understanding
the viability of the
concept or business idea.
d. It boosts up the confidence
level of an
e. It reduces the chances of entrepreneur w.r.t the business idea.
business failure.
f. It apprises
entrepreneur about the risk involved.
g. It saves an
entrepreneur from
success driven by hard work andpotential
business loss and instills the
risk taking prospects
h. It also ropes in the capability.
confidence of potential investors.
16/2 ELEMENTS OF FEASIBILITY ANALYSIS
Feasibility analysis includes study of various aspects of a
product viability, technical feasibility and commercial business. It includes identiyi
important aspects that should be considered by an feasibility. Followingg are sonme f the
are some
entrepreneur while conducting a re sibility
F e a s i b i l i t y
Analysis-Give example
ervice
aspects of product /service to be providedto customers. The
various
is
studying
here testing the desirability and demand for product/service.
mined
one needs to
examine following factors
the desirability,
t e s tt h e d e s i r a b
attributes makes him desire a product?
11r. c o n s u m e r a b o
the product. What to size and
do users provide importance
h a te x c i t e s e
product, is
it tthe fragrance,
sit e
lok o of the
product,
product (eg. soaps).
shape ofthe product
satisfy?
does the
hat
need
in market?
fill a gap
Desit problem?
customers
time to introduce
a product? Is there
it solve
Does incudes the study of right during the time of
these, it also n e w product e.g.
Not only people buy/try season there is
not only
occasion when
particular during wedding related
any
Season etc. For example, also increase in
there is
market but
Diwali, Wedding clothes available
in the
of Indian
wide range footwears etc. this
ornaments, testing is done at
concept
products like and demand
for the product, shared with potential
m e n t i o n e d and
test desirability is
So in order to about
product/service
feedback on
the same, provides
Their
Under this, description solicit their responses. like preferences
sage. to to questions the
experts the utility of
answers
zstomers, industry It provides improve
a product. to
about the viability of that can be
incorporated
rsights suggestions
CSkes about the product, for the product
the demand
forecasting It helps
product. the market, these days I n t e n t i o n Survey".
nature of for "Buying market in f u t u r e
Gven the volatile c a n go
Therefore start-ups in the
a product
markets.
an easy task. demand for targeted
ot estimate the distribute it among
p r e n e u r s identify/
modifications
this and
questionnaire
for the product. Any this stage. It
entrepreneur may
use
c u s t o m e r s to buy at
intention of
.n
lt gives them an indication
about
the notice
of the
entrepreneur
be brought to in the
market.
Tequired in the product may the product
successfully
launching Search, Secondary
mproves chances of (Primary
Acasiblity
Market
Analysis/Target
b) ndustry p r o d u c t s / s e r v i c e s .
Search) similar or
substitute
a t t r a c t i v e n e s s
for the
firms producing industry
Industry refers to groups of to find,
c h a r a c t e r i s t i c s
analysis demographic each
An Entrepren should conduct feasibility industry
like against
an competing
be used to study
of firms
product.
product. Various parameters
can
number
in industry,
of the target group, growth patterni etc. of
co
ommp
peet
tiit
toor
rss
in the industry nu
n um
mbbe
err
other, profit margins, entry barriers
venture
high, firm
are to
margins
margins for the
profit
profit
Industry is considered attractive u g hif
i n oenoug lot of scope
This gives
w and firm's life cycleie
cycle is in initial stages.
s
in the industry and innovate.
16.4
Feasibility/Concept
Test (give case study example)
e) Technical technology to beadopted hu. bu5in
Technical feasibility
is study
icdea into easily
of most appropriate
marketable product.
Under this, factors
m a t e r i a l s necded, ideal
li
siz of
busihnolnoewgy tto
franstormm business
e used, praduction process
involved, type
are
of raw
assessed
plant to be
installed and equipments
required use oflatest.
funds needed to support
Also tactors like manpower
developing or
requirement,
buyout along
with implementation, are judged hnolsuoyjes
for
s t involved in
ot busines.
Feasibility/Business
Concept
(d) Commercial business idea on commercial.
Comenial viability is the study
of viability of
sustainable as well
as useful products, yetsuch
Kale. It
Nsibleto develop
environmentally
Therefore, it is imperative
to conduct c
be commercially appropriate. the Iction of
of a prodsmerc
may not
feusibility test before taking
the final decision to
commence production
product
facilitates an entrepreneur to identify following relevant fs.. factoy
A commercial feasibility
over short run and long run.
(a) Manufacturing cost production
of
near future and in long
run.
demand for prpduct in
b) Anticipating
the market.
(c) Competition level in
intense competition level and inefficiency in operatiome
Higher cost of production, either be able to fight these chaleno
pose serious threats for
firm in long run. One should ges
at its planning stage only to avoid wastage of ti
to survive or should scrap the project ne,
resources, manpower and capital.
(e) Financial Feasibility
Assessing financial feasibility of the product involves study of various costs aspects related
with carrying of the project. Under financial feasibility firm, identifies following factors:
(i)Cost of the Project-Fund required to start sustain intial losses
Cost of project primarily includes capital budgeting expenditure on acquisition of capital
assets like land and building, plant and machinery, furniture and fixture and other long
term revernue yielding assets. It is a long term commitment of substantial amount therefore
decisions for investment in these types of assets should be taken carefully. Investments in long
term assets are irreversible in nature and expose the firm to substantial risks.
(i) Working Capital
Estimation of Working capital requirements should be done with utmost care as bon
over investments as well as under investments in working capital can hamper routine natu
activities to great extent. Having insuficient working capital will lead to liquidity crunch and
will stall the business activities while excessive investments in working capital will bloCk UE
funds that will undermine the profitability.
(iii) Break Even Analysis
iable
Break evern level is that level of activity at which a firm is able to meet all the vanap
costs out of its revenue. Identifying the possible sales volumes at which break-even levelwill
w
it indicates the stage till which firm
important for working of business,
ved is important
as irm w
e
rhieve will an idea about r e s o u r c e s and time required
hie ake losses. Break even level
r t i n u u et o
ma
give
particular
level of activity.
that
wach,
dhProjected Income Statements
Finance is the
th backbone of any business. Future sales are projected and r e v e n u e charts
ce
income and
nared to assess the inflow and outflow of funds in the business. Projected
and expenditure s o
diture statements reflect the magnitude of gap between the income
he difference between the two can be bridged by arranging for funds or deploying
excess
that
the
lucrative a v e n u e s .
itnds in
turne
REVISION OF KEY CONCEPTS
refers to the process of examining viability of a business idea. It
Feasibility Analysis
means assessment of poterntial of business idea.
Purpose of conducting a feasibility study is to improve the chance of launching the
business successfully, mitigating failure and risks, boosting the confidence of the
customer and employing resources judiciously.
Some of the important aspects to consider by entrepreneur while conducting feasibility
analysis include aspects like product/Service Feasibility Analysis, Industry Analysis,
Technical Feasibility, Commercial Feasibility, and Financial Feasibility.
CONCEPTUAL QUESTIONS
