IDEA EVALUATION /OPPORTUNITY ASSESSMENT

How do you know that a business idea you have identified or an opportunity you have
discovered are feasible?

Feasibility literally means whether some idea will work or not.

Economic investments may take the form of projects or businesses. Engineering and social
investments may take the form of projects. A Project is a group of unique, interrelated activities
that are planned and executed in a certain sequence to create a unique product and/ or service,
within a specific time frame, budget and the client’s specifications.
Types of projects
(a) Commercial Projects: These projects are undertaken for commercial purpose and return on
investment is expected out these projects. For example, Toll roads.
(b) Social Projects: These projects are undertaken for social purposes and welfare of the people
either by the Government or Service oriented Non-Governmental Organizations. For example,
Polio immunization Project, Child Welfare Projects, Adult Literacy Projects, water projects etc.

c) Manufacturing Projects: Where the final result is a vehicle, ship, aircraft, a piece of
machinery etc.

d) Construction Projects: Resulting in the erection of buildings, bridges, roads, tunnels etc.
Mining and petro-chemical projects can be included in this group.

e) Management Projects: Which include the organization or reorganization of work without

necessarily producing a tangible result. Examples would be the design and testing of a new
computer software package, relocation of a company’s headquarters or the production of a stage
show.

f) Research Projects: In which the objectives may be difficult to establish, and where the results
are unpredictable.

g) Solar Exposure – Harvesting light to assess the suitability of installing solar (photovoltaic)
panels on roofs using 3D city models and geometric information such as the tilt, orientation, and
area of the roof.
f) Environmental Risk – Assessing the environmental vulnerability of marine resources with
respect to oil spills as external stressors.
g) Precision Farming – Harvesting more bushels per acre while spending less on fertilizer using
precision farming and software.
Projects vs. Businesses

 Projects have definite start and end dates whereas businesses are assumed to be infinite.
A project produces the product in a finite, set time period whereas in business the
products are repeatedly produced for an indefinite amount of time. E.g. a roll out of an IT
system would have to be completed by a particular target date whereas production and
supply of IT equipment would be ongoing.
 A project introduces a new product or a change in product whereas business seeks to
reproduce the same item. For example, a project would produce a new IT system and roll
it out in the business whereas business would be operating that IT system day in day out.
 Before inception, business managers prepare business plans which act as road maps for
startups and could be used to solicit for funding. Project managers prepare project plans
to guide implementation of projects whereas project proposals are used to solicit for
funds for entrepreneurial projects.
A business plan documents business goals, strategies, and marketing plans for the long-
term. It is also a template that can be used to secure funding from investors. A project
plan, on the other hand, outlines specific objectives and tasks that need to be
accomplished in order to achieve project goals. Both of these plans should be updated
regularly as conditions change or new opportunities arise.

A good business plan will include an analysis of the industry and competition, as well as
projections about how you expect your company's products or services to fare in the
market over time.
Before any of them is initiated, there’s need to conduct a feasibility study or analysis.

Feasibility Analysis

Feasibility literally means whether some idea will work or not. Business and project managers
would want to know beforehand whether there exists a sizeable market/or need for the proposed
product or project and if the market or need will translate into attractive returns. A simple
validation or a business idea would be to examine the following:
 Availability of affordable seed capital
 Attractive return on investment
 Durable demand/market scope
 Competitive advantage
 Favorable policies (monetary and fiscal)
 Manageable competition
 In line with the goals of the business
 Availability of labor (required skills)
For large businesses or a project, feasibility studies are advised.
Feasibility Analysis
The study investigates practicalities, ways of achieving objectives, strategy options,
methodology, and predict likely outcome, risk and the consequences of each course of action. It
becomes the foundation on which project definition and rationale will be based so that the
quality is reflected in subsequent project activity.

A well conducted feasibility analysis provides a sound base for decisions, clarifications of
objectives, logical planning, minimal risk, and a successful cost-effective project. Assessing
feasibility of a proposal requires understanding of the STEEP factors. These are
 Social,
 Technological,
 Ecological,
 Economic, and
 Political.
A feasibility study is not an end in itself but only a means to arrive at an investment decision.
The preparation of a feasibility study report is often made difficulty by the number of
alternatives (regarding the choice of technology, plant capacity, location, financing etc.) and
assumptions on which the decisions are made.

Components of Feasibility Study

The analysis is mainly interested only in the commercial profitability and thus examining only
the market, technical and financial aspects of the project. But, generally feasibility of a project
covers the following areas.

 Economic and commercial feasibility

 Technical Analysis
 Financial Analysis
 Social feasibility
 Managerial feasibility
 Environmental feasibility

A) Economic and Commercial Feasibility

Apart from the financial benefits (in terms of Return on Investment) the economic benefits of the
project are also analyzed in the feasibility and include employment generation, economic
development of the area where the project is located, foreign exchange savings in case of import
substitutes or earning of foreign exchange in case of export-oriented projects and others.
The commercial feasibility of a project involves a study of the proposed arrangements for the
purchase of raw materials and sale of finished products.
This section comprises the following two aspects.
✓ Arriving at the physical requirement of production input such as raw materials, power, labor
etc., at various level of output and converting them into cost. In other words, deciding costing
pattern.
✓ Matching costs with revenues with a view to estimating the profitability of the project and the
break-even point. The possibility ultimately decides whether the project will be a feasible
proposition.

Market analysis
In the recent years the market analysis has undergone a paradigm shift.
Review of the projects executed over the years suggests that many projects have
failed not because of technological and financial problems but mainly because of the fact that the
projects ignored customer requirements and market forces. In market analysis a number of
factors need to be considered covering – product specifications, pricing, channels of distribution,
trade practices, threat of substitutes, domestic and international competition, opportunities for
exports etc. It should aim at providing analysis of future market scenario so that the decision on
project investment can be taken in an objective manner keeping in view the market risk and
uncertainty.
Demand projections are to be made keeping in view all possible developments.

B) Financial Feasibility
The main objective of this feasibility is to assess the financial viability of the project. The
primary objective of any firm is to maximize profits; the financial aspects of a project idea must
be studied carefully. Even if the project is marketable and technically feasible, it cannot be
implemented if it is not financially viable in the medium to long-term. To assess the financial
feasibility of a project idea, the project manager must examine the capital costs, operating costs
and revenues of the proposed project.

✓ For existing companies, audited financial statements such as balance sheets, income
statements and cash flow statements.
✓ For projects that involve new companies, statements of total project cost, initial capital
requirements, and cash flow relative to the projective time table.
✓ ✓ Financial analysis showing return on investment return on equity, break-even volume and
price analysis.
✓ If necessary, sensibility analysis to identify items that have a large impact on profitability or
possibly a risk analysis
The terms ‘economic viability’ and ‘financial viability’ are not different for companies.
However, from thee national angle and from the view-point of the economy as a whole,
economic feasibility and financial feasibility are not considered to be the same. Cost and benefits
to the nation due to the proposed project are considered in the economic feasibility test. Tax
revenue, generation of employment, saving of foreign exchange and such other factors,
differentiate economic viability from financial viability. The government and government
agencies calculate the economic indicator of a project permitting the project or financing it.

Under economic analysis, the project aspects highlighted include requirements for raw material,
level of capacity utilization, anticipated sales, anticipated expenses and the probable profits. It is
said that a business should have always a volume of profit clearly in view which will govern
other economic variables like sales, purchases, expenses and alike.

C) Technical Feasibility
Technical analysis represents study of the project to evaluate technical and engineering aspects
when a project is being examined and formulated.

Technical feasibility implies to mean the adequacy of the proposed plant and equipment to
produce the product within the prescribed norms.

As regards know-how, it denotes the availability or otherwise of a fund of knowledge to run the
proposed plants and machinery.

It should be ensured whether that know-how is available with the entrepreneur or is to be

procured from elsewhere. The feasibility report should give a description of the project in terms
of technology to be used, requirement of equipment, labor and other inputs. Location of the
project should be given special attention in relevance to technical feasibility. Another important
feature of technical feasibility relates the types of technology to be adopted for the project. The
promoters of the project can approach the problem of preparation of technical feasibility
studies in the following order:

 Undertaking a preliminary study of technical requirements to have a quick evaluation. If

preliminary investigation indicates favorable prospects working out further details of the
project.
 The exercise begins with engineering and technical specifications and covers the
requirements of the proposed project as to quality, quantity and specification type of
components of plant & machinery, accessories, raw materials, labor, fuel, power, water,
effluent disposal transportation etc

For businesses that innovate, technical analysis is based on the description of the product and
specifications and also the requirements of quality standards. The analysis encompasses available
alternative technologies, selection of the most appropriate technology in terms of optimum
combination of project components, implications of the acquisition of technology, and
contractual aspects of licensing.
The technology chosen should also keep in view the requirements of raw materials and other
inputs in terms of quality and should ensure that the cost of production would be competitive.

D) Managerial feasibility
The success or failure of a project largely depends upon the ability of the project holder to
manage the project. Project is a bundle of activities and each activity has its own role. For the
success of a project, a project holder has to co-ordinate all the activities in such a way that the
additive impact of different inputs can produce the desired result. The ability to manage and
organize all such inter related activities come within the concept of management. If the person in
charge of the project has the ability to manage all such activities, the desired result can be
anticipated. There are three ways to measure the managerial efficiency
a. Heredity skill
b. Skill acquired through training.
c. Skill acquired in course of work

E: Social feasibility
A project may cross all the above barriers and found very suitable but it will
lose its entire creditability, if it has no social acceptance. Though the social customs, conventions
such as caste community, regional influence etc. are creating hindrance for development of a
project should avoid all such social conflicts which will stand on the successful implementation
of the project. (e.g.) Considering the interests of the general public; projects which offer large
employment potential, which channelize the income from less developed areas will stimulate
small industries. In a nut shell, the feasibility report should highlight on these five testing stones
before it can be declared as complete and only after judging through these indicators a project
can be declared as viable and can be submitted for finance or any other assistance from any
institution

F: Environment Impact Analysis/Assessment

The performance of a project may not only be influenced by the financial factors stated earlier.
Almost all projects have some impact on the environment. Current concern of environmental
quality requires the environmental clearance for all projects. Therefore, environmental impact
analysis needs to be undertaken before commencement of feasibility study.
Objectives of Environmental Impact Studies are as follows

 To identify and describe the environmental resources/values or the environmental

attributes which will be affected by the project (in a quantified manner as far as possible).
 To describe, measure and assess the environmental effects that the proposed project will
have on the environmental resources/values.
 To describe the alternatives to the proposed project which could accomplish the same
results but with a different set of environmental effects. The environmental impact
studies would facilitate providing necessary remedial measures in terms of the
equipment’s and facilities to be provided in the project to comply with the environmental
regulation specifications.
G) Risk and Uncertainty
Risk and Uncertainty are associated with every project. Risk is related to occurrence of
adverse consequences and is quantifiable. It is analyzed through probability of
occurrences whereas uncertainty refers to inherently unpredictable dimensions and is
assessed through sensitivity analysis. It is therefore necessary to analyze these
dimensions during formulation and appraisal phase of the programme.
 Factors attributing to risk and uncertainties of a project are grouped under the following;
• Technical –relates to project scope, change in technology, quality and quantity of
inputs, activity times, estimation errors etc.
• Economical- pertains to market, cost, competitive environment, change in policy,
exchange rate etc.
• Socio-political- includes dimensions such as labor, stakeholders etc.
• Environmental – factors could be level of pollution, environmental degradation etc