INTRODUCTION Feasibility involves the evaluation of project idea to what extent a detailed investment proposal is required. Generally, three alternatives are available in the context of project idea evaluation. If the project idea is feasible, it means entrepreneur can move to next step. If project idea is not feasible, it is an indication that it would be better to abandon the ideas. However if it is not possible to arrive at a conclusion, then entrepreneur should try to collect more relevant data and analyse the same for arriving at a conclusion. Feasibility study should focus on the issues like 1. General information of the industry as a whole 2. Objectives of the proposal 3. Alternative ways, if any of attaining the objectives and better suitability of the proposed project 4. Project description, gestation Period, costs, technology proposed, anticipated life of the project 5. Demand analysis, total demand/requirement of the country including antipating imports and exports and share of the proposed project 6. Capital costs and norms assumed activity-wise and year wise, 7. Operating costs and norms 8. Revenue and benefits estimation
PROJECT FEASIBILITY REPORT It is a master report prepared from information collected through feasibility studies and consists of various tables, reports and statements. It incorporates introductory information on background of the industry to which the project belongs and the organisation preparing the report. It provides adequate information for project appraisal. Besides, financial institutions also use this report for evaluation before extending financial assistance to the enterprise concerned.
DIFFERENCE BETWEEN FEASIBILITY REPORT AND PROJECT REPORT 1. Feasibility report presents relevant facts before the top management or entrepreneurs enabling them to accept or reject the project . On the other hand , detailed project report involves the preparation of detailed specifications and designs, enginering drawings, site investigation , foundation designs as well as time schedule for project implementation. 2. FR is concerned with pre-investment decision but preparation of DPR is a post-investment decision . FR provides basis on which the investment decision is taken whereas DPR is used as a work plan for the implementation of a project. 3. FR deals with an exploratory research anf hence needs a span of 6 to 15 months. However DPR is an official document prepared with a lot of care and diligence . It needs one year to two years after the investment decision is taken by the entrepreneur or the tiop management. 4. FR is reliable for a short period of time till the investment decision is made about a project. But DPR guides the entire project and even if any variation is available in the project data then it can be compared and observed. Besides, DPR serves all practical purposes in the project development and for future reference . Thus, Feasibility report is expected to serve as a preliminary assessment of the overall worthwhileness of a project idea. Actually , feasibility report decribes the nature and complexity of the project as well as a general view on investment range. However, it always gives an opportunity to revise the actions and rectify mistakes before they are taken for approval . Moreover it pre-supposes the economic and social benefits to be derived from the project.
TYPES OF FEASIBILITY STUDY Feasibility study is defined as a formal investigation of profitable opportunity which leads to rational decisions about making an investment decision .It consist of : 1. Technical feasibility study : It is “an attempt to determine how well the technical
requirements of the industry can be met , which location would be most advantageous and what the size of the plant should be”. In technical analysis , efforts are generally made to
review the infrastructural facilities like land , building , transportation , availability of raw materials , position of power , production shed , township development , project location in terms of advantages / disadvantages , proposed size in terms of economic size , evaluation of technical know-how and project schedule . 2. Market feasibility study: It is known as economic feasibility study. It evalutes the market
factors like market growth potential and location of competitors .Market survey is the most popular method for assessing the market feasibility study. In the study , efforts are
necessary to anlayse whether the production of the proposed unit would be absorbed in the market or not .These projections are generally governed by market forecast of the project . Over all demand forecaste of various categories is quite helpful in acheiving the above objectives . These forecast are regularly prepared by the professional agencies involved in marketing network . Besides level of competition is also assessed under this study enabling the entrepreneur to assess his strength and weaknesses in the market. 3. Financial feasibility study :It deals with evaluation of the estimates of cost of the project
to ensure that it contains all provisions for contingencies and are realistic . Assessment of sources of finance and position of fund tie up is undertaken in this study. Entrepreneur is expected to maintain an effective debt-equity ratio. Similarly , he is also required to contribute his contribution as per laid down norms. A critical examination of financial projections is necessary to ensure the paying capacity of the project in respect of future dividends , repayment of debt obligation and serving of interest 4. Commercial feasibility study : It evalutes the commercial aspects of the arrangement of
the project . It also examines the arrangement process for procurement of machinery and equipments . The whole evaluation process includes the progress regarding placement of orders of equipment , procedure for selection and tendering . Arrangement process for sale of goods and services is also included in this study. 5. Social profitability study : It is defined as a process of evaluating a project in terms of
total impact which the project will have on the economy of the nation . Actually , it is a resource investment proposition where the national interest is involved. It helps in evaluating individual projects within the planning framework which indicates sectoral policy objectives and resources allocation. In this context, national planning process and objectives are used as basis for social profitability study.
Techniques for Measuring Feasibility A number of methods and techniques are used to prepare a project plan. Once the project has been formulated by an entrepreneur, he is required to undertake certain tasks to be performed for it’s implementation within a stipulated time period.
The methods and techniques are stated as: 1) Bar Chart- It is a traditional method or technique. Traditionally the quantum of work involved in each item of activity is used to be estimated and schedule prepared and plotted putting rectangular line bars against each of such items. Under this method, either horizontal or vertical lines are drawn to show the time of start of the work and of completion of work. The activities of each project are shown by dividing into some stages. The quantum of each item of work is completed or yet to be completed on a particular date of review could be assessed. But it suffers from limitations that this
chart fails to isolate the critical are of work where the completion of project on a scheduled date is constrained. 2) Programme budgeting: when the activities are in the implementation stage, this method is generally applied. When the projected activities are accepted for implementation ass per budgeted estimates, schedule is prepared where the activities are shown by dividing them into stages. Actions are usually taken to accomplish the activities on the basis of priority. The benefit of this method is that proper emphasis is placed on the works.
3) Network analysis: PERT and CPM are two branches of network planning technique. The PERT first developed in USA has now been proved to be a powerful tool for management in various programme, contract work etc. consisting of large number of activities and determining the expected time required to complete those activities up to a certain stage of completion of work. CPM is another technique allied to PERT. The CPM helps to know the amount of time needed to complete the various factors of project assumed to be known with certainty. Moreover the relation between the amount of resources employed and the time needed to complete the project is also assumed to be known. In the former method, a time is fixed for each part of the work is performed on sequential basis and maximum time indicated for it’s accomplishment.
4) Line of balance method: This method is followed in developing project planning on graphical basis. This method is not at all popular in India though it is so in U.S.A. this method of profit planning is especially suitable in the following cases:(a) Where a number of homogeneous, independent schemes and uniform factors of resources are used. (b) Uniform type of raw materials is used in abundant quantity in various sectors of large project. (c) When similar type of work repeatedly occurs and similar work is performed again and again. 5) Computer aided planning: Computer aided project planning is formulated at present in large projects. With the help of computers, project planning is prepared through various projects. A schedule of activities is prepared on the basis of time schedule prepared work is actualised. For different work different types of packages are formulated. Computer makes accounting work easier and prepares numerous statements and report. It supplies data through tables, charts, graphs, diagrams etc. project planning is prepared using computer hardware and software. The method of computer aided project planning supplies data in the following way:-
(a) A general description, which gives account of project or scheme, division of work, training of different types of programme, description of activities, number of activities and person authorised for the activities. (b) Indexing of work which indicates complex work, work on the basis of division functional work, individual work, group work, time basis (daily, weekly, or monthly work etc. (c) Description of the work on the basis of time which instructs the time needed for each work, time for start up work, time for completion of work, maximum time allowed for work, minimum time allowed for work etc. (d) An idea about utilisation and efficiency of human resources and other resources can be obtained. What will be the amount of raw materials and how these can be used can be known. (e) For the project, work based cost, total cost, budget cost will be available. It indicates the difference between actual cost and anticipated cost. Selection Criteria Selection criteria are valuable tools for the systematic and objective analysis of projects. There are different selection criteria generally used with regards to project selection. These criteria as grouped as under: 1) Specific Criteria 2) General Criteria Specific Criteria: These are concerned with the economic development of the country. These criteria are as follow: (a) Factor intensity theory: according to this theory entrepreneur should execute those project which are expected to help in utilising the abundant resources, besides some factors are scarce in availability but efforts should be made to use scarce resources as complimentary with the abundant resources. Optimum product mix with the help of abundant resources and scarce resources are advisable in this centre. (b) Size and complexity criterion: This criterion encourages those projects which are small at their primary stage but there is growth potential for higher size. So stepping stone theory is the basis for this criteria size of the project should be growth oriented and SSU is to be developed as medium scale as large scale at a later stage of development process. Thus large scale enterprises using more complicated techniques and yielding distant returns must wait for a later stage when simple entrepreneurial skills and attitudes have been learned. (c) Foreign exchange benefit criterion: it deals with the earning capability of foreign exchange. It means that if a project can earn foreign exchange
then it must be given preference in selection to other projects which are not expected to earn foreign exchange. (d) Commercial profitability criterion: It considers the profitability aspect of the project. It uses net profit after deducting are cost basis for evaluating commercial profitability of the projects, measurement of profitability of the projects measurement of profitability is governed by important factors like: i)
Estimated capital cost of the production and ii) estimated receipts from the sale or realisation from project output.
(e) National economic profitability criterion: It evaluates the rate of return to the national economy on an investment in a project taking into account all major measurable economic cost or resource benefits. It is notable and then an efficient allocation of investment resources is achieved by equating the social marginal productivity of capital in it’s
various uses. Thus natural economic profitability is defined as the total net measurable rate of return to the economy on an investment. General Criteria: These criteria are concerned with the entrepreneur’s
own interest, these criteria are: (a) Entrepreneur has technical capability in a particular field (b) Entrepreneur is interested to seek financial help from financial institution and that is meant for the project (c) Regional bias of the entrepreneur to develop a particular project in a particular region keeping in mind the availability of local resource. (d) Entrepreneur has an intention to develop a project in a particular field seeking a dominating status in that particular field.
CASE STUDY ON OPENING A MAGGI VAN IN THE UNIVERSITY
Utkal University is one of the reputed universities of Odisha and also ranked 17
th
in India. It
consists of total 59 department including the self-finance courses and on an average more than 1500 students are enrolled each year in the u niversity. Uktal University has many departments whose classes starts as early as in the morning at 7.30 am and c ontinues upto 4 pm and in between this students get time to have their tiffin and snacks but due to lack of availability , students don’t get a good and tasty food according to their taste. So
establishing a maggi stall /van could be a vital idea and the e ntrepreneur will not only earn but the students will also get some fast food as per their taste or we can say studentfriendly food . So before looking on to project and its feasibility report and feasibility report consists of the following : 1. Technical feasibility study : In the project the technical study can be of using the latest technology of cooking the magi and instead of using cooking gas or strove we can use induction cooker as gas cyclinder will be too costlier and induction can be used in the help of electricity and cooking in induction takes less time and magi can be rendered to students as soon as they demand for it. For using induction cooker the entrepreneur must be literate in using the induction cooker. 2.Market feasibility study : It is one of the important study that is involved in the report and it involves potential customer for the business. The entrepreneur must adopt marketing strategy like posting banner at some important places of the university.Adquate information regarding where the product is available all the information must be disclose. 3.Financial feasibility study : This report consist of all the details regarding to the sources of procurement of finance and a estimated requirement needed to purchase things to run the business are as follows : Product require 1.Tata ACE 2.Decoration of van 3.Advertising expenses 4. Purchase of induction cooker and others 5.Total fund required
Cost involved 300000 5000 10000 50000
365000
4.Commercial feasibility report : In this report it includes where the business will be undertaken and what will be th turnover of the business in a month and the estimated turnover during a month is follows : ESTIMATED SERVICE
ESTIMATED TURNOVER
1. Per plate maggi 2.Maggi chota pack 3.Electricity consumed by induction 4.Oil and others 5.Profit
10 5 1 1 3
So on a avg if 200 students eats magi then the entrepreneur can earn net 12 000 to 15000 profit per month of 30 days.
