feasibility analyses
TRANSCRIPT
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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
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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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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Industry/Market Feasibility Analysis:
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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Industry/Market Feasibility Analysis:
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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Overview of Full 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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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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Overview of Full 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