OM Lecture 8

8/6/2019 OM Lecture 8

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OPERATIONS MANAGEMENT

Lecture 8


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Type of Feasibility Studies

1. Market and Real Estate Feasibility: Market feasibilitystudy typically involves testing geographic locations fora real estate development project, and usually involves

parcels of real estate land. Developers often conductmarket studies to determine the best location within ajurisdiction, and to test alternative land uses for a givenparcels.

2. Technology and System Feasibility: This involvesquestions such as whether the technology needed forthe system exists, how difficult it will be to build, andwhether the firm has enough experience using thattechnology.


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3. Resource Feasibility: This involves questions such as

how time is available to build the new system, when it

can be built, whether it interfaces with normal

operations, type and amount of resources required,dependencies, etc.

4. Cultural Feasibility: In this stage, the projects

alternatives are evaluated for their impact on the local

and general culture. For example, environmental factors

need to be considered. Further an enterprises own

culture can clash with the results of the project.


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5. Economic Feasibility: It involves questions such as

whether there will be cost saving, increased revenue,

increased profits and reduction in required investment

exceed the costs of developing and operating aproposed system.

6. Legal Feasibility: It determines whether the proposed

system conflicts with legal requirements. When an

organization has either internal or external legal

counsel, such reviews are typically standard. However, a

project may face legal issues after completion if this

factor is not considered at this stage.


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7. Schedule Feasibility: A project will fail if it makes too

long to be completed before it is useful. Typically this

means estimating how long the system will take to

develop, and if it can be completed in a given timeperiod using some methods like payback period.


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Structural Outline ofA Business Feasibility

Study

Cover Sheet

Executive Summary

Table of Contents

Introduction

Product or Service

Technology

Market Environment Competition

Industry

Business Model

Marketing and Sales Strategy


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Structural Outline of a Business Feasibility

Study

Table of Contents

Market Consumption

Production/ Operating Requirements

Location ofplant

Description ofproject

Production Process

Raw Material

Management and Personnel Requirements

Intellectual property

Regulations/ Environmental Issues

Critical Risk Factors


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Structural Outline of a Business Feasibility

Study

Financial Projections:

Balance sheet projections

Income statement projections

Cash Flow projections

Break-even analysis

Capital structure, capital requirements and strategy

Expense estimates

Dividend Policy

Recommendations and Findings

Conclusion


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Executive summary

The executive summary is a summary of all key sections of

the business feasibility study and should work as a

separate, stand-alone document. Key points to

remember:

Write this document after the content section of

business feasibility study is completed

Although the executive summary is written last, it is

presented first

The executive summary should be no more than one

page long


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Product/ Service

Describe the enterprises, product or service in simple

language.

Ifmore than one products or services then give the product

mix Describe how the customers would use and buy the product

or service

Describe key components or raw materials that will be used in

the product along with its sources and availability.

Describe the plans to test the product to ensure it works as

planned and is sufficiently durable.

Describe plans to upgrade product or expand product line.


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Technology

As necessary provide further technical information about

the product or service.

Describe additional or ongoing research and

development needs

Explain technical terms enough to be understood by

everybody but not necessarily technology expert readers.


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Intended Market Environment

Target Market:

Define and describe the target market. Distinguish between end users and

customers

Be clear how end users and customers benefit. How and why they would

buy the product or service?

What is the projected needs your product or service fulfill

For Business-to-business Markets:

Who are the key players? Frequency of product purchase, replacement

needs versus expansion, purchasing process

Estimates ofmarket size, initial targeted geographic area.

For business-to-consumer markets:

Demographic factors such as, income level, age, gender, education, ethnicity

Psychographic factors

Behavioral factors such as, frequency ofpurchase and shopping behavior


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Competition

Describe the direct and indirect competition

For key competitors, give market shares, resources

List of all key barriers to entry

Describe what is unique about the enterprises

product/service compared to the competition

State how difficult it will be for the competitors to copy

the enterprises product or service. Describe how competitors will most likely react to the

enterprises product launch and the enterprises response

strategy.


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Industry

Clearly define and describe the industry in which the

enterprise operates. Include the size, growth rate, and

outlook.

Describe the demand and supply factors and trends

Describe the larger forces that drive the market e.g.;

innovation, cultural changes, regulation etc.


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Business Model

Describe the proposed enterprises business model.

How will the enterprise generate revenue?

Describe the business model in enough detail to

support financial projections presented later.


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Marketing and Sales Strategy

Lay out the basic marketing and sales strategies

Discuss any strategic partnership the enterprise has or is

planning to form

Describe the distribution strategy (sell directly to

customers through sales force, direct mail, or internet;

sell through manufacturers representatives, wholesalers

distributers or retailers)

Describe the pricing strategy and justification

Describe intended typical payment terms for customers

Quantify the marketing budget for at least 1 year


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Production/ Operating Requirements

Describe how and where the products shall be manufactured

What physical premises are required? Give location, size, conditionand capacity of planned production and warehouse facilities andnumber of shifts planned

Will space be owned or leased? Will renovations be required? Atwhat costs?

How complex is the manufacturing process? Describe equipmentneeded and costs?

If enterprise will outsource production or distribute othersmaterial:

Describe supply sources

Outline the relevant contract terms

Describe how the enterprise plans to protect its trade secrets & quality

control


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Management and Personnel

List the proposed key managers, titles,

responsibilities, relevant background,

experience, skills, costs.

Sketch personnel requirements: what people

will be needed now, in a year, in the long

term? What skills and qualifications are

required and what would be the financialimplications?


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Intellectual Property

Briefly describe patents, copyrights and

trademarks obtained and in process.

If enterprise is operating under a licensingagreement, give name of the licensor/assignor

and also give termination or renewal dates.


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Regulations and Environmental Issues

Outline non-economic forces that might affect the

prospects of the firm:

Key government regulations and the enterprises plans for

compliance. Any environmental problems on property, plans to address the

problems and their costs.

Environmental factors i.e. waste disposal plans, if needed

Political stability, if applicable Any other regulatory or political issues. This would deal with

proposed industry regulatory changes, stable versus unstable

environments.


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Critical Risk Factors and Start-up

Schedule

Critical Risk Factors: Describe critical risks faced by

the enterprise. For example, internal

characteristics, uniqueness, investment, economic

forecasts, change in regulations and technical

obsolescence.

Start-up Schedule: Sketch the major events in the

life of the venture by listing thetimetable/deadlines for completion of phases of

venture start-up.


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Financial Projections

Include a narrative highlighting key underlying assumptions and the logic

governing your projections. Include financial history, if any and likely

financing stages including information about funding sources and uses.

Provide a page or two of footnotes for each financial spreadsheet. Some

core components are of this report are:

Balance Sheet Projections 3 years(ideally) &highlight inflows of capital

Income Projections Year 1: Monthly or quarterly: Year 2 & 3: Annually

Cash Flow Projections Year 1: Monthly or quarterly: Year 2 & 3:

Annually Break-even Analysis: When firm start turn a profit

Cost Benefit Analysis: Will the business provide a viable return on

investment


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Capital Requirements & Strategy

How much funding (equity) will the firm need and when?

What projected revenue or assets does the proposed

business have to secure the financing?

What sources will provide the funding, i.e. investors,

lending institutions etc.

What ratio of debt to equity financing will occur?

When will investors begin to see a return? What is theexpected return on investment (ROI)?


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How to conduct a Break-Even Analysis?

Break-even = Fixed Cost

Contribution Margin

Contribution Margin = Sales price per unit Variable Cost

per unit


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Final Findings and Recommendations

Recommendations from the feasibility study regardingthe viability of putting the business idea into practiceshould be honest, short and direct.

A significant component of the findings should relate tothe likelihood of success (dimensions of viability),projected return on investment and how any identifiedrisk should be mitigated.

The purpose of the feasibility study is to consolidate anargument based on factual evidence and analysis to helpjustify your decision in relation to the core question ofwhether the business venture in question is actuallyviable.


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Sources of Help

Business Enterprise Centers

Accountants

Solicitor

Bank

Business Advisors/ Consultants

Trade Associations

Potential Suppliers

Competitors

University Library

OM Lecture 8

Documents

Transcript of OM Lecture 8