Feasibility Study Outline for New Manufacturing Project
There is a saying, hindsight is 20-20. Smart business people, however, do not rely on hindsight but on foresight. A feasibility study is more of a scientific foresight, a way of reducing guessing as to what things should be considered.
The following is an outline of a feasibility study based on new manufacturing business. There are hundreds of variations of a feasibility study but this is good because it is applicable to big and small businesses, either domestic and international.
Feasibility Study Outline for New Manufacturing Project A. Project Summary 1. Brief description of the project 2. Summary of the findings and conclusions a. Project timetables and status b. Management aspects c. Marketing aspects d. Technical aspects e. Taxation aspects f. Financing aspects g. Financial aspects h. Social aspects B. Project Timetable and Status 1. General project planning 2. Incorporation 3. Preparation of engineering specifications 4. Building construction 5. Selection of machinery supplier 6. Arrival of machinery 7. Installation of machinery 8. Trial run 9. Start of normal production 10. Start of selling operations C. Management Aspects 1. Management during the pre-operating period a. Project originators b. Project promoters; managers c. Firms or persons involved or to be involved in marketing, engineering and other studies d. Management during construction period 2. Management during the operating period a. Type of business organization (partnership, corporation) and reason for the choice b. Internal organization 1) Statement of functions of each unit 2) Organization chart c. Owners - citizenship of owners, and percentage of their respective holdings d. Management personnel (from the members of the board of directors to the department or section managers) 1) Duties and time to be devoted to project 2) Requirements 3) Recruitment 4) Compensation 5) Staffing - qualifications, education, history e. Labor 1) Skills required 2) Number required for each skill 3) Sources of labor force for each type of skill 4) Recruitment program 5) Labor trainig program 6) Compensation a) prevailing rates b) Legal rates c) Rates intended for the project - starting rates and provisions for annual increases 7) Facilities for laborers (housing, transportations, medical and dental care, recreation and other fringe benefits) 8) Effect of labor laws on the above items f. General managers if any - arrangements and fees g. Professional firms to be hired - law, accounting, engineering, etc. D. Marketing Aspects 1. Demand a. Consumption for the past years. (The past period to be covered should be adequate enough to show some trends and to serve as the basis for the projected demand.) The consumption figures maybe broken down into: 1) Regional markets 2) Types of consumers (households, restaurants, etc.) 3) Types of market (as for increase in units, or for the replacement or scrappage market, in the case of motor vehicles) 4) Major firm-users (for industrial projects) b. Projected consumption for the next five years. Some financial institutions may require that the projections be up to the time of last amortization on the loan applied for. 1) Quantity, broken down into: a) Regional markets b) Types of consumers c) Types of markets d) Major firm-users 2) Method used and factors considered in preparing the above projections 3) Comparison of the projections with that of: a) Government offices b) Trade associations c) International organizations, as the U.N. d) Other private parties, as management consulting firms 2. Supply a. Supply for the last five years - quantity broken down as to source: 1) Imported - further broken down into: a) Form in which the goods are imported b) Country of origin c) Firm-importers d) Brands 2) Locally-produced a) Province or region b) Firm or companies that produce the product c) Brands b. Projected supply for the next five years - quantity, broken deown as shown above c. Factors affecting trends in past and future supply 1) Regarding competing products a) Development of new competing products b) Improvement in quality or decrease in cose and in price 2) Regarding importations a) Tax-free importations by certain entities 3) Regarding local production a) Local produiction capacities (past, present, expansion plans, new projects, modernization plans) b) Percentage utilization of the capacities (based on a given number of of working days a year), considering: 1) Maintenance policies (maintenance may be deferred) 2) Obsolescence or prolonged breakdown of plant machinery 3) Shipping interruptions 4) Financing available for working capital 3. Prices a. Comparison of the following: 1) Cost of importation 2) Cost of production of existing firms 3) Projected cost of production of the project 4) Importer\'s and local producer\'s selling prices 5) Distributor\'s wholesalers, and retailers prices b. Tariff protection assumed or expected for the project c. Domestic transportation costs d. Effects of the Flag Law e. Prices to be adopted by the project, and explanations for any difference between this price this price and the expected future prevailing price in the industry 4. Marketing program (1) present and expected marketing practices of competitors, (2) proposed marketing program for the project, and (3) explanation for any material deviations, covering a. Terms of sale (cash, 30 days, etc) b. Channels of distribution, regional location of sales outlets, and transportation and warehousing arrangements, and corresponding costs. c. Promotions d. Packaging 5. Projected sales quantity a. Expected annual volume (quantity) of sales for the project, considering the demand, supply, prices, and marketing program b. Sales contracts, if any E. Technical Aspects 1. Product a. Description and specifications of the product, including weight, size, and phyusical and chemical properties. b. Principal uses c. Tests for the product (prototype) d. Assurance that the products will be of the expected quality and quantity 2. Manufacturing Process a. Description of the process, flow chart, and normal duration of the process Discussion need not be detailed in connection with application, if the process is licensed or is a secret) b. Proof of reliability and superiority of the processing alternative processes considered, and factors used in determing the process to be employed. c. Licencing agreement, if any, including terms; reliability of licensor; d. Processes used in existing plants and in other new projects in the US and abroad e. Processes being developed 3. Plant size and production schedule a. Rated annual and daily plant capacity, at a given number of shifts per day,and number of operating days per year. b. Desirability of the selected capacity, alternative plant and rated capacities considered; minimum economical plant size; factors used in determining plant size c. Provisions made in the location, layout, machinery design and structures, for expansion d. Expected annual production volume for the next five years 4. Machinery (major, and auxiliary as transport, materials handling, and standby units) a. Specifications and functions; rated capacities and balancing, engineering firm which prepared the specifications b. Availability of spare parts and repair services c. Selection of supplier, including bidding procedures, and evaluation of bids d. Quotations from suppliers e. Reliability of the suppliers and machinery guarantees f. Delivery, payments, and other arrangements with suppliers 5. Plant location a. Plant location; location map b. Desirability of the locations, in terms of distance to services of ray materials and markets, tie-in with transportation facilities and utilities, weight-bearing capacity of the site, and other factors c. Alternative locations considered, and factors used in determining the location 6. Plant Layout a. Description of the plant layout; lay-out map b. Effect of the lay-out on the materials flow c. Treatment of materials handling and storage in the layout d. Tie-in with transportation facilities e. Provisions for expansion 7. Structures a. Buildings - area, specification and built-in utitilies and airconditioning facilities b. Other structure as piers c. Land improvements- roads within the compound, drainage facilities, fences 8. Raw Materials a. Specifications or description (physical and chemical) b. Proof of reliability and superiority of the raw materials, and tests made c. Atlernative raw materials considered factors used in selecting the raw materials, and tests made d. Raw materials used in other plants in the US, and in other countries; new raw materials being studied or developed e. Quatity required every year; materials f. Availability, continuity of supply (specially in case of imported materials). Current and prospective sources, and transportation g. Suppliers reliability, and arrangements as to delivery and payments. h. Mineral reserves (as for cement) adequacy of technical studies on the extent of deposits, and quality i. Current and prospective costs of raw materials, terms of any long-term contracts 9. Utilities a. Electricity, fuel, water, steam and suppliers 1. User 2. Quantity required 3. Utilities balance 4. Availability 5. Sources (implant production or any of various possible outside sources) 6. Reason for the choice of source 7. Relaibility of the source 8. Alternative souces considered 9. Cost b. Electricity 1. Maximum or peak power demand in KW c. Fuel-avarage consumption per hour d. Water 1. Quality required 2. Average consumption per hour of raw and softened/treated water for process, cooling, sanitary, and general utilities 3. Water treatment 4. Storage and distribution e. Steam 1. Maximum steam demand processed 2. Average steam consumption- pound per hour 10. Waste Disposal a. Description adn quantity of the waste to be disposed of b. Description of the waste disposal method selected (as by chemical treatment, burning, or further processing to by- products) c. Reliability and superiority of the method d. Alternative methods considered, adn factors used in the selection e. Methods used in other plants f. Methods being developed g. Cost of waste disposal h. Clearance from the peoper authorities or compliance with legal requirements F. Taxation Aspects 1. Taxes affecting the project 2. Project design used so that the project will fall under a lower alternative tax rate 3. Tax exemptions to be availed of by the project G. Financing Aspects 1. Sources of financing for the project a. Sources selected, for both long term adn short-term financing b. Alternative sources considered and factors used in determining the selected sources 2. Amount and terms of financing for each source selected a. Type of finacing (capital stock, loan, etc) b. Use of proceeds (as for machinery, land, etc) c. Currency of financing (pesos, dollars, etc) d. Amount e. Security (as collaternal or guarantee) f. Repayment period g. Interest or dividend rate h. Other features 3. Status of the financing from each source a. Actual releases already made- amounts and dates b. Applications already approved, but corresponding funds not yet released - assurance of release of funds, and expected date c. Applications pending (not yhet approved) d. Applications still to be made 4. Financing of contingencies and seasonal peaks in working capital a. Contingencies- provision made for the financing of contingencies, as overruns in construction costs or delay in start of normal operations b. Seasonal peaks in working capital- provisions made for the financing of seasonal increases in working capital, as in the case of a project solely oriented to the manufacture of Christmas items H. Financial Aspects 1. Major assumptions used, as on: a. Project time-table b. Sales volume c. Plant capacity d. Income tax rates e. Tarriff rates f. Tax exemptions to be enjoyed by the project g. Foreign exchange rate h. General price levels 2. Financial Statements Projected financial staemetns, with supporting computations and subsidiary assumptions; a. Projected income statement b. Projected cash flow statement c. Projected balance sheet 3. Financial Analysis a. Break-even point 1. Profit break-even point- volume and selling price 2. Cash break-even point- volume and selling price 3. Debt service sales volume b. Capital, recovery and earnings. 1. Cash pay off period 2. Accounting rate of returns 3. Dsicounted cash flow rate of return c. Others I. Social Desirability of the Project 1. Government revenues a. Gross increase in government revenues, in terms of taxes and duties to be paid by the project, during both the pre-operating and operating period. b. Decrease in government reenues due to the setting up of the project, as loss in tariff duties on goods currently imposted, but to be subsequently produced by the project. 2. Foreign exchange reserves a. Gross increase in the international reserves in terms of the dollar earnings on dollar savings capability of the project b. Decrease in the international reserves, due to the dollar cost of the project, as salaries of foreign technicians, CIF cost of imported machinery and fees to engineering consultants 3. Related industries - development of related industries- other projects which may be developed subsequently to supply the raw materials requirement of the project, or to further process the products of the project 4. Consumers - possible decrease in the retail price of the good 5. Employees a. Number of persons to be employed, broken down into local and foreign, and into the various skills required; b. Total wage bill (including fringe benefits); c. Training of workers