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