Click here to read SME-Part B-Lecture 5-Sub Lecture 5A
Click here to read SME-Part B-Lecture 5-Sub Lecture 5B
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Having conducted a feasibility study and crafted a business plan
Feasibility: It denotes financial or economical viability
Crafting means building up.
Financial Analysis is a part of a business plan.
Feasibility Analysis is an investigative tool. It analyses many ideas and directs which idea is profitable or viable.
Business plan includes production cost of products, sale price of products, cost reduction strategy.
One has to check if the product is dependable, the idea is workable.
One has to check if the market growth rate is attractive-able.
Industry and Market Feasibility Analysis:
One has to identify which niche is profitable and sustainable.
Porter's Five Forces Model: It is a calculating method of the attractiveness of an industry or a market.
Porter's Five Forces Model
a. The dealing power of Suppliers
b. The dealing power of Buyers
c. The danger of substitute products or services
d. The danger of new entrants
e. Rivalry or competition among existing firms
a. Rivalry or competition among existing firms
i. The number of competitors
ii. The similarity in size or capability
iii. The growth rate of industries
iv. One has to check if differentiated products or services can be sold or provided or homogenous products or services have to be sold or provided.
Lower rivalry indicates the attractiveness of the industry.
b. Bargaining power of suppliers
The lower bargaining power of raw material providers indicates the attractiveness of the industry.
c. Bargaining power of buyers
The lower bargaining power of buyers indicates the attractiveness of the industry.
d. The threat of new entrants
One has to check if entry is easy or hard in the industry.
If the entry in the industry is easy, anyone can come to the industry by copying an idea.
One cannot gain the advantage of economic scale if the entry in the industry is easy.
The economic scale indicates the utilization of resources at a potential level and gaining maximum output. Reducing per capita cost increases gaining a higher economy of scale.
If the entry is easy in the industry, anyone can enter the industry due to existing lower capital requirements.
e. The threat of substitutes
If substitute products or services are high in number, the market share in the industry will reduce and profit also will reduce.
The lower substitute products or services indicate the attractiveness of the industry.
Table:
Measuring Attractiveness of an industry
Financial Feasibility
Factors
|
Relative
Importance (I)
|
Threat Impose
(T)
|
I × T
|
Bargaining power of Suppliers
|
|||
Bargaining power of Buyers
|
|||
The threat of substitute products or services
|
|||
The threat of new entrants
|
|||
Rivalry or competition among existing firms
|
|||
Total
|
Σ I × T
|
Note: Lower Σ I × T indicates higher attractiveness of the industry. It ranges from 5 to 60 in number.
Product or Service Feasibility Analysis
One has to check if customers are willing to purchase goods and services.
One has to research for checking customer demand. Research refers to systematically collecting information, analyzing information, and interpreting or commenting on the analyzed information.
Primary research is conducted on first-hand information. Secondary research is conducted on the utilization of others' findings of information.
Primary research
a. Customer surveys and questionnaires
b. Focusing groups: An in-depth Discussion of 8-10 members for working on a problem and a researcher works on that problem. He has to follow techniques for serving a pre-defined purpose. He has to sort data.
Trial:
Prototype: One has to provide a beta version of his product to customers for checking the operating function of the product. A prototype is made to see, test, and use the beta version of the product before launching in the market.
Financial Feasibility Analysis
a. Calculating profit from investment in the business
b. Calculation of capital requirement in a business
c. Calculating estimated earning
d. Calculating return on investment
e. Checking the alternative investment area
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