4 FEASIBILITY STUDY KEY ACTIONS

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Presentation transcript:

4 FEASIBILITY STUDY KEY ACTIONS

FEASIBILITY STUDY KEY ACTIONS Once a steering committee and group have made the decision to proceed with a feasibility study, there are a number of key actions that need to be taken. 1. Deciding who will conduct the study. 2. Development of project assumptions. 3. Determining components for a comprehensive study. 4. Accepting/rejecting the study. 5. Group decisions after accepting the study.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Although in principle it is possible for a project group member to conduct the feasibility study, normally, an outside consultant is hired to do it. Most prospective members and financiers view an objective evaluation of a project concept via an outside expert as important. This objectivity often provides a group with helpful information that might have been overlooked by one who is participating directly in the project.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Hiring a consultant to create a feasibility study is an important decision, and thus the steering committee or group must use care when selecting that person (or firm). In practice, consultants have differing levels of ability and The key is to select a feasibility expert who is skilled in cooperative development and versed in areas relevant to the type of project.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) CHARACTERISITCS OF A GOOD FEASIBILITY STUDY CONSULTANT: Has previous experience conducting feasibility studies. Has experience with the industry to be studied, or access to experience and associated professionals. Works independently and objectively (e.g., of equipment manufacturers, marketers, etc.).

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Understands cooperatives fully (operations, governance, financial workings, Tax implications, distribution of net margins (profits), management, and other business considerations etc.). Is willing to listen to the groups’ ideas. Works closely with designated contact members of the steering committee or group. Is willing to revise study given feedback.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Accomplishes the study within an agreed upon timeline. Works within the group’s designated budget, Cost is an important factor. The expertise and skills that consultants offer a project must be weighed against their cost. Is a strong writer with skills in data analysis and spreadsheet design and presentation. Provides clear, useful information in the completed study.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) A consultant should provide the data used to generate the financial tables and scenarios reported in the feasibility study and preferably, an electronic spreadsheet format that can be easily manipulated. Although requesting this information can moderately increase the cost of a feasibility study, access to the actual data permits the group to use the information for later needs with greater flexibility.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) This data can also reduce the cost of creating the business plan, if the group proceeds to that stage. Additionally, it can decrease the effort required for revisions, if in the future the group changes the project’s assumptions to differ from those in the study.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Once the consultant has been selected, the group should provide detailed instructions on the study requirements. There should be a legally binding contract between the parties. The group should consult legal counsel for assistance. The contract should state clearly the requirements and role of both the group and the consultant.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) It should have timelines, delivery dates, explicit deliverables, and what is to be accomplished before payment is made. Often, the consultant receives a down payment before the feasibility study has been conducted. The balance is paid only after the study has been reviewed and accepted by the group (and possible financiers if appropriate).

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) This gives the group more leverage to encourage timeliness or revisions. The contract should designate a third-party arbitrator to resolve any disputed items. Before signing the contract, the group should discuss with the consultant arrangements for cost overruns, time delays, revisions, and what considerations will be made for these issues.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Changes after signing the contract can be costly or delay the study results. All parties should be clear about what to expect prior to signing the contract and initiating the study. The steering committee or group must use a point award system for selecting a consultant based on select criteria.( Attached)

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Point award system Points Awarded Previous experience creating feasibility studies (0-20) ____ Knowledge of the industry to be studied (0-15) ____ Qualifications of principal researchers or team (0-10) ____ Understanding of the cooperative structure (0-10) ____

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Points Awarded Proposed interaction with designated members (0-15) ____ Verbal presentation/communication skills (0-10) ____ Reasonableness of cost (0-15) ____ Miscellaneous intangible (0-5) ____ Total Score 100 _____

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Feasibility Study Working Relationships A few qualified members of the steering committee (if the committee is a large one), or the entire steering committee (if it is a small one) should be designated to work closely with the consultant or person developing the study. These group members must see that the feasibility study properly presents and reflects the right aspects of the project as it has been designed.

❶ Deciding Who Will Conduct the Study (Consultant Selection Criteria) Feasibility Study Working Relationships Steering committee members with appropriate backgrounds and the ability to commit sufficient time to working with the consultant should be selected. These contact members represent the group’s interests to the consultant. They are the contact to provide clarification and additional information that the consultant may require. Plus, they should provide periodic reports to the group about the study’s progress.

❷ Development of Project Assumptions Project assumptions definition Assumptions are events that are expected to occur during a project's life cycle, often without any proof. They are accepted as truths at the start of a project, though they can turn out to be false. A change to assumptions typically has a significant impact on a project because they are the foundation for project decisions, estimates and designs.

❷ Development of Project Assumptions Key project assumptions should be determined at the initiation of a feasibility study. Assumptions provide the basis for the project and therefore need to be carefully thought out and developed. The consultant, can assist in the development of assumptions by providing objective knowledge and expertise.

❷ Development of Project Assumptions He/she should also ask the group difficult questions to narrow the range of assumptions and make sure they are as accurate as possible, as well as justifiable. The following are a few common types of project assumption and some clarifying statements that a steering committee or group should address as it develops assumptions for the feasibility study.

❷ Development of Project Assumptions Types of project assumptions 1- Technology assumption The technical context of the project such as programs and environments that will be used.  2- Product assumption Define the assumed products and/or services to be handled or provided. Define the potential volume of products or services.

❷ Development of Project Assumptions 3- Market assumptions Define the projected prices for both inputs and outputs. Define the projected volume of sales. Explain the size of the market and how the cooperative fits in (e.g., market share).

❷ Development of Project Assumptions 4- Business assumption Explain the proposed cooperative’s advantage (e.g., define what the market is demanding and what producers do well). Describe the proposed cooperative's benefit (e.g., enhanced marketing, lower prices for products purchased, more efficient and lower cost services, etc.).

❷ Development of Project Assumptions 5-Financial assumptions Estimate overall capital needs and describe potential sources of this capital. Define the level of financing needed and potential lenders. 6-Legal assumptions Describe the legal requirements, documents or agreements, permits, and inspections.

❷ Development of Project Assumptions 7-Organizational assumptions Describe the facilities and equipment needed and whether they will be purchased, built, or leased, and estimate how much they will cost. 8-Management assumptions Estimate the management requirements and skills, and the cost of obtaining the appropriate management.

❷ Development of Project Assumptions The steering committee or group may not be able to provide all of the required detail for each of the assumptions that need to be developed, so again, using an experienced practitioner/consultant to help research and develop some of the assumptions may be necessary. It is up to the steering committee and those conducting the study to explore all avenues when determining the assumptions needed for a full analysis in a study.

Review questions Multiple Choice Questions 1- The steering committee or group must use a ____________for selecting a consultant based on select criteria. A- Number award system B- Employee recognition points system C- Employee points system D- Point award system Answer: D

Review questions Multiple Choice Questions 2- _________ are events that are expected to occur during a project's life cycle, often without any proof. A- Assessments B- Estimations C- Assumptions D- Constraints Answer: C

Review questions Multiple Choice Questions 3- Once a steering committee deciding who will conduct the study , the next step action is _________ A- Assessments of the consultant. B- Development of project assumptions. C- Determining components for the study. D- Determining Constraints Answer: B

Review questions Brief explain Questions 1- State the feasibility study key actions after deciding to proceed with a feasibility study? 2- Explain the Point award system for Consultant Selection Criteria ? 3- Define project assumptions and state the Types of project assumptions ? Brief explain Questions