FEASIBILITY STUDY Aspects of Operating a Business

Types of Deals Contract Agreement Contracts include three parts: Serious and definite offer A consideration, something for which a person is bargaining. A serious acceptance of the offer. Agreement A non-legally binding deal, often with few set details, and often is not considered official.

Legal feasibility copyrights, anti-trust laws (systems that share data across organizations), financial reporting requirements, contractual obligations, software ownership, outsourcing arrangements, etc.

Business Permits and Licenses Special permission from the government is needed for some businesses. Often, you need special training and have to take a test. See your lawyer to find out if you must: Just register with the local or state government. “Hello…I’m in the home repair business.” Gain a permit from the local government. “Hello, I’d like to go door-to-door, and need a permit.” Prove you have special skills to get a license.

Market Feasibility Industry Description Describe the size and scope of the market Estimate the future direction of the market Describe the nature of the market Identify the life-cycle of the market

Market Feasibility “Industry” Competitiveness Investigate industry concentration Analyze major competitors Explore barriers of entry into market Determine concentration and competitiveness of input suppliers Identify price competitiveness of service

Market potential Identify the demand and usage trends of the market or market segment Examine the potential for emerging market opportunities Assess estimated market usage and potential share of the market

Market Feasibility Access to market outlets Identify the potential “buyers” of the service and the associated marketing costs Investigate the distribution system and the costs involved

Technical Feasibility Determine facility needs Estimate the size and type of production facilities Investigate the need for related building and equipment Investigate and compare technology providers Identify limitations or constraints of technology

Technical Feasibility Availability and suitability of site Access to markets Access to transportation Access to a qualified labor pool Access to production inputs Explore economic development incentives Explore community receptiveness to have service located there.

Technical risk larger projects are riskier project team size, project duration, number of organizational units involved, programming effort structured and easily obtainable requirements less risky use of standard technology less risky than novel or non standard technology development team familiarity with hardware, software development environment, OS; application area; systems of similar scope less risk when user group is familiar with system development process and application area

Operational feasibility likelihood of project attaining desired objectives how new system will affect organizational structures and processes, how it fits into current day-to-day operations Organizational/political feasibility how key stakeholders in organization view system system can affect distribution of information, thus power

Schedule feasibility likelihood that timeframes can be met and that this is adequate to meet organization’s needs resource availability to enable schedule

Economic Feasibility: System Costs: Development Costs IS Personnel, consultants hardware, software procurement data conversion documentation, user trg Computer room, etc Production Costs operation and maintenance manpower, software / hardware upgrading,supplies System Benefits: Tangible reduced operating costs, transaction costs errors

Cost Benefit Analysis: Increased transaction throughput Intangible improved customer relations better decision making, etc Cost Benefit Analysis: Payback Point: Development Costs (Years to payback) Benefits per year Sensitivity Factors Possible variation in cost/benefit estimates 1.1 Cost can be higher by 10% Effect of Inflation

Time Value of Money Profitability Index Present Value (PV) = amt * 1 / (1 +c) ^ n n : # of periods in time c : Cost of Money ( discount rate ) Profitability Index Earnings per dollar invested (Present value of total cash flow) (value of initial investment ) Yearly cash flow = (Projected Annual Benefits) (Projected Annual Production Cost)