1. Industrial feasibility analysis: Introduction Nur Aini Masruroh http://aini.staff.ugm.ac.id/http://aini.staff.ugm.ac.id/ ; Email: aini@ugm.ac.id; n_masruroh@yahoo.comaini@ugm.ac.idn_masruroh@yahoo.com

2. Questions  What is feasibility analysis?  Why should we perform it?  What do you expect to get from this course?

3. Materials  Introduction  Business concept  Non-capital analysis  Marketing aspect  Technical and operational aspect  Legal aspect  Environmental aspect  Capital planning and budgeting

4. Materials (cont’d)  Basic capital investment analysis  Capital asset pricing model  Replacement analysis  Capital investment analysis in uncertain world  Feasibility report

5. Grading  Assignments : 50%  Mid term: 25%  Final exam: 25% (compulsory)

6. Text books  J.R. Canada, W.G. Sullivan, D.J. Kulonda, and J.A. White, 2005, Capital Investment Analysis for Engineering and Management, 3 rd Ed., Prentice Hall, New York.  Bodie, Z., Kane, A., and Marcus, A.J., 1999, Investments, 4 th Ed., McGraw Hill, Singapore  Bodie, Z., Kane, A., and Marcus, A.J., 2007, Essentials of Investments, 6 th Ed., McGraw Hill, Singapore  E.M Tainer, 1998, Using Economic Indicators to improve investment analysis, John Wiley & Son, New York.

7. What’s business?  Wikipedia: “a legally recognized organization designed to provide goods and/or services to consumers “  Activity to “create money” in a responsible way

8. What is the most valuable company today? CNN Money, 23 Oct 2009 Sales revenuesUSD 372.824 biosales revenuesUSD 60.42 bio ProfitUSD 40.610 bioprofitUSD 17.681 bio Employees 107,100 employees 91,000 Market market CapitalizationUSD 353.23 biocapitalizationUSD 249.9 bio GDP Indonesia 2009 USD 629.244 bio !! (231 mio people@ USD 2,724) *GDP = consumption + gross investment + government spending + (exports − imports)consumptiongross investmentgovernment spendingexportsimports

9. US most valuable company CNN Money, 23 Oct 2009 Based on market capitalization 1. Exxon Mobil: $353.23 billion 2. Microsoft : $249.9 billion 3. Wal-Mart : $194.3 billion 4. Apple: $183.88 billion 5. JP Morgan Chase: $179.84 billion 6. Google: $175.93 billion 7. Procter & Gamble : $167.3 billion 8. Johnson & Johnson : $166.2 billion 9. General Electric : $161.42 billion 10. IBM : $159.08 billion

10. Value chain evolution  70’s: COSTS + PROFIT = PRICE  80’s : PRICE – COSTS = PROFIT  90’s : PRICE – PROFIT = COSTS  Now: SET TARGETS PROFIT – PRICE – COSTS

11. Activities  New product/process/project/plant/…  plan  Ongoing  Replacement the existing tools Question: should we continue/realize or stop?  What aspects should we consider to make the decision?  In what extent an alternative is said to be feasible?

12. Industries  Manufacture  Service  feasibility studies can be done for both  Different in product, process, problem faced, performance measurements, etc.

13. Investing, what’s for?  Investor: financial benefit  Government: economic benefit (economic growth, increase GDP (gross domestic product), export, import substitution, etc)  Community: social-economic benefit (jobs, public facilities, etc)

14. Investment characteristics  Capital intensive  Long term period  Usually need time before getting profit  Resource constrained  Risky  wrong decision needs “money” and “time” to improve

15. Steps of feasibility study  Pre-evaluation study  Non-capital analysis  Feasibility study (bankable)  Start by simplifying the problem (make necessary assumptions), if looks beneficial, make it in detail

16. The top 10 risks for business  Regulatory and compliance risk  Global financial shocks  Aging consumers and workforce  The inability to capitalize on emerging markets ( rapidly developing economies)  Industry consolidation/transition  Energy shocks  Execution of strategic transactions  Cost inflation  Radical greening  Consumer demand shifts

17. Weighting of the top 10 strategic business risks across the sectors studied

18. Who may use the feasibility report?  Investor  Funding resources, i.e. bank  Partner(s) to be  Benefactor (donor)  Government