The goals and processes of the feasibility study. We draw up a feasibility study (feasibility study) of the project. Conclusions and offers

A feasibility study is made, if you need to prove why it is necessary to purchase any equipment, choose certain technologies, follow a certain path of development of the enterprise, calculate what benefits it will bring.

Feasibility study: what is it

The feasibility study (TEO) means the documentary justification of the feasibility of a project. This document should contain an analysis of the necessary investments and the intended result.

The feasibility study shows the profitability of the project and whether it is worth investing in it.

Thanks to him, they solve certain problems:

attraction of additional finance;
selection of the most cost-effective project;
increase the performance of the enterprise;
improving the financial situation of the enterprise.

Feasibility study and business plan: what are the differences

The business plan and the feasibility study are similar. They differ only in that a feasibility study justifies a project at an existing enterprise, and a business plan shows why this company should exist.

Therefore, such areas as research of a marketing nature, market analysis, a description of the organization itself and manufactured products are not taken into account when compiling it. A feasibility study is, in contrast to a business plan, a shorter, but sufficiently informative document.

When compiling a feasibility study, they usually rely on:

on the features of the process;
what requirements are set for production equipment, equipment, communications;
on employees and workflow costs;
on what free price for products;
the time frame for the project;
on economic results;
on environmental factors.

In what cases do you need a feasibility study of the project, goals and objectives

Life is full of a wide variety of situations, various tasks arise, their degree of importance is also different. The essence of the feasibility study is to calculate possible or expected changes. The costs required to complete the projects are also taken into account.

The feasibility study is the answer to the question of whether the project is worth the estimated costs.

Thus, the feasibility study is necessary in order to assess the situation in the organization after making qualitative or quantitative changes in its work. When compiling it, a variety of factors are taken into account that directly or indirectly affect the organization and how its financial indicators have changed.

If this document is written correctly, the effectiveness of investing in new developments and in the refinement of existing activities is visible, are there any other changes or subsidies that are needed, and, perhaps, loans are needed. A feasibility study is necessary if you need to select new equipment, make a choice of technologies for the organization and then implement them, decide on the organization of the enterprise.

A feasibility study is necessary for both the head of the enterprise and its investor. To the first - to understand whether the expectations assigned to the project will justify themselves, to the second - to understand when the invested funds will pay back.

A feasibility study can be developed by both the businessman himself and a group of specialists if the project is complex.

Learn how to prepare a feasibility study for a business project from the video.

The structure and process of preparing a feasibility study

The concept of a feasibility study in the business world is one of the most commonly used and used. There is an approximate structure from which you can retreat, depending on the features of the project.

It can either narrow or expand: depending on the complexity of the planned changes.

Typically, the document describes the direction in which the company operates, and also justifies the choice of location of the business, the type of products manufactured, the rationale for their value. Among the mandatory items can be called the financial part of the project.

Sources of financing should be indicated here when and how debt repayment will occur.

When compiling a feasibility study, as a rule, include the following thematic sections:

initial indicators, data on the business sector;
business opportunities today;
raw materials used, financial development opportunities of the enterprise;
anticipated costs to achieve the goals set by the enterprise;
operational costs necessary for the implementation of the project;
prospective development plan;
financial goals of the enterprise;
general data of the future project, its effectiveness and payback, conclusions.

In the feasibility study, there should be tables with data on the movement of material assets, their balance.

Terms of preparing a feasibility study

Terms of preparation of a feasibility study are related to:

with details of the description;
with the volume that is planned to be developed;
with the number of processes to be considered;
with whether the material has been prepared, how relevant these regulations and other company documentation are;
with whether there is the necessary staff;
with whether the infrastructure is ready.

On average, it takes from one month to a year to prepare a feasibility study, depending on the complexity of the project.

Project Feasibility Study Example

If the sequence of work on a business plan and its structure are clearly spelled out, then when compiling a feasibility study, such requirements are not put forward. Depending on the problems that are being considered and will be solved, the feasibility study options may vary.

Example one:

The current state of the company.
Analysis of the business and production capacity of the organization.
Documentation of a technical nature.
The state of the workforce.
Company expenses are overhead and organizational in nature.
Project duration analysis.
Assessment of material and economic attractiveness of the project.

Example two:

What is a project: its essence, fundamentals and principles of implementation.
A brief description of the business, coverage of the results of various studies to better understand the demand for a newly introduced service or product.
Engineering and technological component of the project: work process (description);
substantiation of the need to purchase new equipment and improvement of the existing one;

how the new product fits into current standards;

analysis of a new product, its pros and cons.

Economic and financial indicators:

necessary and expected investments;

sources of funds, both internal and external;

estimated production costs.

Analysis of the effectiveness and profit of the project, guaranteed return of external loans.
Assessment of the susceptibility of a new product to risks known in business, resistance to similar crises in the future.
Performance analysis from external investment.

Example Three:

Announcement of all the main provisions of the feasibility study.
Under what conditions is it possible to translate these plans into reality (the author of all the main ideas, where the source material is taken from, a description of the preparatory stages and research).
Description of prospective sales markets, assessment of the company's capabilities, calculation of the company's strengths, a variety of factors.
Provision of production (available resources and planned reserves), assessment of competitors' capabilities, possible suppliers, possible costs.
The geographical location of the company and the associated costs.
Calculation of estimated rent payment.
Documentation (project, design work).
Analysis of the necessary auxiliary facilities, without which it is impossible to carry out all planned activities.
The human factor: how many employees are needed, and what posts, to implement the project.
The number of employees, engineers and other specialists is calculated. It is also important to indicate how many local or nonresident (foreign) specialists will work at the planned enterprise.
It is necessary to calculate the company's expenses on the salaries of these employees, taxes, pension and other fees.
When it is planned to begin the implementation of the planned project.
Material and economic assessment of the benefits of this project.

Most of these examples of feasibility studies can be compared with a meticulously prepared business plan. The line that exists between the feasibility study and the business plan is thin enough to say that these are completely different things.

Feasibility study for a loan: an example

When applying for a loan for the development of an enterprise, this document is indispensable. A feasibility study is a demonstration of the seriousness of a borrower's intentions.

Here he proves that the loan funds are necessary for the enterprise and what it intends to spend it on, and most importantly, what will be able to return them. This document can be executed in arbitrary form, the main thing is to prove to lenders that the money will be spent on the necessary things and this investment will pay for itself over time, so that the borrower will be able to give bank funds with interest.

On average, the feasibility study prepared for the report to the bank is several pages, occasionally more.

The quality and competence of a feasibility study for a loan determines whether the owner of the enterprise will receive credit money. In this document you need to specify all the nuances and reasons why a credit institution should issue a loan.

This document should state the facts confirming the payback of the planned project. This document is of equal importance to both the applicant and the financial structure.

When applying for a loan, a potential borrower makes a feasibility study, the purpose of which:

prove to the credit institution that the company needs these funds and that the company will be able to repay this loan;
provide economic and technical evidence of the feasibility of the project.

In order for the bank to agree to a loan agreement, the document should reflect the effectiveness of the economic plan and the ability to recoup costs for the loan period.

A rough example of a feasibility study compiled for a loan is as follows:

key dates for the contract
funds that are currently in the everyday life of the company;
accounting for currency fluctuations at the time of conclusion of the contract;
price of the entire transaction (in contracts with foreign partners, all excise customs duties must be taken into account);
estimated profit from the project;
accounting for possible costs;
movement of funds;
tax on estimated profits.
The real amount of money that will remain with the client after paying the loan and all taxes. The calculation of the profitability ratio and profit from this transaction.

For example, one company wants to take a loan in the amount of 50 million rubles. at 15 percent per year for 3 months to purchase any product, for example, perfumery. A guarantee agreement has been concluded with an insurance company.

The organization wants to carry out these actions without using its own funds and the money of investors. It is planned to make a profit on a monthly basis, from which the loan debt will be paid. Some funds will remain and the company.

After evaluating this feasibility study, the specialists of the banking structure will immediately determine the low profitability of this project.

They will conclude that the company will be able to repay the loan in a timely manner with a threefold turnover.

Moreover, taking into account all tax payments, the profit will be even less. A turnaround in this situation is possible only with established relationships with partners.

It can be concluded that without involving own funds in the turnover of this project, the future transaction cannot be considered profitable.

Most likely, the bank will not take risks and the company will not receive a loan under such conditions.

Learn how to draw up a business plan and feasibility study from the video.

A business case is a document that sets out the profitability, analysis, calculation of indicators and the effectiveness of an investment project. The aim of the project may be the acquisition of machinery, equipment, construction or reconstruction of an industrial building, etc.

Instruction manual

The main objective of the business case is to bring to the investor the amount of project costs, the payback period and the results of the work. The difference of this document from the business plan is that it is compiled for new products of an existing enterprise, therefore, questions related to market analysis, marketing research are not set out in it. The business case, as a rule, contains a detailed description of technologies and equipment, as well as the reasons for their choice.

When drawing up a business case, it is necessary to follow a certain sequence. It begins with the source data, information about the market sector. It then describes the existing opportunities for the development of activities, sources of raw materials, material resources for expanding the business, the amount of capital costs required to achieve the goal, production plan, financial policy, as well as general information about the project.

Thus, the business case contains a description of the industry where the company operates, the type of input product, and the price level for it. The financial part of this document includes the terms of borrowing, sources of their coverage. The calculations are given in the tables, which reflect the movement of cash flows.

When compiling a business case, it is necessary to study the current situation of the enterprise, its place on the market, the technologies and equipment used. In addition, it is necessary to determine ways to increase the profitability of the company and business development, to predict the level of profitability that can be achieved during the implementation of the project, to study the necessary technical data, to analyze the level of training of personnel. It will also be necessary to draw up a plan for the implementation of the project, an estimate of expenses and a plan for the receipt of funds, as well as a general economic assessment of the investment.

Justification stage the project very important. During it, you can identify and, if possible, correct those moments that in the future can lead to failure. Pay special attention to starting early and you will achieve better results.

Instruction manual

Define the goals and objectives of the rationale the project. You need to answer the main question: is a project needed? Based on how well you work out the idea and convey the benefits that a new business can bring, a decision will be made on acceptance or rejection the project.

Describe the essence the project. Tell us what exactly is planned to be done and what goals are being pursued. Explain how the need arose for a new business and why this path was chosen.

Bring to the reader or listener the main ideas and ways in which the result will be achieved. Convince him that the selected methods are the most effective in this case.

Tell us how many employees will be required to carry out your the project, and what qualifications they should be. Give reasons for the fact that the labor composition should be just that. Describe in detail the functions of each team member. If you have any candidates, voice their surnames and names. In addition, members of the commission or your management should know how participation in the project will affect the main work of these employees.

Establish a sequence of actions and voice the deadlines the project. Clearly list the main stages of its implementation. Then stop in detail at each stage. Between actions, a logical relationship should be visible, so that it is clear why one point follows another. Speak real terms, if this is problematic, do not name only the minimum possible due date the project, better indicate the maximum period. Explain what factors can affect the time it takes to complete a task.

Give a calculation of the material resources that will be involved in the project. Show what each expense item is made up of. Before the presentation, recount everything again. Remember that if you make inaccuracies in the calculations or miss some important article, this can smear the whole impression of the rest of your rationale and lead to a rejection the project.

How to write a business case

A business case is also called a financial and economic assessment, which is a form of impact assessment. It is used to assess changes in all net cash flows that arise as a result of the implementation of state regulation methods, the establishment of regulatory legal documentation, corporate programs that are aimed at changes in the economic and social structure.

Instruction manual

Introduce changes in technical regulation standards, as well as change industry standards, introduce various technical regulations. This will help you change and redistribute the benefits, costs, risks of the enterprise.

Predict changes in all existing factors (benefits, costs) at the design stage of a change in technical regulation standards. Evaluate the financial economic result of the implementation of these norms, ensure cost optimization for the implementation of the norms.

Correct the direction for the development of standards and provide modeling of the impact of all developed standards in the situation of enterprises and its industries. Create a plan for more effective interaction of requirements at different levels of the technical regulation structure.

There is a widespread misconception that a feasibility study is nothing more than a condensed version of a business plan with a significantly reduced or absent marketing section. In fact, this is not true. What then is the feasibility study for the project? An example in this article.

The essence of the term

The feasibility study, or feasibility study, is a printed confirmation of the technical viability of the project and its feasibility from an economic point of view. Such a formulation seems logically complete and understandable. A feasibility study is an idea reflected on paper.

For clarity, the term “business plan” can also be cited. A business plan is a detailed document containing the following information: who and with what tools will implement the project, in what period of time and in which markets will the goods or services be presented. At the same time, the feasibility study is a component of the business plan, since the implementation of any project is preceded by its technical and economic evaluation. In other words, if the feasibility study is the document that contains the business plan, this is a step-by-step plan for its implementation.

Creating a feasibility study for the construction of the enterprise, it is necessary to take care of its content. This will be the basis of the project. The contents of the feasibility study, as a rule, include the following items: name, design goals, basic information about the project, business case, additional data and applications. At the same time, the economic justification is supported by subparagraphs, namely: the cost of the project, the calculation of expected profits, as well as economic performance indices.

The content of the feasibility study is indicative and includes only the main sections. If they are not enough, then you can use other additional ones that will help in the implementation of the project.

Title and Goals

The title should be short but informative. In addition, the attractively formulated name of the feasibility study for the project will help to hook the investor. An example is the Center for Precision Instrumentation. The purpose of the project should also be succinctly stated. The main objective of these two parts of the feasibility study model is to make a good impression and interest the investor. Too much text can discourage reading a project.

Basic information. Project cost

A feasibility study for a project is considered successful, an example of which includes the types of activities of the company, as well as a list of manufactured products. In addition, a description of production capabilities and planned production volumes should be included in the basic information. In the section devoted to the cost of implementation, there should be a list of works that will be required to implement the project, as well as their cost.

Next, indicate the expected amount of income and expenses, provided that the project company will work with the planned load. Based on these data, profit is calculated. It should be noted here that depreciation charges should go as a separate item. Often, this indicator is regarded by investors as one of the sources of profit.

Competent is the feasibility study of the project, an example of which includes the main indicators of investment efficiency. These include the amount of investment, net profit for the year, internal rate of return (IRR), (NPV), the payback period of the project and BEP for the year - the break-even point.

Additional information and applications

Any additional materials should be included in the additional information section, which will help strengthen the impression of the project, and its positive and beneficial aspects will be emphasized. In addition, such information should be aimed at revealing the main objectives of the project, as well as emphasizing its economic efficiency and benefit for the investor. Additional information, moreover, properly designed, will add weight and solidity to the project. In addition, these materials will not overload the main points of the feasibility study, as they are displayed in a separate section. But at the same time, it should be emphasized that there is no place for little useful information. Any information and data should be of value to the investor.

In conclusion, I want to recall that a good and competent example of a feasibility study is a document that is concise and specific. The main idea should be clearly understood from it. The feasibility study does not need a detailed description of the project implementation process, but is intended only to attract the attention of the investor. But after achieving this goal, you will need a business plan.

The feasibility study carried out by our experts will allow you to look at your project from the point of view of its real effectiveness and prospects. It often happens that a promising project that can bring good returns to investors is simply not noticed or implemented. What rises between an entrepreneur and an investor? Daydreaming, outdated views on the market and facts that are not supported by arguments, or something else?

The answer is very close, ineffective business planning is to blame. To do everything correctly, you need to develop a feasibility study.

What is a feasibility study for a project?

A feasibility study, in abbreviated form of a feasibility study, is an analysis, assessment and calculation of the economic feasibility of a project to create an enterprise, reconstruct and modernize existing facilities, build or construct a new technical facility. It is based on comparing the assessment of results and costs, determining the effectiveness of the application and the period for which the investment is paid back. This may be a third-party investment.

It is also needed to confirm the feasibility of choosing a new production technology, processes, equipment. Most often it is suitable for existing enterprises.

Feasibility study required by each investor. During its development, a sequence of work is carried out to analyze and study all the components of the investment project and calculate the timing of the return on investment.

The difference between a feasibility study and a business plan

Often do not distinguish between a business plan and a feasibility study. The main difference between their structures is that in the second there is almost no description of the company and product, market analysis, risk analysis and marketing strategy - the most important aspect in the business plan. You can read more about the marketing strategy in the articles “Marketing Plan”. Such a reduced structure is due to the fact that it is being written for projects introducing new processes, technologies and equipment to existing enterprises. The feasibility study provides information on the reasons for choosing certain solutions, processes and technologies, economic calculations of the effectiveness of their implementation.

So, we can say that the feasibility study is specific in comparison with the business plan, and is narrower.

What is the feasibility study for?

A correctly compiled feasibility study will allow you to see the effectiveness of investing in the development of new or refinement of the previous activities of the company, the company needs a merger or acquisition, is there a need for lending. A feasibility study also helps to choose the right equipment, select and implement suitable production technologies, and correctly organize the company's activities.

The package of documents that must be submitted to the bank for loan approval necessarily includes a feasibility study. In this case, the feasibility study shows the profitability of providing a loan, an increase in the level of activity due to lending, and, of course, a guarantee of returning the loan to the bank. Before you take a loan from a bank, we advise you to read the article Sources of business financing, which describes the advantages of two main types of business financing - lending and investor search.

Feasibility Study

The development of a feasibility study is needed in cases:

when, the company's management needs a justification for choosing new equipment;
when the company's management needs an explanation of the decision to modify the production technology.

To develop a feasibility study, you need the holistic work of a group of specialists - lawyers, financiers, economists, etc.

When developing a feasibility study, consider the following points:

General information about future work. A brief description of the scope of the project, its participants and location, analysis of supply and demand, the main buyers of products, the main competitors. Important parameters are registered: nomenclature and type of product, volume of the company.
Capital expenditures. It depicts an estimate of the one-time costs needed to implement the decisions made.
The annual cost. An estimate of operating costs is shown with a breakdown by articles.
Manufacturing program. It consists of a description of all types of products that it is supposed to provide in the limit of these works, the volume of production and selling prices are indicated. Also here are justified price indicators.
Financing. This item is very similar to the financial plan of the business plan, but has its own differences. Financing scheme indicating the sources of credit funds, terms of use and maturity.
Evaluation of the rationality of the implementation of the proposed option. Based on the initial data suitable for economic evaluation, the main economic indicators are calculated, which will allow calculating the rationality of the project.
Estimated part. Prescribes important accounting materials - balance forecast and financial flow patterns.

Feasibility Study Structure

Again, compared to the structure of a business plan, which has clearly defined sections and points, the structure of the feasibility study can fluctuate between several variations. Options may differ in that they each have different problems.

If we focus on the UNIDO methodology, then the feasibility study structure will look something like this:

Summary. A brief description of the main content issues of all chapters.
History and position of the project.
Market analysis and marketing concept.
Material resources. Raw materials and resources needed for production, approximate requirements for the same resources and raw materials, situation with their supplies. If there is no money for the implementation of the business, search for them. Read where to get funds for opening and expanding a business in another article.
Location, plot and environment. Preliminary selection of location, including calculation of the cost of renting a room or land.
Design work. Early determination of the scale of work, as well as civil engineering objects, production technology and equipment that are needed for normal company work.
Organization and overhead. Approximate organizational structure, estimated overhead costs. This is something like an organizational plan.
Human resources. Estimated resource requirements by employee category.
Calendar implementation of decisions. The approximate schedule of the project.
Investments and financial analysis

The feasibility study in the future may serve as the basis for the development of a business plan.

Technique for compiling a feasibility study.

When compiling a feasibility study, the following sequence of thematic parts is allowed:

source data, information about the market sector,
existing opportunities of the existing business of the enterprise,
sources of raw materials, material factors for business development,
estimated capital costs to achieve the goal,
operational costs during the implementation of the project,
production plan,
financial policy and financial component of the project,
general information about the future project.

In general, the feasibility study provides a description of the industry in which the enterprise operates, and justifies the choice of the territorial and geographical location of the current and proposed business, as well as describes the type of product. Here it is necessary to describe and justify the prices of products. At the same time, the financial part of the feasibility study contains information on sources of financing and terms of repayment of debt, terms of use of borrowed funds.

The calculations in the feasibility study consist of tables in which the cash flow and balance sheet are presented.

Such a feasibility study structure may not be the only correct one and may vary depending on a specific project. It can also be expanded for large and complex business projects.

In modern business and office work, the terms business plan and feasibility study have firmly entered the vocabulary of the terms entrepreneurs and economists, but there is still no clear separation of such concepts. The material attempts to highlight the issues of similarity and differences between the business plan and the business feasibility study.

Theorists suggest that the feasibility study is the result of a variety of studies, both of an economic nature and marketing research. But at the same time, a conclusion is drawn about the feasibility of the project, and a circle of economic, organizational and other proposed solutions is determined to optimize the production process. Moreover, a feasibility study is often an integral part of a business plan.

At the same time, there is an opinion that the feasibility study, to some extent, is either an abridged version of the business plan, or, on the contrary, it is an ordinary business plan, which was called the feasibility study.

It should be noted that if the procedure for compiling and structure of a business plan are clearly spelled out, then when compiling a feasibility study, you can find several different spelling options that differ depending on the problems under consideration.

The following feasibility studies are available in practice:

Example No. 1

1. The actual state of the enterprise;
2. Market analysis and assessment of production capacity of the enterprise;
3. Technical documentation;
4. The state of affairs with labor resources;
5. Organizational and overhead costs of the enterprise;
6. Estimation of project duration;
7. Analysis of the financial attractiveness and economic feasibility of the project.

Example No. 2

1. The essence of the proposed project, the presentation of the basics of the project and the principles of its implementation;
2. A small overview of the market, the presentation of the results of various studies in order to study the demand for a new service or product;
3. Technological and engineering aspects of the project:

a) a description of the production process;
b) evidence of the need to purchase new equipment or upgrade old;
c) comparison of a new product with current quality standards;
d) a review of the strengths and weaknesses of the new product or service;

4. Financial and economic indicators, including:

a) estimated and necessary investments in the project;
b) prospective internal and external financial sources;
c) production costs;

5. Evaluation of the effectiveness and payback of the project being promoted, guarantee of the return of external borrowings;
6. The susceptibility of the proposed new product, services to existing risks in the markets, as well as resistance to possible risks in the future;
7. General assessment of the effectiveness of possible external borrowing.

Example No. 3

1. A summary of all the main provisions of the feasibility study;
2. Conditions for the implementation of the new project (who owns the authorship of the project, the source material for the project, what preparatory measures and studies have already been carried out, etc.);
3. Analysis of prospective sales markets, an overview of the production capabilities of the enterprise, as well as calculation of peak capabilities of the enterprise and a number of other factors;
4. This section reflects everything related to the provision of production (necessary stocks and production resources), analysis of existing contractors and possible suppliers, analysis of possible costs for various production factors;
5. The section is devoted to the territorial location of the enterprise and the costs associated with this provision (rough estimate of where the enterprise will be located, preliminary calculations related to the payment of the lease of a site for production or for an office building);
6. Design and project documentation (assessment of the necessary technologies for a new project, assessment of additional auxiliary facilities, without which it will be impossible to carry out production;
7. Organizational and other additional costs associated with the new project (calculation of additional costs, as well as a sketch of the estimated structure of future production);
8. Analysis of human resources for a future project (assessment of human resources that will be needed to launch a new project). Indicated the estimated number of workers and maintenance personnel, the required number of engineering and technical workers. In addition, it is indicated whether only local workers or nonresident (foreign) specialists will be involved. In the same section, calculated expenses for labor remuneration, taxes related to wages and a number of other points are indicated;
9. Schedule of the implementation of the project;
10. General assessment of the economic and financial viability of the planned project.

Note that many of the examples of the feasibility study, especially the last example, resembles a detailed business plan. There is a fine line between the feasibility study and the business plan, and this leads to the fact that with a great deal of confidence we can say that if you are required to provide a feasibility study for the project, you can safely draw up a detailed business plan, while leaving unnecessary disputes - theorists of economic science, but it’s better to get down to business.

Approximate composition of the feasibility study (TEO)

1. Table of contents or structure. A brief description of the chapters of the document.
2. General description of the project, input data on the project. Information about the studies that were carried out previously, the assessment of the necessary investments.
3. Description of the market and production. Estimation of demand and forecast of future sales, description of the company's facilities.
4. Raw materials and resources. Calculation of the required volumes of material resources, forecast and description of the supply of resources to the enterprise, analysis of prices for them.
5. The choice of location of the enterprise (enterprise facilities). Justification of the choice of place and assessment of the cost of renting a room or a plot.
6. Design documentation. Description of the technology for the production of future products, characteristics of the necessary equipment, additional buildings.
7. The organizational structure of the enterprise. Description of the organization of the enterprise and overhead.
8. Labor resources. An assessment of the need for labor resources divided into categories (workers, employees, top managers, managers, etc.). Estimation of salary expenses.
9. Duration of the project. Project schedule, cost estimates, trench sizes, etc.
10. Economic calculations. Assessment of investment costs, production costs, financial assessment of the project.

The difference between a feasibility study and an investment memorandum.

When conducting research in the field of marketing, the task of which was to identify consumer preferences in the consulting services market, the need was also identified for writing investment memoranda and business plans. In the course of the analysis of surveys, questionnaires, written appeals, it can be concluded that in the modern Russian business services market, there was some uncertainty regarding the definitions and interpretations of a number of related concepts, such as: investment memorandum, feasibility study and business plan. We give an explanation of the frequency of the birth of these economic documents.

Before the investment memorandum appears, a feasibility study or feasibility study is created - this is the basis for determining the need for financial investments. A feasibility study is a document, usually created by the leading financial managers of companies. The purpose of the feasibility study is to determine how much this investment of finances will be promising and able to bring financial benefits. Creating an investment memorandum essentially pursues the same thing, but an investment memorandum is created for investors.

Having created a feasibility study, we proceed to the preparation of a more thorough document, which defines how a newly created product or project will behave in the conditions of the existing market. And also, what impact will the existing competitive factors in the market have on the planned project, as well as present and future risks. This kind of document is called a business plan.
In the course of work with a business plan, as a rule, the growth of costs of the commercial structure begins, associated with the need for work in the field of marketing research. Such studies aim to determine to what extent the assumptions set out in the feasibility study will be consistent with the data that will be obtained in the course of these studies. If these studies lead to the fact that if the data, assumptions and proposals of the feasibility study are confirmed in the course of marketing research, then the project has the right to apply for funding. Financial settlements will later form the basis of the investment memorandum.

The stage of birth of a new enterprise is extremely responsible for financial managers. At this stage, the definition and formation of enterprise policy begins, information that gives real information about the possible sides and rates of development begins to flow.

What is the difference between an investment memorandum and a feasibility study?.

In the course of assessing the current situation of the enterprise, as well as possible future risks, a document is developed, called - “Investment Memorandum”. The main objective of the investment memorandum is to attract, if necessary, external financing in the existing project.

Most often, an investment memorandum is formed by a consulting company on the basis of a business plan and differs from it in that it includes information of an investment nature.

At this stage, the financiers of the enterprise must exercise constant control over the state of the market. The purpose of this work is to control competing structures, identify new opportunities in existing markets and find possible new niches for development.

In this case, the main task is to calculate and identify the stage of development when the company will need financial investments, write an investment memorandum and attract strategic investments in its project. And in addition, financial managers must determine and calculate the amount of necessary financial investments in the project. The period when financial managers of an enterprise begin to work out various development scenarios is the initial one when drawing up an investment memorandum. Different scenarios are identified. Pessimistic scenario (all possible consequences of insufficient funding and the associated profitability indicators and risks for the business are calculated). An optimistic scenario, where it is necessary to reflect economic indicators with sufficient funding.

What is a Feasibility Study - Feasibility Study

Feasibility study or Feasibility study is perhaps one of the most important documents in the creation and development of any modern company. Most often the feasibility study of the project (or project feasibility study) is necessary if the company or enterprise intends to introduce some new technology, to receive any funds for the implementation of production goals.

Many entrepreneurs confuse the concepts of "Business Plan" and "Feasibility Study", believing that the development of a feasibility study is no different from writing a regular business plan. In fact, make a feasibility study and writing a business plan is somewhat different things, the main difference is that the preparation of a feasibility study is not as complex and detailed as a business plan.

Feasibility study for the project (The feasibility study of the project), as a rule, is devoted only to part of the general business of the company and, as a result, should not contain sections describing the whole business as a whole. That is, the feasibility study of the project includes only those data and calculations that will describe future changes in the company's activities directly related to this project.

Feasibility study, unlike a business plan, does not contain details in the form of a marketing promotion strategy, description of goods or services, risk analysis. A feasibility study is being drawn up precisely in order to be able to calculate the results of innovations, to see all the possible problems of this process.

What is the feasibility study for?

In order to visually see the situation that develops at the enterprise after any changes in its work (it does not matter, whether quantitative or qualitative), as a rule, a Feasibility Study (TEO) of the project is developed. At feasibility study The project carefully takes into account a variety of factors that have a direct or indirect effect on the enterprise, as well as all changes in financial indicators.

A properly compiled feasibility study allows you to see how effective investments are in developing new or finalizing old types of activities of the enterprise, whether the company needs mergers or acquisitions, whether there is a need for loans. Also, the feasibility study of the project will help to select the necessary equipment, select and implement appropriate production technologies, and organize the activities of the enterprise.

Feasibility study ( Feasibility study) is mandatory included in the package of documents that are submitted to the bank for a loan. In this case, the feasibility study allows you to show the profitability of lending, increasing the level of activity as a result of lending, as well as guaranteeing the return of the loan to the bank.

How to make a feasibility study

When developing literate feasibility studies the following provisions should be included in the feasibility study:

Project Summary
The idea of \u200b\u200bthe project. What is the idea of \u200b\u200bthe feasibility study for the project, what is it for? The feasibility study plan of the project with a step-by-step explanation.
Justification. Why such solutions are proposed, the reason for choosing this particular material, type of activity or equipment. The feasibility study should also include all possible estimated risks.
Calculations of needs for production (financial, raw materials, labor, energy). It is necessary to calculate how much money will be required to launch this project. If you are making a feasibility study for a loan, you should indicate all possible sources of income.
Economic justification (calculations that show the result of the company after the changes)
Conclusions and suggestions (debriefing, conclusion, assessment)

At the same time, the feasibility study (feasibility study of the project) can further serve as the basis for drawing up a business plan, the main document that serves to make decisions about the introduction of new technologies or equipment in the production of the enterprise.

Sergey Pankratov
10/2011

An important stage in the implementation of a business project is the calculation of the ratio of risks and planned profitability. In economic science, there are methods for such a calculation that allow you to determine the feasibility of investing money in the project.

For a new business project, it is being developed, it is necessary both for the owners themselves and for raising funds from (banks, investment companies, private investors). The business plan includes a feasibility study (hereinafter the feasibility study). In the current business, the feasibility study is also used in the modernization of production or the introduction of its new direction.

A feasibility study is an official document that contains feasibility studies to determine the feasibility of implementing the intended business project.

It provides the calculation and analysis of economic indicators, selects options for the most effective economic and technical solutions, suggests organizational methods for their implementation in the enterprise.

Purpose and main objectives of the document. Terms of Use

The main purpose of the feasibility study is the visibility of the income from investing in the implementation of a new project or the modernization of an existing business.

Drawing up a feasibility study allows you to analyze the external and internal factors that will affect the project in the course of its existence. In practice, a feasibility study is prepared in the form of a document when applying for bank lending.

A feasibility study may contain several options for the development of events during the implementation of the project, and, therefore, managers can clearly see the effect of investing funds.

Feasibility Study allows enterprise managers to decide following tasks:

Choosing a more effective project;
Attracting additional sources of financing for the investment project;
Increased productivity (if the feasibility study is designed for an existing business), and as a result, increased profitability.

Structure and content

The structure of the feasibility study of the investment project does not imply a strictly defined content. Sections that will be included in the feasibility study will depend on the scale of the intended project, the specific objectives of the project, the desire of managers, or the requirements of creditors or investors. Thus, the structure and content of the technical and economic content are advisory in nature, we highlight sections that may be included in a feasibility study.

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Summary

It indicates the name, participants, goals, total cost, sources of fundraising, the main indicators of the financial soundness of the implementation of the investment project. This part is key, as it outlines the main essence of the project. The information presented in the summary should be summarized briefly and concisely.

A detailed explanation of the items presented is given in the following sections of the feasibility study.

Description of the enterprise

This paragraph indicates: the industry, the principles of the management structure, the prospects of this direction in the market. Possible or existing partnerships are provided.

Description of the project idea

This section highlights the relevance and innovativeness of the implementation of this project, and the problems that will be solved by its implementation.

If the project proposes the production of a specific product, then its characteristics are highlighted: name, scope, competitiveness in the market. Information on environmental friendliness and the possibility of its disposal after the end of operation may also be indicated.

The production program is given, where it is indicated:

output volume of the goods;
cost with justification;
market for the goods produced.

The financial component of the project

In this part of the feasibility study, a description of the sources of funds raised is given, creditors or investors (if any), stages of use and repayment of the received money are indicated.

Such information is presented in the form of calculations of economic ratios.

The economic effect of the sale

The final section provides information about the project, about the number of jobs created and other data.

Rules and step by step instructions

Despite the fact that the feasibility study is compiled individually for each project and there are no uniform rules for its design, experts still recommend adhering to certain recommendations. This will facilitate the work for beginners in this field and will not allow you to move away from the main task - to reflect the feasibility of the project as fully as possible.

Let’s introduce a number of recommended step-by-step actions at registration Feasibility study:

disclose the main characteristics and achievements of the enterprise (if there is an existing one), information about the leaders, present the idea of \u200b\u200bthe project;
to characterize the industry, its current status, development prospects in general in the country and in a particular region. This may be the demand for the product that will be introduced to the market under the project, an analysis of the activities of competitors and the characteristics of their products;
to highlight the data on costs and revenues in the implementation of the feasibility study. It is important to divide the costs into time and permanent, to calculate the income at different levels of demand;
give an overall assessment of the project. For this, a cash flow plan and forecast balance sheet are drawn up, which also includes form No. 1.

Mandatory data that must be indicated in the feasibility study

A feasibility study is prepared for various industry lines of business, and therefore its sections can be replaced or added.

But fixed points in the feasibility study are:

The description of the project, its role in the development of the enterprise, may also indicate the impact on the economy of the whole country or individual region;
Analysis of market conditions;
Labor analysis;
Financial analysis of a new project;
Payback period planning;
Conducting an economic assessment of the investment project.

Distinctive features of the document

In order to understand the distinguishing features of the feasibility study from the business plan, it is necessary to bring their concept.

A business plan is a document characterizing the implementation of a business project from all sides of a business.

Feasibility study is description of the project from the perspective of economic indicators and characteristics of the necessary equipment to launch the project.

A business plan is a more voluminous presentation of material about the project, contains a lot of theoretical information. The feasibility study more clearly shows the effectiveness of investment. Thus, the business plan includes a feasibility study.

We will more clearly present the main parameters that distinguish the feasibility study from the business plan in the table.

Comparison parameter	Feasibility study	Business plan
Compilation goals	Justification of the profitability and effectiveness of the project only from the economic and technical side	Assessment of all factors influencing the project
Consumers	- management staff; - shareholders; - partners; - less often banks and investors.	- investment companies; - venture capital funds; - large banks.
Document structure	- general project parameters; - items of expenses and income, analysis of ratios; - justification of the need for cash resources.	- project parameters, as well as information about the company, the founders; - market analysis, including marketing research; - organizational plan; - the impact of the regulatory framework on the implementation of the project; - risks, including economic; - the financial analysis; - calculation of the economic effect of the project.
Cases in which a document is compiled	- fundraising for the introduction of new equipment; - launch of a new line in production; - other projects related to modernization.	- launch of an innovative project; - start up startup; - attracting the full amount necessary for the implementation of the project.

Feasibility study for various types of projects

A feasibility study is being developed, as noted above, for various purposes of the enterprise. In this connection, in theory there are several types of feasibility studies for the implementation of projects.

We will present them in more detail.

Feasibility study for an investment project compiled a visual display of project profitability. Within its framework, goods that are often already tested and familiar to the market are sold. The customers of this type are investors.

For an innovative project A more detailed calculation of effectiveness is required, as it is assumed that the product is new. The risks in such a project are much greater. The main consumers of this type of feasibility study are managers.

Feasibility study for a construction project has a more complex structure. It reflects the production capacity and capacity of the capital structure. The research of the real estate market of a particular region is given, information about the land plot is indicated.

Feasibility study for reconstruction aimed at disclosing information about the need to update the production complex. The emphasis in the structure of this type of document is on finishing work, if necessary, indicate the purchase of new equipment.

Feasibility study during modernization carries the same meaning as during the reconstruction, only in this case the rationale for the replacement or completion of fixed assets: equipment, machinery and others is given.

Feasibility study for an agricultural project It contains in its structure options for the use of existing land plots, farming methods, models for the use of the resulting products (further processing, sale).

About the feasibility study for geological projects, see the following video:

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