Feasibility Studies

This section is adapted from the article "Guidelines for Preparing Feasibility Studies" by Brain Fekety. The article was published in the May, 1981, edition of the magazine, Peace Corps/Philippines. For a biogas business or any kind of business, a feasibility study may be the most important first step.

A feasibility study's main purpose is to prove that the project is worth investing money in, to the people, businesses, banks, private, and government programs that can make grants and loans. Feasibility studies can be used to interest investors and partners.

Writing a feasibility study is a good way to organize ideas and help the prospective owner(s) decide if investing the considerable time and money involved in building and operating a biogas business is worth it, and if the answer is yes, then what design, size of operation, and type of business organization would be best.

A feasibility study is a report outlining a project that a group hopes to undertake. It shows in detail whether or not a project will work. It also shows, step-by-step, plans for the development of a successful project. Lenders, investors, and partners want to know that their money will be well spent. They will be impressed with a detailed and professional feasibility study outlining the proposed project. It must outline the nature of the project, the costs and resources required, the expected profits and results, and a social-economic evaluation of the project.

Project summary:

1) A brief description of the project and its purpose.

2) Summarize the history of the group, cooperative, or company that is proposing the project.

3) Summarize the conclusions and findings of the study regarding the technical, management, marketing, and financial characteristics of the proposed project.

4) The timetable and current status of the project.

5) Say something about why you think the project will be successful and something about the project's social-economic implications.

Description of project site:

1) Location of the project and area served by the project. A map which identifies provinces, municipalities, cities, and towns would be helpful.

2) Climate, land, rivers, and other characteristics of the area as they relate to the project.

3) The area's infrastructure (communication systems, roads, ports, airports, banks, schools, electricity, and so on) and economic conditions as they relate to the project.

Technical:

1) Size, capacity, efficiency, and various processes involved in the project should be outlined.

2) Purpose or service of the project (for biogas: fuel, fertilizer, improved sanitation).

3) Raw material requirements (for biogas: water, plant, and animal waste).

4) Requirements and costs of utilities and fuel in terms of output.

5) Equipment and other fixed asset requirements (for biogas: digester, gas storage tank, and so on). The number, specifications, rated capacities, costs, and life expectancy of newly acquired and existing machinery, land, equipment, buildings, and other assets.

6) Describe the quantity and quality of all labor requirements. Describe sources and number of workers according to skill. Indicate whether labor requirements are full-time, part-time, or seasonal. Include wage rates, salaries, fringe benefits, and the details and costs involved for any special training programs.

7) Description of all construction costs.

8) Outline the project timetable and present position of the project including target dates for such items as preparation of special studies, land improvements, and the construction or purchase or equipment, buildings, and the start of operations.

Management:

1) The background and skill requirements of the project manager position should be presented (big-data of the manager should be included in the appendix).

2) The form of organization and an organizational chart.

3) Determine the availability of manpower required to fill the various positions in the project.

Marketing:

1) Supply and demand conditions for the output (products) of the project and the raw material inputs required to produce the product and complete the project.

2) Production costs, price policies, marketing policies and strategies for methods of product distribution.

3) Evaluate the contribution of the proposed project to the national, provincial. and local economy.

4) Estimate the annual volume and value of the proposed sales and/or savings.

5) Identify the guaranteed markets and any existing or proposed contracts for marketing of the project's products.

Financial:

1) Detailed projection of all financing requirements and the use of capital (loans, grants, investments).

2) Sources selected or proposed for short-term financing, long-term financing, and credit from suppliers.

3) The amount and terms of selected or proposed financing according to each source, including security offered, repayment schedules, and interest rates.

4) For equity financing (money that owners invest in their own business), indicate subscriptions made and proposed.

5) Status of financing from each source indicating actual releases already made, applications already approved, pending applications, and proposed applications.

Social-economic justification (very important in grant applications):

1) Government revenues in terms of tax receipts (such as income and sales taxes), if applicable.

2) The benefit to people directly affected by the project (for biogas include the impact of the fertilizer on the businesses of fish pond owners and farmers).

3) The effect on the provincial, municipal, town, and village level economies by the project (for biogas this would include improved sanitation).

4) Identify any short-term and/or long-term benefits to suppliers of raw materials.

5) The amount of employment generated by the project as well as skills and/or training provided to employees.

Appendix A (Attached Enclosures):

1) Bio-data of management and Board of Directors.

2) Certified copies of all sales and supply contracts.

3) Copies of price quotations for machinery, structures, and other inputs.

4) Copies of plans and drawings for structures and for the physical layout of the project site indicating provisions for expansion (use of photographs can be impressive).

5) Any required resolutions from the group's Board of Directors.

6) Latest audited report of the group's financial statements, if applicable.

7) Certified true copy of Articles of Incorporation and bylaws, together with all amendments, if applicable.

Appendix B (The Project's Financial Data Schedules):

1) Projected Income Statement.

2) Projected Balance Sheet.

3) Projected Cash Flow Statement.

4) Projected Costs of Sales Statement.

5) Projected Operating Expenses.

6) Projected Amortization Schedule (paying off of debts).

7) Financial Evaluation:

(a) discounted rate of return on total investment,

(b) profitability ratios (net operating income as a ratio of sales and net operating income for each year and the average amount of net income over the projected operating period,

(c) debt ratios, calculating debt to equity ratios and repayment schedules of loans,

(d) break-even analysis,

(e) internal rate of return, and

(f) payback period.