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Industrial feasibility analysis:Introduction
Nur Aini Masruroh
http://aini.staff.ugm.ac.id/ ; Email: [email protected]; [email protected]
Questions What is feasibility analysis?
Why should we perform it?
What do you expect to get from this course?
Materials Introduction
Business concept Non-capital analysis
Marketing aspect Technical and operational aspect Legal aspect Environmental aspect
Capital planning and budgeting
Materials (cont’d) Basic capital investment analysis Capital asset pricing model Replacement analysis Capital investment analysis in uncertain world Feasibility report
Grading Assignments : 50% Mid term : 25% Final exam : 25% (compulsory)
Text books J.R. Canada, W.G. Sullivan, D.J. Kulonda, and J.A. White,
2005, Capital Investment Analysis for Engineering and Management, 3rd Ed., Prentice Hall, New York.
Bodie, Z., Kane, A., and Marcus, A.J., 1999, Investments, 4th Ed., McGraw Hill, Singapore
Bodie, Z., Kane, A., and Marcus, A.J., 2007, Essentials of Investments, 6th Ed., McGraw Hill, Singapore
E.M Tainer, 1998, Using Economic Indicators to improve investment analysis, John Wiley & Son, New York.
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
What is the most valuable company today?CNN Money, 23 Oct 2009
Sales revenues USD 372.824 bio sales revenues USD 60.42 bio
Profit USD 40.610 bio profit USD 17.681 bio
Employees 107,100 employees 91,000
Market market
Capitalization USD 353.23 bio capitalization USD 249.9 bio
GDP Indonesia 2009 USD 629.244 bio !! (231 mio people@ USD 2,724)*GDP = consumption + gross investment + government spending + (exports − imports)
US most valuable company CNN Money, 23 Oct 2009
Based on market capitalization1. 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
Value chain evolution
70’s : COSTS + PROFIT = PRICE
80’s : PRICE – COSTS = PROFIT
90’s : PRICE – PROFIT = COSTS
Now: SET TARGETSPROFIT – PRICE – COSTS
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?
Industries Manufacture Service feasibility studies can be done for both Different in product, process, problem faced,
performance measurements, etc.
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)
Investment characteristics Capital intensive Long term period
Usually need time before getting profit Resource constrained Risky wrong decision needs “money” and
“time” to improve
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
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
Weighting of the top 10 strategic business risks across the sectors studied
Who may use the feasibility report? Investor Funding resources, i.e. bank Partner(s) to be Benefactor (donor) Government
