THE FEASIBILITY

DETERMINATIONRossana Briones & Precious Joy Fiesta

DEFINITION

The feasibility study is an evaluation

and analysis of the potential of a

proposed project which is based on

extensive investigation and research

to support the process of decision

making.

OBJECTIVES

Aims to objectively and rationally uncover the strengthsand weaknesses of an existing business or proposedventure, opportunities and threats present in theenvironment, the resources required to carry through,and ultimately the prospects for success.

Should provide a historical background of the businessor project, a description of the product or service,accounting statements, details of theoperations and management, marketing research andpolicies, financial data, legal requirements and taxobligations .

Evaluates the project's potential for success; therefore,perceived objectivity is an important factor in thecredibility of the study for potential investors and lendinginstitutions.

THE SITE

The most important factor in the success or failure

of a propose hotel.

The site must be reviewed in relation to existing

excess to roads which the guest can arrive at and

depart from the hotel. If the site does not have the

proper access roads .They must be built resulting in

further cost increases.

THE MARKET

In order to be well known of the Hotel or Restaurant

the location must be in the City particularly in the

center of business.

The average of stay of visitors in that location can

also help to determine the demand for the Hotel

rooms.

SUPPLY OF ROOMS

It is of extreme importance to ascertain not only the

existing supply of rooms but also the future supply.

While new supply is an external factor, investors

need to anticipate and underwrite the potential

impact that new entrants will have on the market

and the subject hotel.

The supply should be charted first setting down the

names of the current properties, chains , and the

number of rooms they have available , then forming

an opinion as to whether the overall allocations are

good or bad.

LABOR SITUATIONS

The rapid development of the Hotel Industry has

resulted in a labor demand exceeding the supply

especially at the middle management or

supervisory level.

The quality of labor that is available must be

considered must only because poor quality may

have an adverse effect on business but also

because an expected cost maybe incurred to

properly train he staff.

ROOM DEMANDS

Based on the analysis made statistics on arrivals

and room nights a projection should now be made

of future demand for accommodations.

It should be measured in numbers of future room

nights, which can be set down and matched against

the combination of currently available rooms and

future rooms to be constructed.

FACILITIES

This are the things which can be use in Hotels

during the stay of Guests.

Particularly recreational facilities such as swimming

pools , tennis courts and possibly golf courses.

The importance of relating the facilities plan to the

market rather than trying to find a market pre-

determined facilities cannot be over stated.

FINANCIAL PROJECTIONS

The first step in estimating the payroll is to prepare

an expected staffing analysis for the Hotel by job

category. By multiplying the staffing analysis by the

expected workweek, weekly totals of hours, in each

job classifications can be projected.

Current wage rates can be obtained from either the

records of existing hotels or existing union contacts.

COST ELEMENTS OF THE PROJECT

Cost is believed to be one of the main elements

accounted for and monitored in any single project.

Land use is the human use of land

Building construction is the biggest element of cost

in any hotel project.

Interest during construction

Furniture, fixtures and equipment

Operating Equipment

Inventories

Pre-opening expenses

Working capital

SOURCES OF FINANCING

Traditional Sources of Finance

Internal resources have traditionally been the

chief source of finance for a company. Internal

resources could be a company’s assets, factoring

or invoice discounting, personal savings and profits

that have not been reinvested or distributed among

shareholders. Working capital is a short term

source of finance and is the money used for a

company’s day-to-day activities, including salaries,

rent, payments for raw materials and electricity bills.

Sources of Finance: Ownership Capital- is the capital

owned by the shareholders of a company. A company

can raise substantial funds through an IPO (initial public

offering). These funds are usually used for large

expenses, such as new product development, expansion

into a new market and setting up a new plant.

The various types of shares are:

Ordinary shares: These are also known as equity

shares and give the owner the right to share the

company’s profits and vote at the firm’s general

meetings.

Preference shares: The owners of these shares may be

entitled to a fixed dividend, but usually do not have the

right to vote.

Sources of Finance: Non-Ownership Capital

Non-ownership capital includes funds raised from

lenders, such as banks and creditors.

Companies typically borrow a fixed amount from a bank,

at a predetermined interest rate and with a fixed

repayment schedule.

Certain bank accounts offer overdraft facilities.

This is used by companies to meet their short-term fund

requirements, as they usually come at a very high

interest rate.

Sources of Finance: Venture Capital

Firms in the early stages of development can opt for

venture capital. This option gives the financing company

some ownership as well as influence over the direction of

the enterprise.

Sources of Finance: Duration

Depending on the date of maturity, sources of finance

can be clubbed into the following:

Long-term sources of finance: Long-term financing can

be raised from the following sources:

Medium-term sources of finance: Medium-

term financing can be raised from the

following sources:

HOW TO PROTECT FINANCIAL ?

Use credit and debit cards with care.

Don’t respond to unsolicited phone calls

or emails with personal information.

Check the site address before buying

online.

Secure your online accounts.

Place a security freeze on your credit

reports.

CONSIDERATIONS

• Each element in a project removes a portion

of uncertainty regarding its outcome.

Because what is “correct” is an individual

decision, analyze your project to determine

the number of elements it should include.

Revenue Management Resources &

Structure

Understanding how the revenue

management function is delivered at a

hotel provides insight as to the resources

currently in place and whether there is

room for improvement.

Business Plan

Having determined how revenue

management is handled, a good next

step is a review of a hotel’s Business

Plan (also referred to as an Operating

Plan or Sales & Marketing Plan).

Competitive Index

Another barometer by which revenue

opportunities can be identified is hotel

performance relative to a competitive set,

referred to as a property’s index.

Segmentation

In developing assumptions about future average

daily rate (ADR) growth potential, an examination of

historical ADR absent an understanding of business

segmentation is a stab in the dark, at best.

Reviewing the contribution and rate by business

segment is the first step to determining opportunities

for rate and profit growth.

Evaluate the level of diversification within demand

segments (corporate, leisure, group, contract) and

demand sources (corporations, attractions, etc.).

Forecasting & Booking Pace

Accurately projecting demand is

critical to developing a pricing strategy

that serves to maximize rate and profit

potential.

Price Value

Determining the existing price/value of a

potential acquisition can be very subjective, but

should be considered during due diligence.

New Supply

While new supply is an external

factor, investors need to anticipate

and underwrite the potential impact

that new entrants will have on the

market and the subject hotel.

IV. CONCLUSIONS

We therefore conclude that feasibility study is very

important in making decisions in proposing a project.

We therefore conclude that The feasibility study

must contain the key elements, namely:

The idea of the project: The nature of the project is

determined in this step, whether (industrial – services

– trade etc.). A simplified concept of the project is

given and the environment it is intended for.

Products: The products or services made or

provided by the project must be mentioned.

Technical elements of the project: This should

include several elements:

Stages of Manufacture: A detailed explanation

of how the manufacture of any product will be

done. Taking into account the balance of raw

materials involved in manufacturing, and the

quantities required for production.

Space and location: A description of the site

where the project is located and the required

space and the equipment for its establishment.

Service requirements of the project: This shows the

needs of the project in terms of services such as water

(square meters), electricity (kilowatts per hour),

telephone and fuel (liters), it should be calculated and

estimated in the form of money each month.

Machinery and equipment: The description of each

machine or equipment needed for the project and power

used for each (kilowatts) and whether the equipment is

going to be domestic or imported. What spare parts

required for the them and the price of the machines.

Raw materials needed for the project: The detailed

description of each piece that goes into production, and

packaging and the amount used, whether by weight or by

the number of pieces.

Employment: A description of the type of employment

required for the project. A description of the job duties,

job titles and wages must be stated.

Working hours: Whether it is a one shift (8 hours) or two

(16 hours) or three (24 hours).

Products: To be described, named and determined by the

quantity as well as specifying the price of each item.

Packaging: The quality of materials used should be

determined in packaging, with the addition of a poster

showing all product data (product name and logos, if

any). Also, the name of the producer, address and the

name of the natural ingredients, additions and date of

production and shelf-life should be on the packaging.

Quality: Quality elements should be prepared for the

project’s products. Beginning with cleanliness of

premises to the health of the employees depending on

the type of the project.

Marketing: To disclose intended marketing schemes

such as participating in various exhibitions or taking the

wholesale approach.

Financial and economic study: One should prepare a

budget for investment costs. Investment costs are split

between direct costs and indirect costs. Direct costs are

the raw materials, intermediate raw materials, wages and

salaries. Indirect costs are electricity, fuel, maintenance,

spare parts, marketing expenses, rental of premises and

insurance on the buildings.

V. RECOMMENDATION

I therefore recommend that feasibility study must be

based on what will be the result of the investigation

of all the factors that could affect the profitability of

a proposed new hotel. The study estimates

probable demand and makes economic projections

based on all sources of income and costs.

VI. REFERENCES

Kristie Dickinson, Vice President, Capital Hotel

Management

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