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Feasibility Study

Feasibility Study. Definition. Whether the project is practicable, possible and conveniently done Appraisal of Supply and demand, Factors affecting supply and demand Assessment of how the project can exploit opportunities. Forms. Can be used for A new building An acquisition

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Feasibility Study

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  1. Feasibility Study

  2. Definition • Whether the project is practicable, possible and conveniently done • Appraisal of • Supply and demand, • Factors affecting supply and demand • Assessment of how the project can exploit opportunities

  3. Forms • Can be used for • A new building • An acquisition • Extention to an existing facility • Refurbishment • Renovation or repositioning of a facility

  4. Importance in Hospitality Sector • Hospitality development projects are hybrids • Combination of property and business • Complicated • Planning process requires much more detail as compared to other businesses

  5. Parties Involved • Prepared by a specialized consultant working with different parties • Architect • Client • Sources of funding • Management company

  6. Objectives • To determine whether the project is feasible • To provide information to the project promoter • Independent verification of the internal promoter of the project • To provide a brief to the architect • To provide information to the potential lender/investor • To present the case to the planning authorities • To assist negotiations with the management companies

  7. Information Includes • Supply&demand, market opportunies • Government policies • External and internal factors that will affect operations, profitability and viability • Various risks; identified and quantified • Suggesstions on best site, best type...

  8. Methodology As suggested by TRI Hospitality Consulting • Site appraisal • Market research • Information review • Financial analysis • Reporting

  9. Site Appraisal • Evaluates the site’s strenghts & weaknesses and its competitive positioning in relation to other facilities • Should indicate how the weaknesses will be mitigated • Important for the success of the project • Should be suitable for the use proposed • Strenghts & weaknesses summary (Table 2.2 Site Analysis p.30)

  10. Factors to be Considered in Site Evaluation • Size • Planning regulations, site utilization ratio, building density.. • Positioning – Neighboring areas • Access – visibility • Relationship to demand generators • Relationship to competitors

  11. Market Research • Whether the project is appropriate for the market; its likely acceptance; demand characteristics • Utilizes various data sources • Personal observation, face-to-face interview, telephone interview, questionnaires, web search, data base search, press search, literature reviews

  12. Market Analysis IncludesTable 2.3 • General economic data • Population and demographic data • Transportation • Characteristics of existing supply • Expectations of future supply • Demand profiles and characteristics • Labor laws • Regulations affecting operations

  13. Information Review • Collect, sort, assimilate, orient the information collected to reach conclusions • Reviewed by various parties involved in project development

  14. Financial Analysis • Estimates of profit&loss, cash flows • Projection of profit&loss • Volume • Price • Cost

  15. Methodologies for Projections • Volume • Number of rooms sold in the hotel • Number of covers sold in the restaurant • Utilization of hotel’s business center • Number of members in the leisure club • Market conditions and how this market is expected to grow • Analysis with respect to market segments • Expectations on the volume of the project and growth rate

  16. Methodologies for Projections • Price and Revenue • Price-volume interrelated • To project prices • Investigate ARRs of competing hotels • Room rates and revenue by each market segment • Develop a model Based on assumptions on room type, discounts by season or market type, the proportions of each market type, utilization of each room type...

  17. Methodologies for Projections • Costs • Categorized according to uniform system of accounts • Departmental- undistributed – fixed charges • Use ercentage relationships, benchmarking with similar establishments and industry averages

  18. Reporting • Written and presented in a meeting

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