Feasibility Study: Methods, Analysis & Hospitality Cases

TAKEAWAYS:

• A feasibility study answers five critical questions (market, technical, operational, financial, legal) before investing in a hospitality project.
• SWOT analysis and break-even analysis are core tools to assess risks and profitability in real-world scenarios (e.g., a Kathmandu café’s cost vs. revenue).
• Primary data (surveys, interviews) and secondary data (industry reports, government statistics) must be triangulated for accuracy.
• Pestle analysis helps identify external threats (e.g., NTC’s internet restrictions affecting online bookings for homestays).
• Case studies (e.g., Himalayan Java’s expansion) show how feasibility studies prevent costly failures in competitive markets.
• Exam focus: Expect short-answer questions on feasibility types, numerical problems on break-even points, and case-based analysis (e.g., "Why did a Pokhara guesthouse fail?").

1. Definition and Purpose of a Feasibility Study

A feasibility study is a detailed analysis conducted to determine whether a business idea is viable before committing resources. For hospitality entrepreneurs, it evaluates:

• Market demand (Are tourists visiting Thamel willing to pay for a vegan café?)
• Technical feasibility (Can you source organic ingredients locally?)
• Operational feasibility (Do you have staff trained in gluten-free cooking?)
• Financial feasibility (Will the café break even in 24 months?)
• Legal/regulatory feasibility (Does Pokhara’s municipality allow late-night food service?)

Why it matters:

"80% of small hospitality businesses in Nepal fail within 3 years—not because of bad ideas, but because they skipped feasibility studies." — Nepal Entrepreneurs’ Federation (2023)

2. Types of Feasibility Studies

Feasibility studies are categorized by the aspects of the business being evaluated. Use this table to compare:

3. Step-by-Step Process of Conducting a Feasibility Study

Use this mermaid flowchart to visualize the process:

flowchart TD
    A["Start: Define Business Idea"] --> B["Market Research"]
    B --> C["Technical Assessment"]
    C --> D["Operational Plan"]
    D --> E["Financial Projections"]
    E --> F["Legal Review"]
    F --> G["Risk Analysis"]
    G --> H["Feasibility Report"]
    H --> I["Decision: Proceed/Revise/Abort"]

Step 1: Market Research

Goal: Confirm demand and identify competitors. Methods:

• Primary data: Surveys, interviews, focus groups. Example: Interview 50 tourists in Durbar Square about their dining preferences.
• Secondary data: Industry reports (e.g., Nepal Tourism Board’s 2023 data), Google Trends, Daraz/Pathao delivery trends.
• SWOT Analysis (Visual below):

mindmap
  root((SWOT Analysis for a Pokhara Guesthouse))
    Strengths
      Unique: Riverside location
      Local: Homestay partnerships
    Weaknesses
      Seasonal: Low occupancy in monsoon
      Infrastructure: Poor road access
    Opportunities
      Tourism: Rising solo travelers
      Tech: Online booking via eSewa
    Threats
      Competition: Existing hotels
      External: Political strikes

Worked Example: A guesthouse in Nagarkot wants to add a spa. Conduct a survey:

• Strengths: Scenic views attract wellness tourists.
• Weaknesses: High electricity costs for sauna.
• Opportunity: Partner with Himalayan Java for organic spa products.
• Threat: NTC’s load-shedding may disrupt services.

Step 2: Technical Feasibility

Goal: Assess if the idea can be executed with available resources. Key Checks:

• Equipment: Can you afford a commercial coffee machine for a café?
• Suppliers: Are there reliable dairy farms near Kathmandu for a milkshake bar?
• Technology: Does your homestay have Wi-Fi strong enough for online bookings?

Essential equipment for a café’s technical feasibility (Image: Александр Сигачёв, CC0, via Wikimedia Commons)

Case Study: Himalayan Java’s Expansion

• Problem: They wanted to open a café in Dharan but lacked local supplier networks.
• Solution: Conducted technical feasibility by partnering with Sikkim’s tea gardens and Pokhara’s dairy cooperatives.
• Outcome: Reduced ingredient costs by 20%, ensuring profitability.

Step 3: Operational Feasibility

Goal: Ensure the business can run efficiently. Tools:

• Flowcharts for processes (e.g., kitchen workflow).
• Staffing plans (e.g., 1 manager, 3 chefs, 2 waiters for a 30-seat restaurant).
• SOP (Standard Operating Procedures) for consistency.

Mermaid Workflow for a Café’s Daily Operations:

flowchart LR
    A["6:00 AM: Supplier Delivery Check"] --> B["7:00 AM: Kitchen Prep"]
    B --> C["8:00 AM: Staff Briefing"]
    C --> D["9:00 AM: Opening"]
    D --> E["12:00 PM: Lunch Rush"]
    E --> F["5:00 PM: Cleaning & Inventory"]

Real-World Tie-In:

• Pathao’s Delivery Model: Their operational feasibility study included:
  • Rider training (to handle traffic in Kathmandu).
  • Route optimization (using GPS to reduce delivery time).
  • Partnerships (with local shops for pickup points).

Step 4: Financial Feasibility

Goal: Determine if the business will make money. Key Tools:

1. Break-Even Analysis: The point where Total Revenue = Total Costs.

   • Formula: $$\text{Break-Even Point (units)}=\frac{\text{Fixed Costs}}{\text{Selling Price per Unit}-\text{Variable Cost per Unit}}$$
   • Example: A guesthouse in Chitwan has:
     • Fixed costs: ₹50,000/month (rent, salaries).
     • Variable cost per room: ₹1,500 (cleaning, utilities).
     • Selling price per room: ₹3,000.
     • Break-even rooms/month: $$\frac{50,000}{3,000-1,500}=66.67\text{ rooms}$$
     • Interpretation: The guesthouse must book 67 rooms/month to cover costs.

2. Cash Flow Projection: Shows money in vs. money out over time.

   • Example for a Café:

     Month	Revenue (₹)	Fixed Costs (₹)	Variable Costs (₹)	Net Profit (₹)
     Month 1	200,000	120,000	60,000	20,000
     Month 6	350,000	120,000	90,000	140,000

3. ROI (Return on Investment): Measures profitability.

   • Formula: $$\text{ROI}=\frac{\text{Net Profit}}{\text{Total Investment}}\times 100$$
   • Example: Investing ₹2,000,000 in a restaurant generating ₹300,000/year profit. $$\text{ROI}=\frac{300,000}{2,000,000}\times 100=15\%\text{ (Good for hospitality)}$$

Step 5: Legal Feasibility

Goal: Ensure compliance with Nepal’s laws. Key Checks for Hospitality Businesses:

Case Study: Nabil Bank’s Café Failures

• Mistake: A Nabil Bank-owned café in Thamel didn’t obtain a food safety license.
• Outcome: Shut down after a health inspection found expired dairy products.
• Lesson: Always check Department of Food Technology guidelines before opening.

4. Common Mistakes in Feasibility Studies (and How to Avoid Them)

In the Real World

1. eSewa’s Expansion Strategy

   • Feasibility Idea: eSewa wanted to add hotel booking to its app.
   • Market Feasibility: Surveyed users—60% wanted this feature.
   • Technical Feasibility: Partnered with Nepal Tourism Board’s API for real-time availability.
   • Financial Feasibility: Projected ₹50 million/year revenue from commissions.
   • Outcome: Launched successfully in 2023.

2. Daraz’s Supplier Vetting

   • Problem: Daraz needed to ensure food vendors on its platform were legally compliant.
   • Solution: Conducted legal feasibility checks (licenses, tax IDs) before onboarding.
   • Result: Reduced fraudulent listings by 40% and built trust with buyers.

3. NTC’s Internet Café Regulations

   • Issue: Many internet cafés in Kathmandu failed because they didn’t account for NTC’s bandwidth costs.
   • Feasibility Fix: Businesses now run break-even analyses to ensure ₹500/month per user revenue covers NTC fees.

5. Worked Example: Feasibility Study for a Kathmandu Vegan Café

Business Idea: Open a 100% plant-based café in Thamel. Step 1: Market Feasibility

• Survey: 80% of tourists in Thamel are open to vegan options.
• Competitors: Only 2 vegan cafés exist (both foreign-owned).
• SWOT:
  • Strength: First local vegan café.
  • Weakness: Higher ingredient costs (imported tofu).
  • Opportunity: Partner with Himalayan Java for organic coffee.
  • Threat: Pathao/Daraz delivering vegan meals may compete.

Step 2: Technical Feasibility

• Equipment Needed:
  • Blender (₹20,000), commercial fridge (₹80,000), solar panels (₹150,000 for backup power).
• Suppliers:
  • Local: Organic vegetables from Kathmandu’s farmers’ market.
  • Imported: Tofu from India (₹50,000/month).

Step 3: Operational Feasibility

• Staff: 1 manager, 2 chefs, 2 waiters.
• SOP: "No cross-contamination" rule for kitchen.
• Workflow:

flowchart LR
    A["6:00 AM: Supplier Delivery (Vegan Ingredients Only)"] --> B["7:00 AM: Kitchen Prep: Allergen-Separate Zones"]
    B --> C["8:00 AM: Staff Training: Cross-Contamination Protocol"]
    C --> D["9:00 AM: Opening: Vegan Menu Only Signage"]
    D --> E["12:00 PM: Peak Lunch: 30-Customer Capacity"]
    E --> F["5:00 PM: Inventory Check: 10% Waste Limit"]

Step 4: Financial Feasibility

• Fixed Costs: ₹120,000/month (rent, salaries).
• Variable Costs: ₹30,000/month (ingredients).
• Selling Price: ₹500/meal (break-even at 360 meals/day).
• Break-Even Calculation: $$\frac{120,000+30,000}{500-200}=450\text{ meals/day}$$
• Projected Revenue: ₹200,000/month (selling 400 meals/day).

Step 5: Legal Feasibility

• Licenses Needed:
  1. Food Safety License (₹10,000, from Department of Food Technology).
  2. VAT Registration (13% tax on meals).
  3. Fire Safety Certificate (₹5,000, from Kathmandu Metropolitan City).

Decision: Proceed with a pilot (6-month test in a smaller space).

Exam Tip

How This Unit is Tested in TU Exams

1. Short Answer (3-5 marks):

   • Define break-even analysis and give an example for a Pokhara guesthouse.
   • List five legal requirements for opening a café in Nepal.

2. Numerical Problems (7-10 marks):

   • Calculate the break-even point for a restaurant with given fixed/variable costs.
   • Example Question:

     "A homestay in Chitwan has fixed costs of ₹40,000/month and variable costs of ₹1,200 per guest. If they charge ₹2,500 per guest, how many bookings are needed to break even?"

3. Case Analysis (10-15 marks):

   • Analyze why a failed hospitality business (e.g., a Kathmandu rooftop bar) might have missed feasibility steps.
   • Example Question:

     "A café in Thamel closed after 6 months. Using feasibility study concepts, explain three possible reasons for its failure."

4. SWOT/Pestle Analysis (5-8 marks):

   • Draw a SWOT mindmap for a new bakery in Bhaktapur.
   • Conduct a PESTLE analysis for a trekking tea shop in Lukla.

Top 3 Exam Strategies

1. Memorize Formulas:
   • Break-even point, ROI, and cash flow projection formulas are highly testable.
2. Practice Numerical Problems:
   • Solve 5-10 break-even questions using real hospitality examples (e.g., guesthouses, cafés).
3. Link Theory to Real Cases:
   • Always relate answers to Nepali businesses (e.g., Himalayan Java, Daraz, NTC regulations).

Final Checklist Before Starting a Hospitality Business