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224 feasibility study
operating environment. As the timeline expands,
the credibility of the financial data is weakened due
to forces such as inflation, changes in competition
and alterations in marketing plans and efforts.
The purpose of preparing a feasibility study is to
determine whether or not to proceed with the
project. The logic is that the cost of preparing the
study is a minor expense if it avoids a series of
ongoing negative cash flow situations. A lender
generally will require an investor to submit a
feasibility study along with other documents
associated with the loan application. The lender
will also generally insist that it be conducted by a
group independent of the owner/investor. This
situation allows for a great deal of conflict in that
the individual�s) commissioning the study has a
vested interest in receiving a positive report so that
the project can continue and receive financing. A
much more logical arrangement would be to have
the lending institute arrange for the study, billing
the cost back to the applicant.
Preparers of feasibility studies can be public
accounting firms, real estate management companies,
management consulting firms, contract
management companies and independent individuals.
In the selection process of a firm, the owner/
investor �client) should consider the credentials and
reputation of the specific individuals in the firm
assigned to project. The commissioned report is the
property of the owner/investor and is proprietary
information. The document, projected and prepared
on behalf of the client, is not to be shared
with other organisations, lending institutions or
potential competition by the group commissioned
to perform the analysis. The workpapers and
supporting schedules, however, remain the property
of the preparer of the study, with no obligation
to provide them to the client or to share their
content with the owner/investor. In the course of
completing the assignment for the client, the
consultant may obtain temporary custody of
certain original books and records relating to the
client's business. Upon termination of the assignment,
or upon request from the client, these
documents need to be returned to the client, even
if the fee has not been paid.
Feasibility studies for tourism projects are
usually similar in format. They are used to achieve
assistance in obtaining financing and to help in
obtaining contracts, franchise agreements �see
franchising) and leases. When the project is
completed and operating they often are also
consulted for use as operating and marketing
plans, and guides for operating and capital budgets
�see budgeting). If it is determined during the
process that the project is not economically
feasible, the consultant will stop work immediately
and inform the client of his/her determination. All
work is concluded and the negative report is
prepared as a letter, which is sent to the client.
The basic format of a hotel feasibility study
contains several sections. A letter of transmittal is
simply correspondence from the consultant to the
owner/developer detailing the contents the report.
It is intended to alert the recipient to what to
expect, and the magnitude of the project. This is
followed by a table of contents. An executive
summary reports the highlights of the findings and
other significant information about the report. Its
intended audience is higher management. The
characteristics of the market area include general
descriptions of the geographic quadrant, state, city
and specific location. These comments acquaint
the reader with the geographic area, how it
evolved, its strengths and its weaknesses. The
actual area is described and supported by specific
research of economic indicators such as population,
effective buying income, employment, retail
sales, office space trends, transportation, and
tourism and conventions �see meetings business).
An evaluation of the specific area includes
an examination of both the primary and the
secondary competition. It is in this section that the
competition is rated.
The competition and demand analysis uses the
information gained in the prior sections to
determine the projected occupancy and average
daily rate of the new project. It also takes into
account other projects that may be primary or
secondary competition as well as considering
facilities that currently are classified as secondary
competition that could evolve into primary competition.
The recommended services and facilities
section is reserved for comment on the proposed
project from an operational and competitive
perspective. This section includes the comments
of the consultant relative to the individual property.
It may also include recommendations as to the