Opportunity Analysis- Meaning, Types
Meaning of An opportunity is a chance to take advantage of a situation. This opportunity may be to do something new to earn profit. For example, Government may give incentive to increase exports. You may start an export unit i.e. produce goods for export. A person may find opportunities in solving a problem.
For example, You go to a college to take admission. You are asked by the college authorities to submit Photostat copies of your provisional certificate, character certificate and marks sheet. You find that there is no Photostat machine nearby. As such the students have to go to long distances of say one kilometer or more to get Photostat copies. To solve this problem you may think of starting Photostat business nearby. Thus, you get an opportunity to start Photostat business by solving a problem, that is the problem of going a long distance to get a Photostat copy. A problem gives rise to an opportunity.
An opportunity can already be existing in the environment. It may also be created. For example- invention of radio, television, computer etc., created lot of opportunities. Due to the above inventions a large number of entrepreneurs got the opportunities of starting business of manufacturing assembling, marketing or selling and repairing these products.
Broadly speaking opportunity analysis means assessment of strengths and weaknesses of the business idea to judge its viability or feasibility. i.e. scope or chances of profitability of the project.
Types of Opportunity Analysis
Generally opportunity analysis includes the following analysis:
- Market analysis
- Technical analysis
- Financial analysis
Market Analysis :
Market analysis is the starting point in the process of opportunity analysis. The size of the project and technology to be used depend very much upon the demand potential. Market analysis enables the entrepreneurs to determine the market potential for the goods or services. He can adopt most suitable technology and optimal size of the plant achieve economics of scale.
Broadly speaking a market analysis should cover the following areas:
- A description of the market of the goods to be produced or service to be provided including channels of distribution or service network, mode of transport and rates of transportation.
- Estimation and analysis of demand potential short term as well as long term, present and past demand in quantitative and qualitative terms.
- Supply analysis-short term as well as long term, present and past supply in quantitative and qualitative terms.
Technical Analysis :
Technical analysis is undertaken to ascertain the technical feasibility of the project. If the technical analysis indicates that project is not technically feasible, there is no sense in pursuing the business idea any further. We can illustrate this with the help of the following example:
A discovers an idea to start a cinema hall in Chandni Chowk area of old Delhi. Technical analysis will establish whether it is technically feasible to construct a cinema hall in that area. It will necessitate to ascertaining the following factors:
- Whether such a big plot of land is available.
- Whether such necessary permission from the concerned authorities, e.g. Delhi Development Authority or Municipal Corporation of Delhi would be available to start a cinema hall in that area.
Technical feasibility report in the case of a manufacturing a cinema unit will provide information on various other technical alternative methods of production available and the feasible size of the project. Ordinarily the technical analysis should cover the following:
- Description of the goods or services showing its physical, mechanical and chemical properties if any.
- Description of the process of production showing detailed flow chart and justification for selection of the process.
- Location of the plant and justification for locating the plant in the particular area.
- Size of the plants and production schedule.
- Plant layout including estimated cost of land and building.
- Details of raw materials required such as availability, qualities and quantities, sources of supply and their costs.
- Details of labour required such as skilled labour, unskilled number of workers, cost of their acquisition and maintenance.
- Estimated cost of production.
- Method of waste disposal, its cost and necessary permission for disposal from the concerned authorities.
Financial analysis is undertaken to determine the viability or profitability of the project and financial resources required to meet technical cost and the cost of marketing the goods including the cost of setting a marketing network. Ordinarily the financial analysis should cover the following areas.
- Total cost of the project, initial capital requirements, financial projections, income statements, cash flows and balance sheets.
- Supporting schedules for financial projections indicating the assumptions made regarding collection period of sales, inventory levels, Credit period generally allowed for purchases and expenses.
- Return on investment, return on equity, break even analysis.
- In case of public utilities, social benefit analysis will have priority over profitability of the project in monetary terms.
If the above analysis indicate positive results, the entrepreneur can submit his project for financing to the financial institutions. Ordinarily the investment proposal includes the following:
- A brief history of the company, nature of the product, background of the managerial personnel with their qualifications, names and addresses.
- A summary of the findings of the market analysis, technological analysis and financial analysis.
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