HFT6476 Feasibility Studies

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HFT6476 Feasibility Studies

• Overview of Market Analysis
• By Tad Hara, PhD
• Rosen College of Hospitality Management

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Overview of Feasibility Studies-A Hotel Case

• Eight Phases (by Steve Rushmore in 1986)
• Site Review
• Market Demand Quantification
• Competitive Analysis
• Facilities Concept Recommendations
• Estimate of Total Project Cost
• Forecast of Income and Expenses
• Economic Value Estimate (valuation)
• Return on Investment (ROI) Analysis

Market Analysis
Product Concept Analysis
Financial Analysis
Source How to perform an Economic Feasibility
Study of a Proposed Hotel/Model, American
Society of Real Estate Counselors 1986
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Overview of Feasibility Studies-A Hotel Case
Market Analysis
Product Concept Cost Analysis
Financial Analysis
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Market Analysis

• As you did in the Assignment 1
• What did you find in the assignment?
• Data Gathering and Analysis
• Some parts allows some judgment ? spell all
  assumptions judgments out clearly, then you are
  fine
• Competition, penetration ?How are they realized?
  result of hard work by operators?
• Assumptions and the processes should be shown
  clearly ?good F/S all assumptions are shown
  others can rebuild the F/S

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Product Concept ( cost) Analysis

• Develop a concept that caters to the market
• Then, calculate the cost (for new development)
• Appropriate size we have some static data
• Cost? fluctuates a lot, read WSJ for general
  economic environment.
• See handout on size of facilities
• See the Construction Cost Survey handout

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Product Concept ( cost) Analysis

• Now Flip-flop!, calculate the cost (for
  acquisition)
• What kind of financial feasibility? Based on what
  kind of assumptions?
• Within the cost constraint, check whether the
  concept can successfully caters to the market

The driving force behind the rise in hotel
development cost is the recent surge in both
construction and land costs. Based on data from
the BLS, construction costs in the United States
rose 8.3 percent in 2004. This compares to a
compound annual average of just 1.7 percent from
1992 through 2003. Similarly, land costs are
currently growing above long-term averages. In
2004, land prices soared 7.0 percent extending
beyond the 5.3 percent annual average from 1992
through 2003. Source http//www.hotel-online.com/
News/PR2006_1st/Feb06_SupplyGrowth.html
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Product Concept Cost Summary

• Based on the market analysis, your mission is to
  propose the concept that captures the target
  market most effectively
• Then, you calculate the cost associated with the
  specific concept that you are proposing, which
  leads to
• Financial Feasibility ?Given (1) the hotels
  proposed performance (how it penetrates and
  competes with others) and (2) the cost, can it
  pay back at least required returns on your
  investment?

a typical MBA skills such as IRR, NPV?
Introduction to Financial Feasibility