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OPPORTUNITY SCREENING

ACTIVITY
COPY-CUT!

Objectives:
 To start the flow of discussion with a fun concept
 To build coordination and cooperation

Direction: The class will be divided into two groups. They will going to imitate five
images given by the reporters. The group that will imitate closer to the
actions in the images and get highest number of points will be declared as
the winner.

ABSTRACTION
Objectives:
 To understand the areas for screening opportunities
 To identify the factors in creating pre-feasibility study and feasibility study

OPPORTUNITY SCREENING
 After opportunity seeking comes the rigorous process of Opportunity Screening.
Because of the many opportunities possible for the entrepreneur, it is important to
come up with a short list of a few very promising opportunities, which could be
scrutinized in detail.

THE PERSONAL SCREEN


 In screening opportunities, the entrepreneur first has to consider his or her
preferences and capabilities by asking three basic questions:

1. Do I have the drive to pursue this business opportunity to the end?


2. Will I spend all my time, effort, and money to make the business opportunity
work?
3. Will I sacrifice my existing lifestyle, endure emotional hardship, and forego my
usual comforts to succeed in this business opportunity?

 If “YES” is your answer to all of the above, then you can begin your earnest
pursuit of that opportunity. At the simplest level, the entrepreneur may want to
make a risk-return grid shown as follows:

RISK-RETURN GRID FOR SCREENING OPPORTUNITIES

Risk
Low Risk Medium Risk High Risk
Return
High Return Best Good Fair
Medium Return Good Fair Bad
Low Return Fair Bad Worst

THE 12 Rs of OPPORTUNITY SCREENING

1. Relevance to vision, mission, and objectives of the entrepreneur. The opportunity


must be aligned with what you have as your personal vision, mission, and
objectives for the enterprise you want to set up.
2. Resonance to values. Other than vision, mission, and objectives, the opportunity
must match the values and desired virtues that you have or wish to impart.
3. Reinforcement of Entrepreneurial Interests. How does the opportunity resonate
with the entrepreneur’s personal interests, talents, and skills?
4. Revenues. In any entrepreneurial endeavor, it is important to determine the sales
potential of the products or services you want to offer. Is there a big enough
market out there to grab and nurture for growth?
5. Responsiveness to customer needs and wants. If the opportunity that you want to
pursue addresses the unfulfilled or underserved needs and wants of customers,
then you have a better chance of succeeding.
6. Reach. Opportunities that have good chances of expanding through branches,
distributorships, dealerships, or franchise outlets in order to attain rapid growth
are better opportunities.
7. Range. The opportunity can potentially lead to a wide range of possible product or
service offerings, thus, tapping many market segments of the industry.
8. Revolutionary Impact. If you think that the opportunity will most likely be the
“next big thing” or even a game-changer that will revolutionize the industry, then
there is a big potential for the chosen opportunity.
9. Returns. It is a fact that products with low costs of production and operations but
are sold at higher prices will definitely yield the highest returns on investments.
Returns can also be intangible; meaning, they come in the form of high profile
recognition or image projection.
10. Relative Ease of Implementation. Will the opportunity be relatively easy to
implement for the entrepreneur or will there be a lot of obstacles and competency
gaps to overcome?
11. Resources Required. Opportunities requiring fewer resources from the
entrepreneur may be more favored than those requiring more resources.
12. Risks. In an entrepreneurial endeavor, there will always be risks. However, some
opportunities carry more risks than others, such as those with high technological,
market, financial, and people risks.

 These 12 criteria can be better managed if quantified and formed into a matrix to
help the entrepreneur concretize the evidence that the chosen opportunity (or
opportunities) is well worth pursuing.
 Criteria numbers 1 – 10 are positive indicators; meaning, the more of them, the
better. Criteria numbers 11 and 12 are negative indicators; meaning, the less of
them, the better. Hence, the rating system is reversed for the negative indicators.
(Rating x Weight = Score)

THE PRE–FEASIBILITY STUDY


 The ultimate goal of doing the opportunity screening matrix is to narrow down the
many opportunities into one or two most attractive ones. The next step is to
conduct a pre-feasibility study to ascertain the viability of the opportunity. The
idea is to focus on a few key items that could make or break the business concept.
This time, the entrepreneur must go down to the details and take time to consider
the following factors that are contained in a pre-feasibility study:
 Market potential and prospects
 Availability and appropriateness of technology
 Project investment and detailed cost estimates
 Financial forecast and determination of financial feasibility

 MARKET POTENTIAL and PROSPECTS


 Market potential is based on the estimated number of possible customers who
might avail of the product or service. For a more realistic number, it would
help to narrow down your estimation to the relevant population or target
customers in the area where you want to operate your business (micromarket).
 For entrepreneurs who are entering a business that caters to the basic customer
needs, such as food, clothes, beverages, furniture, appliances, housing,
schooling and the like, there would usually be demand and supply statistics
available from government institutions, industry associations, and research
firms. In addition, the entrepreneur must take note that the total market of
these products is usually not the issue. Basic needs tend to be commodities or
“commoditized”. Customers have the luxury of choosing among many basic
needs suppliers. That is why these suppliers try very hard to differentiate
themselves from one another by dividing the huge market into many customer
segments.
 The customers would, oftentimes, make the final choice on what to buy
according to the several factors such as: (1) their purchasing power or
disposable income; (2) their proximity or accessibility to the goods or
services; (3) their individual desires and preferences; (4) their age or
generational grouping; (5) their social, cultural, or ethnic background; (6) their
peer group preferences; (7) their gender; (8) the season of the year; (9) their
personal identification with trend setters; (10) their educational attainment;
(11) their technical proficiency and product expertise; (12) their motivational
impetus; (13) their lifestyle preferences; (14) their susceptibility to certain
advertising and promotional appeals, and many others.
 Market estimation is the most difficult task of the entrepreneur because of the
many ways customers can be divided and segmented. However, the most
common way resorted to by most entrepreneurs are through the use of
demographics such as income (class A, B, C, D, and E), age (infants, toddlers,
six to 12 years, teenagers, young adults, adults, middle agers, and senior
citizens), gender (male, female), level of education, and locational proximity.
In a pre-feasibility study, the entrepreneur should, at the very least, determine
and quantify the market potential according to these broad customer
classifications.
 Segmenting the Market – Using a set of demographics (e.g. gender,
age, place of residence, income class, etc.) will be the most basic
approach in determining the target segment. Keep in mind that some
general statistics for these demographics can be found online. If you
want to go into more details, then you might have to look into other
specific classifications that are relevant to the market you are targeting
such as the psychological profiling and lifestyle preferences of the
different customer segments. In this regard, the entrepreneur must be
able to do actual field research like surveys, focus group discussions,
in-depth interviews, observation techniques, etc.
 Assessing Competition – Market potential is also affected by the
number of establishments supplying and serving your target
customers. This process would determine how saturated the market is
in the given area of coverage. The more suppliers and competitors
there are within a confined area, the greater the level of saturation. In
order to assess one’s strengths and weaknesses, there must be a
comparison made with the closest competitors. Profiling these
competitors will help the entrepreneur gauge their respective strengths
and weaknesses and, therefore, enable the entrepreneur to craft a
strategy. By doing so, the entrepreneur would be able to get an idea of
whether he or she can compete with the existing competitors. If not,
the entrepreneur should change strategy by moving to a different
location or by shifting to a less competitive target segment in order to
avoid competition. Alternatively, the product or service offering can
be improved to enhance its competitiveness.
 Estimating Market Share and Sales – The next thing that the
entrepreneur should assess is the potential market share he or she can
attract. Conservatively, the entrepreneur can go for a small market
share unless the entrepreneur has a very superior product or service
that can immediately command a large market share. In a pre-
feasibility study, the most important task is to quantify the market
potential in a systematic way. The first thing that the entrepreneur
must do is to define the market coverage or reach he or she wants to
serve. The area could be as big as a country (or even a continent) and
as small as a neighborhood. The area would define the total population
being targeted. Second, the entrepreneur must determine the broad
market segments within this area or total targeted population. In a first
level attempt at quantifying the market, the entrepreneur could select
such broad categories like gender, age, and income class. In the
assessment of market potential, the entrepreneur should evaluate the
relative strength of various suppliers or competitors in the marketplace
by asking the following questions:
1. Who has dominance?
2. Who has greater bargaining power?
3. Which segments of the total market are saturated and over
served and which ones are relatively underserved?
4. Are there market segments which are more attractive than
others for the entrepreneur, either because of past expertise
in the segment or weaker competition in the segment?
 The final task of the entrepreneur in this portion of the pre-feasibility
study is to determine what slice or share of the targeted market
segment he or she wants to carve out. Without a very definite product
formulation or service proposition, this requires some “educated
guessing” or intuitive insightfulness. Alternatively, the entrepreneur
could work out the other portions of the pre-feasibility study first (such
as the investment requirements and costs of production) and then ask
himself or herself what market would be necessary to earn a decent
return on the product or service. Given this market share threshold, the
entrepreneur could assess whether this would be achievable based on
the study of the market potential. Having determined the forecast or
derived market share, the entrepreneur should then estimate potential
sales. The sales forecast can be computed using the following formula:
(Estimated Sales Volume x Estimated Price).
 TECHNOLOGY ASSESSMENT and OPERATIONS VIABILITY
 In order to get the enterprise going, the entrepreneur must go through the
intricacies of detailing the operations that would be required by the business,
which also includes technology assessment. By going through this process, the
entrepreneur would be able to determine whether the product or service
offering will meet customer demand or not. There are at least four target
customer expectations affecting the scale and complexity of an enterprise’s
operations:
 Quantities demanded – This would determine the needed capacity of
operations.
 Quality specifications demanded – This would dictate the following:
(a) quality of input or raw materials; (b) quality assurance process in
transforming input to output; (c) quality output that meet the
operations, standards set; and (d) quality outcomes for the customers
who will be looking for specific results.
 Delivery expectations – Knowing how much, how frequent, and when
to deliver to customers.
 Price expectations – The selling price of the product or service would
be evaluated by the customers according to the value they would
receive (in terms of quality, delivery, and quantity) and this value
added should be matched against competitors.
 INVESTMENT REQUIREMENTS, PRODUCTION/SERVICING COSTS
 Now comes the challenging part, the entrepreneur needs to determine how
much money is needed to start the business opportunity with consideration to
the technologies and operating levels required. In this respect, there are three
investments that need to be funded:
 Pre-Operating Costs – These are the costs related to the preparation for
the launch of the business. These include the pre-feasibility study, in-
depth feasibility study, market research, product development,
organizational development, and initial promotional costs.
 Production/Service Facilities Investment – This refers to the long-term
investment for the actual business establishment, including investment
in land, buildings, machinery, equipment, computers, software,
furniture, vehicles, etc. If the business would be renting or leasing
space, the leasehold improvement (or renovation) would also be part
of the facilities investment.
 Working Capital Investment – This includes the investment needed to
operationalize the business, composed of cash, accounts receivable,
and inventories (raw materials, work-in process, and finished goods).
The entrepreneur must see to it that he or she has enough cash to cover
the inventories to be purchased (or manufactured), the accounts
receivable to accomodate customers, and the operating expenses to be
incurred. These operating expenses would include the following: (1)
Employee salaries, wages, and benefits, (2) Rent and lease expenses,
(3) Utilities, (4) Transportation, (5) Fees and licenses, (6)
Commissions, and (7) Office supplies, etc.
 In effect, this part of the pre-feasibility study asks two questions:
1. Do I have enough resources to cover the necessary investments?
2. Would my sales estimates be significantly higher than my monthly
production/service costs in order to produce profits?
 FINANCIAL FORECASTS and DETERMINATION OF FINANCIAL
FEASIBILITY
 Upon completing the first three parts of the pre-feasibility study, the
entrepreneur should now be able to proceed in constructing his or her
enterprise’s financial forecasts for the business. The financial forecasts refer
to the monetary transactions that the business is expected to engage in.
Ultimately, the end result of the financial forecasts will indicate the feasibility
of the enterprise.
 Financial forecasting calls for the creation of the four critical financial
statements: namely, (1) income statement, (2) balance sheet, (3) cash flow
statement, and (4) funds flow statement. The marketing strategy and action
program should translate into revenue or sales forecasts. The operations
strategy and the production or service delivery program should translate into
forecasts of costs of goods produced. The rest of the Enterprise Delivery
System should translate into forecasts of operating and non-operating
expenses. Together, they comprise the income statement forecasts. The
resources mobilized and held by the enterprise are translated into forecasts of
the balance sheet (which show the investments in the form of assets and their
corresponding financing in the form of liabilities). The flow of resources
should be translated into funds and cash flow statements.
 Income Statement – is a financial statement that measures an
enterprise’s performance in terms of revenue and expenses over a
certain period. Simply put, the formula is:

REVENUES – EXPENSES = INCOME OR PROFIT (LOSS)

 From revenues forecasted (quantities sold times the prices they are
sold for), the entrepreneur must subtract the estimated cost of goods
sold corresponding to the forecasted sales. This should give the gross
profit. From the gross profit, the operating expenses must be deducted
to arrive at the operating profit. Then, the taxes due are subtracted to
derive the net profit after taxes. If the enterprise has non-operating
revenues and expenses, these should be added or subtracted from the
operating profit before the taxes are computed. An example of a
simple income statement is shown:

Gross Sales xxx


Less: Cost of Goods Sold (xxx)
Gross Profit/Margin xxx
Less: Operating Expenses (xxx)
Operating Profit/Margin xxx
Less: Taxes (xxx)
Net Profit After Taxes xxx

 Balance Sheet – Creating a balance sheet is a bit more complicated


because one has to look at three different things: assets, liabilities, and
equities. Assets represent all the investments in the enterprise
including the initial investments that you considered in the pre-
feasibility study (investment requirements). These include cash (on
hand and in bank), accounts receivable, inventory of goods, equipment
and machinery, facilities, vehicles, etc. Financing the assets or
investments are the liabilities and equity. Liabilities represent the
enterprise’s debts to suppliers, to banks, to government, to employees,
and other financiers. Stockholders’ equity represents the investors’
investments in the stock (or shares) of the business. The balance sheet
equation is: ASSETS = LIABILITIES + EQUITY. The equation
means that the resources invested into the enterprise in the form of
liabilities and stockholders’ equity must be equal to the total value of
the assets or the enterprise itself. An example of a simple balance sheet
is shown:

ASSETS LIABILITIES & STOCKHOLDERS’ EQUITY


Current Assets Current Liabilities
Cash xxx Accounts Payable xxx
Accounts Receivable xxx Income Taxes Payable xxx
Inventory xxx Wages Payable xxx
Fixed Assets Short Term Debt xxx
Land xxx
Building xxx Long Term Liabilities
Vehicles xxx Long Term Debt xxx

Stockholders’ Equity
Capital xxx
Retained Earnings xxx
TOTAL LIABILITIES
TOTAL ASSETS xxx xxx
& EQUITY

 Financial Ratios and Measurements – In any business endeavor, the


investor or the entrepreneur himself or herself will always be
interested in knowing the payback period or how long will it take for
hum or her to get back what he or she invested in the enterprise.
However, payback period is just one of the many financial
computations one can take a look at in considering a particular
business opportunity. But this will only be possible if the entrepreneur
can come up with financial statements. The income payback period
can be computed as follows:

PAYBACK PERIOD = _______TOTAL INVESTMENTS______


ANNUAL NET INCOME AFTER TAXES

 To compute for the income payback period based on ABC Company’s


financial statements, which specify investments of ₱ 1,500,000 and net
income after taxes of ₱ 500,000 a year, we can conclude that it would
take around 3 years for the company to recover the investments.

PAYBACK PERIOD = ₱ 1,500,000 = 3 years


₱ 500,000

 There is also the return on sales (ROS) ratio where the entrepreneur
calculates how much profit the enterprise is earning for each peso sold.
The formula is as follows:

RETURN ON SALES = ____NET PROFIT AFTER TAXES___


SALES

Substituting the variables into ABC Company’s estimated figures:

RETURN ON SALES = _₱ 500,000_ = 10%


₱ 5,000,000

 Furthermore, if the entrepreneur is interested to know the return on the


investments made, which come in the form of assets, then he or she
can compute for the return on assets (ROA) or return on investments
(ROI) shown by the formula:

RETURN ON ASSETS or RETURN ON INVESTMENTS

= __NET PROFIT AFTER TAXES__


TOTAL ASSETS/INVESTMENTS

Substituting the variables using ABC Company’s estimated figures:

RETURN ON ASSETS or RETURN ON INVESTMENTS

= _₱ 500,000_ = 33%
₱ 1,500,000

 The above ratios are but a few of the frequently used financial
measurements. Should the resulting figures for all three ratios be
favorable, this means that the business opportunity is quite promising.

THE FEASIBILITY STUDY


 For bigger projects that entail millions of pesos worth of investment, a full-blown
feasibility study might be required more than pre-feasibility study. As compared
to a pre-feasibility study, a feasibility study is more comprehensive and detailed.
It requires a more rigorous approach. A feasibility study is prepared to convince
bankers and investors to put money into the business opportunity. In writing the
feasibility study, the entrepreneur should take into consideration the following:

1. a more in-depth study of market potential to ensure that the business proposal
will reach the forecasted sales figures;
2. proof that the product or service being offered has the right design, attributes,
specifications, and preferred features;
3. proof that the entrepreneur and his or her team have the necessary experience,
skills, and capabilities to maximize the venture’s chances of success;
4. legal visibility;
5. more detailed costing on the different assets and more justification for the
production and operating expenses; and
6. more thorough analysis of the technology and its sustainability.

APPLICATION
CREATE YOUR OWN COMMERCIAL!

Objectives:
 To create unique commercial given the following products
 To build good communication skills of every groupmates
Direction: The class is divided into four groups. They will going to create a 30-
second commercial given the following products/services. Each group will
pick the products/services that they will introduce through drawlots. The
products that they will be endorsing in the front are: (1) Charger, (2)
Battery, (3) Sim Card, and (4) Jellycase of the Phone. Fifteen (15) minutes
will be given to each group for preparation of the commercial. The criteria
for judging in making a commercial are as follows:

40% - Over-all Flow of the Commercial


30% - Uniqueness of the Commercial
____30% - Creativity
100% - TOTAL

The group that will get a high score will be declared as champion.
MODULE IN ENTREPRENEURSHIP

“Opportunity Screening”

Presented to:

Ms. Patricia Ann Dela Cruz Maisa


(Subject Teacher)

Presented by:

Richard Vince Marfil Depuno


Jenes Nicole Maaño Selosa
Emelyn Madrona Lumbres
Kate Jessica Manato Garcia
Crisha Gayle Castillo Calangian
Adrian Gonzales Villanueva
Chastine Palma Galin
Hannah Patricia Mayor Ragasa
Catherine Galicha Gadon

Grade 12 – Karl Marx


Accountancy, Business & Management (ABM)

February 5, 2018