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Assessing Viability

Suggested Timeframe: 1-2 hours

Goal

To help students understand the concept of viability in business.

Being able to analyse the likely success of a business before starting up is critical to business survival.

Activities

Activity 1. Understanding the concept

Ask students to define the concept of ‘viability’ before discussing with them the kinds of businesses they would consider to be viable. Do they simply cover costs, for example, or make profit as well?

Distribute the student handout and work through the supplied example with the class before talking and brainstorming with them the possible costs and overheads a business owner could expect to face.

Activity 2. Hotel viability

Ask students to look through the Activity 2 viability example in the student worksheet supplied and answer the question with the help of the attached Accommodation Revenue Calculator. Students can either work together in groups or individually.

The correct answer is Option 2: Go up-market, which gives the highest rate of return on investment over 10 years ($215,000).

Students should carry out the following equation to reach the answer after inputting the new costs and pricing figures into the calculator.

New revenue potential – old revenue potential = profit increase

Profit increase x 10 years - $100,000 investment = return on investment

Activity 3. Putting theory into practise

In this activity, students assess the viability of a high-end furniture manufacturing start-up in the Nelson region. Instructors should stress the importance of using statistics in start-up viability assessments and introduce their students to the suite of business tools and datasets provided by Statistics New Zealand.

Using Statistics New Zealand’s Market Mapper and Statistics New Zealand’s Industry Profiler tools, students should be able to estimate a target market of around 7,000 high-income individuals and families shared between 18 competitors. Given the low overheads and profit benchmark of the business, plus its high gross margin per unit, they should assess the idea as very viable - with the furniture-maker only having to sell 30 units a year to break even.

Last updated 11 November 2016