Exploring Feasibility Study Essentials

Summary

The purpose of a feasibility study is to determine whether the proposed project is technically, financially, and operationally feasible within a given set of circumstances.

The findings from a feasibility study provide decision-makers with the information needed to decide whether to move forward with the project, make modifications to the plan, or abandon the idea altogether.

It is a crucial step in the project planning process and helps minimize the risk of investing time and resources into projects that are unlikely to succeed.

Extreme care must be placed in quantifying future market demand and assessing exposure to risk prior to recommending the right investment size, as well as forecasting an accurate return on investment.

What is a Feasibility Study

The purpose of a feasibility study is to determine whether the proposed project is technically, financially, and operationally feasible within a given set of circumstances.

Importance of a Feasibility Study

It is a crucial step in the project planning process and helps minimize the risk of investing time and resources into projects that are unlikely to succeed.

Elements of a Feasibility Study

Executive summary
Brief business description

Product and service nature
Corporate identity and organization
Legal framework

Project description

Project goals
Alternative scenarios
Elimination of inadequate options
Best course of action
Type and quality of products and services
Business model and revenue generation
Timeline to launch

Economic factors

Taxation
Direct benefits
Indirect benefits
Road networks and related issues
Energy supply and influencing factors
Broadband connectivity

Environmental factors

Noise levels and air quality
Water supply
Waste management and recycling
Health and environmental hazards
Gas emissions

Research, development and innovation (RDI)

RDI infrastructure analysis

Regulatory and risk analysis

Sensitivity analysis
Acceptable risk levels
Risk prevention
Probability risk analysis
Regulatory environment
Life cycle stage
Litigation
Industry prospect
Resource-depletion
Macro-economy
Supplier default
Stakeholder relations

Location analysis

Chosen site
Demographics
Community environment
Business environment
Accessibility
Labour availability, costs and attractiveness
Availability of materials

Technical feasibility

Facility needs
Suitable production technologies
Equipment and machinery specifications
Working capital requirements and resourced needed

Management analysis

Organization structure
Areas of responsibility
Staffing needs, availability and skills
Compensation plans and benefits
Key operational considerations
Potential for partnerships

Market analysis

Market research
Market survey
Market segmentation
Demographic analysis
Customers’ profiles
Purchase behaviour and demand drivers
Pricing analysis
Positioning analysis
Demand planning
Competitive analysis (key players and market share etc.)
Market share
Future projects and trends

Market entry strategy

Unique value proposition
Distribution and marketing channels
Promotional plans
Pricing strategy

Financial analysis

Start-up costs
Capital investment and residual value
Sources of funds and contingency plans
Cash flow projections
Operating costs
Revenue budgets
Financial planning and ratio analysis
Return on investment

Alternative evaluation methods

Cost/benefit analysis
Economic impact analysis

Feasibility recommendations: options

Contingency funds
Project amendment
Change concept of project
Project termination

Conclusions

Future goals and strategy and order of priorities
Alternative strategies, advantages and disadvantages and costs
Comparative study based on expected goals
Criteria for decision making
Performance indicators

Action plan

Most viable course of action, benefits and performance indicators
Development schedule
Priorities of needs and actions per department

Financial statements
Exhibits
Case studies
Bibliography

Benefits of a feasibility study

Make use of innovative technologies, or processes, or products that add value to the company.
Allow a company to have a presence in markets that it lacks and is in need of or can make positive use of.
Facilitate for the new investment managed by highly skilled personnel.
Plot a roadmap and growth plan that will ensure financial stability.
Identify ways to hedge risks.
Suggest how to assimilate the new investment into the fabric of the company
Reduced need for initial capital investment.
Reduce time-to-profitability.
Reduce needs for working capital and short-term financing
Propose preventive controls that eliminate the need to rework things.
Strengthen negotiating position with investors and backers.
Strengthen negotiating position with suppliers and vendors.
Set a clear and sustainable path for future growth.
Use realistic growth rates based on facts and proofs and data analytics.

Process of preparing a feasibility study

Mistakes to avoid in a feasibility study

Acquire a false sense of security

A poorly conceived business feasibility study makes an investor believe an investment is safe when in fact, it may not be.

Incomplete facts

A rushed and poorly constructed feasibility assessment that presents incomplete facts or makes false claims is actually worse than having no feasibility report at all.

Guess-work

A feasibility assessment can lack the comprehensive and pragmatic skills to evaluate a project from concept to execution. It’s more guesswork than anything else.

Conflict of interest

Bias in a feasibility report, self-interest, and placing attention on the financial analysis only are detrimental to a project’s success.

Conclusion

A reliable business feasibility study report goes beyond flashy spreadsheets and tackle critical questions. It hits the nail on the head on every single level:

Precise risk assessment
Reliable market research
Accurate market insights and data
Technical and non-Technical analyses
Full understanding of a project