The growth and recognition of project management training have changed significantly over the past few years, and these changes are expected to continue and expand. And with the rise of project management comes the need for a feasibility study.
It can be thrilling to start a complex, large-scale project with a significant impact on your company. You are creating real change. Failure can be scary. This article will help you get started if you have never done a feasibility study on project management.
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What is a Feasibility Study?
A feasibility study evaluates a project's or system's practicality. As part of a feasibility study, the objective and rational analysis of a potential business or venture is conducted to determine its strengths and weaknesses, potential opportunities and threats, resources required to carry out, and ultimate success prospects. Two criteria should be considered when judging feasibility: the required cost and expected value.
A feasibility study is a comprehensive evaluation of a proposed project that evaluates all factors critical to its success in order to assess its likelihood of success. Business success can be defined primarily in terms of ROI, which is the amount of profits that will be generated by the project.In a feasibility study, a proposed plan or project is evaluated for its practicality. As part of a feasibility study, a project or venture is evaluated for its viability in order to determine whether it will be successful.
As the name implies, a feasibility analysis is used to determine the viability of an idea, such as ensuring a project is legally and technically feasible as well as economically justifiable. It tells us whether a project is worth the investment—in some cases, a project may not be doable. There can be many reasons for this, including requiring too many resources, which not only prevents those resources from performing other tasks but also may cost more than an organization would earn back by taking on a project that isn’t profitable.
A well-designed study should offer a historical background of the business or project, such as a description of the product or service, accounting statements, details of operations and management, marketing research and policies, financial data, legal requirements, and tax obligations. Generally, such studies precede technical development and project implementation.
Understanding A Feasibility Study
Project management is the process of planning, organizing, and managing resources to bring about the successful completion of specific project goals and objectives. A feasibility study is a preliminary exploration of a proposed project or undertaking to determine its merits and viability. A feasibility study aims to provide an independent assessment that examines all aspects of a proposed project, including technical, economic, financial, legal, and environmental considerations. This information then helps decision-makers determine whether or not to proceed with the project.
The feasibility study results can also be used to create a realistic project plan and budget. Without a feasibility study, it cannot be easy to know whether or not a proposed project is worth pursuing.
Types of Feasibility Study
A feasibility analysis evaluates the project’s potential for success; therefore, perceived objectivity is an essential factor in the credibility of the study for potential investors and lending institutions. There are five types of feasibility study—separate areas that a feasibility study examines, described below.
1. Technical Feasibility
This assessment focuses on the technical resources available to the organization. It helps organizations determine whether the technical resources meet capacity and whether the technical team is capable of converting the ideas into working systems. Technical feasibility also involves the evaluation of the hardware, software, and other technical requirements of the proposed system. As an exaggerated example, an organization wouldn’t want to try to put Star Trek’s transporters in their building—currently, this project is not technically feasible.
2. Economic Feasibility
This assessment typically involves a cost/ benefits analysis of the project, helping organizations determine the viability, cost, and benefits associated with a project before financial resources are allocated. It also serves as an independent project assessment and enhances project credibility—helping decision-makers determine the positive economic benefits to the organization that the proposed project will provide.
3. Legal Feasibility
This assessment investigates whether any aspect of the proposed project conflicts with legal requirements like zoning laws, data protection acts or social media laws. Let’s say an organization wants to construct a new office building in a specific location. A feasibility study might reveal the organization’s ideal location isn’t zoned for that type of business. That organization has just saved considerable time and effort by learning that their project was not feasible right from the beginning.
4. Operational Feasibility
This assessment involves undertaking a study to analyze and determine whether—and how well—the organization’s needs can be met by completing the project. Operational feasibility studies also examine how a project plan satisfies the requirements identified in the requirements analysis phase of system development.
5. Scheduling Feasibility
This assessment is the most important for project success; after all, a project will fail if not completed on time. In scheduling feasibility, an organization estimates how much time the project will take to complete.
When these areas have all been examined, the feasibility analysis helps identify any constraints the proposed project may face, including:
- Internal Project Constraints: Technical, Technology, Budget, Resource, etc.
- Internal Corporate Constraints: Financial, Marketing, Export, etc.
- External Constraints: Logistics, Environment, Laws, and Regulations, etc.
Importance of Feasibility Study
The importance of a feasibility study is based on organizational desire to “get it right” before committing resources, time, or budget. A feasibility study might uncover new ideas that could completely change a project’s scope. It’s best to make these determinations in advance, rather than to jump in and to learn that the project won’t work. Conducting a feasibility study is always beneficial to the project as it gives you and other stakeholders a clear picture of the proposed project.
Below are some key benefits of conducting a feasibility study:
- Improves project teams’ focus
- Identifies new opportunities
- Provides valuable information for a “go/no-go” decision
- Narrows the business alternatives
- Identifies a valid reason to undertake the project
- Enhances the success rate by evaluating multiple parameters
- Aids decision-making on the project
- Identifies reasons not to proceed
Apart from the approaches to feasibility study listed above, some projects also require other constraints to be analyzed -
- Internal Project Constraints: Technical, Technology, Budget, Resource, etc.
- Internal Corporate Constraints: Financial, Marketing, Export, etc.
- External Constraints: Logistics, Environment, Laws, and Regulations, etc.
Benefits of a Feasibility Study
Preparing a project's feasibility study is an important step that may assist project managers in making informed decisions about whether or not to spend time and money on the endeavor. Feasibility studies may also help a company's management avoid taking on a tricky business endeavor by providing them with critical information.
An additional advantage of doing a feasibility study is that it aids in the creation of new ventures by providing information on factors such as how a company will work, what difficulties it could face, who its competitors are, and how much and where it will get its funding from. These marketing methods are the goal of feasibility studies, which try to persuade financiers and banks whether putting money into a certain company venture makes sense.
What Is Included in a Feasibility Study Report?
When starting a business, one of the most important steps is to conduct a feasibility study. This study will help to determine if your business idea is viable and has the potential to be successful. Several factors need to be considered when conducting a feasibility study, including the marketability of your product or service, the competition, the financial stability of your company, and more. A feasibility study should cover the amount of technology, resources required, and ROI.
The results of your feasibility studies study are summarized in a feasibility report, which typically comprises the following sections.
- Executive summary
- Specifications of the item or service
- Considerations for the future of technology
- The marketplace for goods and services
- Approach to marketing
- The financial forecasts
- Recommendations based on research
Tools for Conducting a Feasibility Study
Suggested Best Practices
While every project has its own goals and needs, the following are best practices for conducting a feasibility study.
- Do a preliminary analysis. This includes getting feedback from relevant stakeholders on the new project. Also, look for other business scenarios.
- To ensure that the data is solid, determine and ask queries about it in the initial phase.
- Take a market survey to identify market demand and opportunities for the new concept or business.
- Create an organizational, operational, or business plan. This includes identifying how much labor is required, what costs, and how long.
- Make a projected income statement that involves revenue, operating expenses, and profit.
- Create an opening day balance sheet.
- You will need to identify and address any vulnerabilities or obstacles.
- Take an initial decision to go ahead with the plan.
Here are the some suggested components for conducting a feasibility study:
- Executive Summary: Write a narrative describing the project, product, or service.
- Technological considerations: Ask yourself what it will take. Are you able to afford it? How much will it cost?
- Current marketplace: Find out the market for your product, service, or plan in the local and global markets.
- Marketing strategy: Define in the detailed description.
- Required staff: What human resources are needed for this project?
- Timeline and schedule: Use important interim markers to indicate when the project will be completed.
- Project financials. Project financials are the different ways managers can account for money spent and earned on projects. One of the most important aspects of financial management is creating and tracking accurate project financials.
Examples of a Feasibility Study
A local university was concerned about the state of the science building, which was built in the 1970s. School officials sought to determine the costs and benefits of expanding and upgrading the building, given the scientific and technological advances over the past 20 years. A feasibility study was therefore conducted.
School officials looked at several options and weighed the costs and benefits of updating and expanding the science building. There were concerns expressed by school officials about the project's cost and public reaction. The proposed new science building will be larger than the current one. The community board rejected similar proposals in the past. The feasibility study will address these concerns and any possible legal or zoning issues.
The feasibility study examined the technology requirements of the proposed concept(new science building), the potential benefits for students, and its long-term viability. Modernizing the science facility will increase the scientific research potential and ameliorate its modules. It also would allure new students.
Financial projections provided information about the scope & cost of this project and also provided information on raising funds. This covers issuing an investor's bonds and tapping into its endowment. Projections also help determine how the new science program attracts more fresh students to enroll in offered programs, increasing tuition and fees revenue.
The feasibility study proved that the proposed concept was feasible, which allowed for the expansion and modernization of the science building. The feasibility study would not have allowed school administrators to know if the expansion plans were feasible without it.
What is the Purpose of a Feasibility Study?
A feasibility study is an important first step in starting a new business. It is a detailed examination of whether or not a proposed business venture is likely to be successful. A feasibility study aims to provide information that will help business owners make informed decisions about their new venture.
The feasibility study will answer important questions about the proposed business, including:
- What is the target market for this business?
- Who are the competitors?
- What are the costs associated with starting and running this business?
- What are the potential risks and rewards associated with this venture?
- How much revenue can this business generate?
- What are the estimated profits and losses for this business?
- What is the potential for growth in this industry?
How Do You Write a Feasibility Study?
This feasibility study will outline why your business idea is worth pursuing and will also help you identify any potential risks or problems that could occur. When writing a feasibility study, there are a few key things to keep in mind:
- Outline your target market and how you plan to reach them.
- Discuss your product or service in detail and explain why it is unique and needed.
- Outline your financial projections and explain how you plan to make a profit.
7 Steps to Do a Feasibility Study
1. Conduct a Preliminary Analysis
A preliminary investigation is necessary to determine whether a full feasibility study is warranted. During this stage, key information will be gathered to assess the project's potential and make a preliminary decision about its feasibility. This should include a review of relevant documents, interviews with key personnel, and surveys of potential customers or users.
2. Prepare a Projected Income Statement
To do a feasibility study, you must create a projected income statement. Your projected income statement will show how much money your business is expected to make in the coming year. It will include both your estimated revenue and your estimated expenses. This document will be essential in helping you make informed decisions about your business.
3. Conduct a Market Survey, or Perform Market Research
Conducting market research is an important step in any feasibility study. By understanding the needs and wants of your potential customers, you can determine if there is a market for your product or service. You can also get an idea of what your competition is doing and how to best position your business to meet the needs of your target market.
There are a variety of ways to conduct market research. One popular method is to conduct a survey. You can survey potential customers directly or use data from secondary sources such as surveys conducted by other organizations. You can also use focus groups or interviews to get feedback from potential customers.
Once you have gathered your data, you can use it to create a profile of your ideal customer. This will help you understand your target market and how to reach them.
4. Plan Business Organization and Operations
When starting a business, one of the first things you need is to plan your organization and operations. This involves creating a structure for your company and figuring out the logistics of how you will run it. There are many factors to consider when planning your organization and operations, such as:
- Company Structure: What type of company will you be (sole proprietorship, partnership, corporation, etc.)? What will the hierarchy look like?
- Location: Where will your business be located? Will you have a physical storefront or operate online only?
- Marketing: How will you promote your business?
5. Prepare an Opening Day Balance Sheet
The opening day balance sheet is a snapshot of the company's financial position at the beginning of the business venture. The purpose of the opening day balance sheet is to give an idea of the amount of money that the company has to work with and track its expenses and income as they occur. This information is vital to making sound business decisions. The opening day balance sheet will include the following:
- Cash on hand
- Accounts receivable
- Prepaid expenses
- Fixed assets
- Accounts payable
- Notes payable
- Long-term liabilities
6. Review and Analyze All Data
The feasibility study should include reviewing and analyzing all data relevant to the proposed project. The data collected should be verified against source documentation, and any discrepancies should be noted. The purpose of the feasibility study is to provide a basis for making a decision, and the data should be sufficient to support that decision.
The analysis should consider both the positive and negative aspects of the proposed project. The financial analysis should be thorough, and all assumptions should be documented. The risk assessment should identify any potential risks and mitigation strategies. The team assigned to the project should review the feasibility study and recommend the organization's leadership.
Organizational leadership should decide whether to proceed with the project based on the feasibility study's findings. If the project is approved, the organization should develop a project plan that includes a detailed budget and timeline
7. Make a Go/No-Go Decision
It is important to know when to cut your losses when starting a business. The go/no-go decision in a feasibility study comes in. The go/no-go decision is a key part of a feasibility study, and it can help you determine whether or not your business idea is worth pursuing.
Making the go/no-go decision is all about risk assessment. You need to weigh the risks and rewards of starting your business and decide whether the potential rewards are worth the risks. If the risks are too high, you may want to reconsider your business idea.
How to Conduct a Feasibility Study
Now, let's discuss a few of the steps we take in order to do the feasibility study.
- To begin, we do a preliminary study of the business case to define what is included and what we are examining and attempting to find is realistic.
- Following that, we generate a forecasted income statement. We need to understand the revenue sources; how are we going to profit from this? Where does the income originate? Additionally, we must do a market study.
- We need to find out whether this is a demand for our product. How much demand does this have? Is there a market for this product or service?
- Plan your company's structure and operations, which is the fourth step. Specifically, what type of organization do we need, and what resources do we have? Do we have any specific personnel needs?
- We also plan to generate a balance sheet on the first day. What are the income and expenses, and how can we be confident we'll be able to decide whether we're going to make our ROI?
- As a result, we plan to go through and examine all of our data before making a final decision on whether or not to go forward. In other words, are we going to pursue this project or business opportunity?
Feasibility Study vs. Business Plan
When starting a business, you must create two very important documents: a feasibility study and a business plan. While they may seem similar, they are two different things with different purposes.
A feasibility study is a preliminary document that assesses the feasibility of a proposed business. It looks at the market potential, the competition, the costs and benefits of starting the business, and the risks and rewards involved.
On the other hand, a business plan is a more detailed document that outlines how a business will be run and what its goals are. It includes information about its mission statement, its products and services, its target market, its finances, and its management team.
Reasons to Do or Not to Do a Feasibility Study
There are many factors to consider when deciding whether or not to conduct a feasibility study. The most important question is whether the study will help you make a better decision.
Some reasons to do a feasibility study include:
- You are considering a major change or investment
- You want to assess the viability of a new business or product
- You need to understand the risks and potential rewards associated with a project
On the other hand, some reasons not to do a feasibility study include:
- You are pressed for time and don't think the study will provide enough value to justify the time commitment.
- You are confident that your idea is feasible, and a study will only confirm what you already believe.
- The change or investment is not significant enough to warrant the study.
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This article introduces the concept of a feasibility study and provides a few tips on conducting one. A feasibility study is an important tool for evaluating a project before starting it. By understanding the feasibility of a project, you can make better decisions about whether to move forward.
We hope this helped you understand the concept of feasibility study better. To learn more about similar project management concepts, explore our library of Project Management articles or check out our Post Graduate Program in Project Management that covers new trends, emerging practices, tailoring considerations, and core competencies required of a Project Management professional.
Q1. What Is the Main Objective of a Feasibility Study?
Feasibility study helps decision makers to determine the success or failure of a proposed project or investment. It evaluates the predicted cost and benefits of the proposed project.
Q2. What Are the Steps in a Feasibility Study?
The first step in a feasibility study is to conduct the primary analysis and create the projected income statement. Followed by doing a market survey and accordingly planning business operations. The last step is to create a balance sheet to review and analyze data. Based on your analysis, you can decide whether to go or not go ahead with the proposed statement.
Q3. Who Conducts a Feasibility Study?
Feasibility study is done by the senior management of the organization. Sometimes, they take help from mid-senior employees to complete the analysis in short span of time.
Q4. What Are the 5 Types of Feasibility?
The 5 types of feasibility study are Scheduling Feasibility, Operational Feasibility, Legal Feasibility, Economic Feasibility, and Technical Feasibility.
Q5. Why is a Feasibility Study Important?
A feasibility study helps in identifying the financial, market and logistical challenges of a proposed project. It is done by evaluating the estimated funds for the project and return of investment.
Q6. When is the Feasibility Study Done?
The feasibility study is done before the business plan is created.
Q7. What is the Primary Purpose of Conducting a Feasibility Analysis?
The objective of feasibility study is to assess the financial viability of developed plan and whether it will be successful or not.