Before deciding to take a project, feasibility study of the project is very important. Feasibility study tells us, whether a project is viable or not. Feasibility study us the foundation on which the project stands. We will learn more about feasibility study in this article.
What is a Feasibility Study?
A feasibility study is assessment of a project to determine whether the project is viable or not. The project is analyzed w.r.t. the different factors such as technical, economical, legal, operational factors, etc.
Now the question arises, at which stage of the project lifecycle, the feasibility study is done. The feasibility study is done just after the business case is finalized.
Purpose of Feasibility Study
The feasibility study is done to find answer of many questions, some of which are listed below:
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?
Elements of Feasibility Study
The feasibility study is compiled in a feasibility report which includes the following elements:
Description of product/service
Findings and recommendations
Steps Included in the Feasibility Study
(i) Conduct a Preliminary Analysis
The first step in the feasibility study is to conduct a preliminary analysis. The preliminary analysis is necessary to determine whether a full feasibility study is necessary? This step includes a review of relevant data and documents, interview with the key personnel, survey of potential customers and users. At this stage, the project is assessed to determine its potential and a preliminary decision regarding the feasibility is made.
(ii) Prepare a Projected Income Statement
In this stage, an estimated income which is expected from the project, is determined. This stage includes estimated income as well as the estimated expenditure of the project.
(iii) Conduct a Market Survey or Market Research
This is a crucial step in the feasibility study. Due to its importance in the feasibility study it is better to higher expert agencies if you do not have sufficient resources to do market research & survey. The market survey will give you clear idea about the revenue and return on investment, you are going to make on the project. The market survey includes demographics, analysis of market forces, analysis of competitors, etc.
There are various techniques to conduct the market research such as customer survey, interview of the focus groups, etc. You can gather important data using these techniques and these data can be used to create the profile of your ideal customer, to understand the target markets and to determine the ways to reach them.
(iv) Plan Business Organization and Operations
Planning about how your organization will look like, what will be the structure of your organization, etc. is the next step in the feasibility analysis. The following factors are considered in the steps:
Company Structure: Which type of company you want to establish (sole proprietorship, partnership, corporation, etc.?) What will be the structure of the company and how the hierarchy in the company will look like?
Location: Where your business will be located? How far the market from your location will be? Will you operate online or through physical stores?
(v) Prepare an Opening Day Balance Sheet
Opening day balance sheet means the financial position of the company at the beginning. The opening day balance will give you an idea about the present position of finances available and how much finances you need in future. The opening day balance will include the following:
Cash on hand
Long term liabilities
(vi) Review and Analyze All the Data
Once you have gathered all the data, now it’s time to review and analyze the data. The data collected should be verified and any discrepancies should be rectified.
Both the positive and negative aspects of the project should be analyzed. The risk analysis should be done and risk mitigation strategies should be prepared. Based on the review of the data the recommendation should be made by the team doing feasibility analysis to the management.
(vii) Make Appropriate Decision
This is the final step in the feasibility analysis. The management should carefully review the feasibility report and the recommendation of the team and should take appropriate decision regarding whether to go ahead or not with the project. The go or no-go decision is based on risk-reward equation. If the risks are more in proportion to reward, then it’s not wise to go ahead with the project decision. If the rewards are more as compared to risk, then the go ahead decision should be taken by the management.
Types of Feasibility Studies
There are generally following types of feasibility studies which are done before taking a decision regarding any project.
This type feasibility study helps in determining the technical capacity of the organization. Every project has some technical requirements. This type of study analyses whether the organization meet technical resources required for the project or not? If the organization do not have enough technical resources to perform a particular project, then it’s not technically feasible and if the organization has enough resources, then it is technically feasible.
This type of feasibility study involves the cost benefit analysis of the project. If the costs incurred in the project are more than the benefits, it is not economically feasible and if the benefits are more as compared to the cost, the project is economically feasible and worth doing.
The projects are to be done according to the rule of law. A project has to be analyzed regarding weather it is possible to perform as per the law of land or not? If the proposed project will have conflicts with the legal requirements, such as social & environment laws, data protection acts, social media laws, etc., it is not legally feasible to do the project. If the project can be executed within the existing legal framework without any conflict, then it is legally feasible and it makes sense to do the project.
The legal feasibility study also analyzes, whether there will be any chances that the existing laws may change in future also which may adversely impact the project? This is crucial because any change in the existing laws in future against the project can make the project legally non-viable.
Operational feasibility refers to how well your project matches your organization’s capacity planning, resources, strategic goals and business objectives.
Time feasibility is about determining whether a project can be completed within the given deadline with all the available resources available with the organization.
Feasibility study plays a crucial role in decision making regarding whether to go ahead or not with a particular project. The organizations must take this step seriously because a meticulously performed feasibility study can save a lot of efforts and money if it finds that the project is not feasible. With the help of the feasibility study, the management can anticipate well in advance weather the project is beneficial or not. Feasibility study is not only about determining economic viability of a project but there are many type of studies which can determine if the project is worth doing w.r.t. to other aspects also such as legal, technical, operational and time aspects, etc. The feasibility study is such a crucial step that if the organization do not have sufficient resources to perform it, it is always advantageous to hire some expert organization to do feasibility study.