What is a Feasibility Study?
A feasibility study, as the name suggests, tells the organization if a project/plan is feasible. It is an assessment of the practicality of a proposed project/plan.
A feasibility study is the initial design stage of any project/plan. It is conducted in order to objectively uncover the strengths and weaknesses of a proposed project or an existing business, the opportunities and threats present in the natural environment, the resources required, and the prospects for success. It is conducted in order to determine:
- Does the company possess the required resources and technology?
- Will the company receive a sufficiently high return on its investment?
Steps in a Feasibility Study
Conducting a feasibility study involves the following steps:
- Conduct preliminary analyses.
- Prepare a projected income statement. What are the possible revenues that the project can generate?
- Conduct a market survey. Does the project create a good or service that is in demand in the market? What price are consumers willing to pay for the good or service?
- Plan the organizational structure of the new project. What are the staffing requirements? How many workers are needed? What other resources are needed?
- Prepare an opening day balance: expenses, revenue?
- Review and analyze the points of vulnerability that are internal to the project and can be controlled or else eliminated.
- Decide whether to go on with the plan/project.
Contents of a Feasibility Report
A feasibility report should include the following sections:
- Executive Summary
- Description of the Product/Service
- Technology Considerations
- Product/ Service Marketplace
- Identification of the Specific Market
- Marketing Strategy
- Organizational Structure
- Financial Projections
Ultimately, a feasibility study should talk about the findings of the above prospects.
Types of Feasibility Study
1. Technical feasibility
- Technical: Hardware and software
- Existing or new technology
- Site analysis
2. Financial feasibility
- Initial investment
- Resources to procure capital: Banks, investors, venture capitalists
- Return on investment
3. Market feasibility
- Type of industry
- Prevailing market
- Future market growth
- Competitors and potential customers
- Projection of sales
4. Organizational feasibility
- Organizational structure of the business
- Legal structure
- Management team’s competency, professional skills, and experience
The practice of companies blindly following available templates comes with enormous risks. Whether companies design or copy certain business models, it is necessary to conduct a feasibility study into the models to reduce the risk of failure. A feasibility study of the business model should be centered on the organization’s value creation processes.
CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: