What is a Feasibility Study?
A feasibility study, as the name suggests, is designed to reveal whether a project/plan is feasible. It is an assessment of the practicality of a proposed project/plan.
A feasibility study is part of 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. It can help to identify and assess the opportunities and threats present in the natural environment, the resources required for the project, and the prospects for success. It is conducted in order to find answers to the following questions:
- 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 of projected expenses and revenue
- Review and analyze the points of vulnerability that are internal to the project and that can be controlled or 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
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
- The organizational structure of the business
- Legal structure of the business or the specific project
- 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, using 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 learning and advancing your career, the additional CFI resources below will be useful: