Posts

Conducting a Feasibility Study

What is a Feasibility Study?

A feasibility study is used to analyse a project or idea in order to assess what the likely outcomes will be, or to test alternative options. Within a business context it usually weighs up the cost of the project against the expected benefits (i.e. cost / benefit analysis) and is undertaken as the first step in the development process.

Feasibility studies may be undertaken for a wide range of reasons including:

  • Evaluating a new business concept
  • Deciding whether to expand or amalgamate operating facilities
  • New capital projects
  • Business mergers and acquisitions
  • Entering new markets
  • Developing new products

Estimates about the number of business ideas that are generated and the number that are successful range from one in fifty to one in a hundred – either way, there are a lot more failures than successes. This suggests that undertaking a feasibility study in the pre-planning stage is a good idea before investing a lot of money.

In most instances, the feasibility of an idea will rest on the projected financial outcomes relative to the cost, however, there may be other strategic and operational issues in play, for example, a project may be aimed at disrupting a competitor or changing a company’s image.

The key requirement is to clearly define what the project is and what the target outcomes are and to ensure that it fits with your business vision, mission and goals.

You can then analyse the issues involved including:

  • Market research
  • Operational issues
  • Human resource requirements
  • Supply chain impacts
  • Technology requirements
  • Regulatory requirements
  • Financial analysis
  • Risk assessment

The outcomes of the analysis can then be tested against the required outcomes from the project and a go / no go decision made.

It should be remembered that, while feasibility studies are often launched on solid enthusiasm for a project to proceed, a recommendation to not go ahead should not necessarily be viewed as a negative. In such cases, what it has done is proved the worth of undertaking the study in the first place and saved what would have otherwise been wasted resources.

When the outcome of a feasibility study is that the project should go ahead, the next step in the planning process is to create a business case.

 

What is the Difference between a Feasibility Study and a Business Case?

The feasibility study and the business case are similar, however, one does logically follow the other. When the feasibility study shows that a project should proceed, a business case is developed to define the resources required compared with the outcomes that will be achieved and to demonstrate its viability.

What is a Business Case?

Depending on exactly what the business case is for, it will draw on information from the feasibility study and present a proposal based on an analysis of all the relevant factors.

The structure of a typical business case for a new business venture would include:

  • Summary / overview
  • Description of product / service
  • Compatibility with business vision and mission
  • Overview of technology
  • Market environment
  • Competition
  • Industry dynamics
  • Business model
    • Marketing and sales strategy
    • Production / operating strategy
    • Management capability and structure
  • Intellectual property
  • Regulation / environmental issues
  • Financial plan
    • Operating statement projections (will need bills of material)
    • Cash flow projections
    • Break even analysis
    • Balance sheet projections
    • Capital requirements and financing strategy
  • Risk assessment
  • Critical success factors

The most important thing to consider in preparing a business case is to write it with the target audience in mind. If the objective is to secure external funding for a project, it should be remembered that the person holding the purse strings is likely to be much more interested in the quality of the management, the strength of the business and the potential profitability of the venture, than the technical wizardry of the new concept.