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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.

 

Plan Your Way to Business Success

Why plan at all?

Almost anything we do will be more successful if we have thought about the outcome we want to achieve before we start. The old axiom that any road will do if we don’t know where we are going is true. However, if we do know where we would like to go, it is best to have an idea about which road to take. Assuming that one of your goals is to be successful, it would make sense to choose a road that will lead to success.

What is involved?

Any planning process has three elements to it:

  • Where are we now?
  • Where do we want to be?
  • How are we going to get there?

The most difficult part of the planning process for many people is to be able to clearly articulate where they would like to be. From a business perspective it often calls for a change of mindset away from “where is the business going to take us” to “what do we need to do to the business to take us where we would like to be”. Part of that mindset change is to then believe that it is possible to achieve. It usually also means that we cannot keep all our options open and hope for the best – we need to choose a direction and then make it happen.

Once we have chosen the destination, it is a relatively straight forward process to clearly define where we currently are and then work out what we need to do to get to where we want to go.

Strategic Plans and Business Plans – what is the difference?

A Strategic Plan provides an overall view of where we would like to be in the future – the Vision; and what business we are actually in – the Mission. It also defines the operational philosophy – the Values; and sets the high level goals. It will then set high level strategic objectives for each of the key functional areas: marketing, operations, human resources and financial resources. This is sometimes called the strategic intent.

The Business Plan takes the strategic objectives and defines the detailed strategies and actions required to achieve them. It is effectively a list of things to do. It can also be changed if circumstances change. Our overall destination or strategic intent doesn’t change, but we can detour via the business plan if we need to.

How do we do it?

The planning process can appear daunting, but it doesn’t need to be. Like most things it is easier if you have done it before and if you have the right tools. Engage a business planning expert in the process to lead you through it. There is also added value to be gained from having an objective outsider (a business consultant) involved in the process who is not emotionally attached to any of the existing sacred cows in your business.

Success in business is rarely achieved by accident. It usually involves careful planning backed up by skilful execution. It was Benjamin Franklin who said, “If you fail to prepare, you are prepared to fail”, which is another way of saying that you can plan your way to business success.