Steps in a Feasibility Study

Conducting a feasibility study involves the following steps:

1. Conduct preliminary analyses.

2. Prepare a projected income statement. What are the possible revenues that the project can
generate?
3. 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?
4. Plan the organizational structure of the new project. What are the staffing requirements?
How many workers are needed? What other resources are needed?
5. Prepare an opening day balance of projected expenses and revenue
6. Review and analyze the points of vulnerability that are internal to the project and that can
be controlled or eliminated.
7. Decide whether to go on with the plan/project.

Contents of a Feasibility Report

A feasibility report should include the following sections:

1. Executive Summary
2. Description of the Product/Service
3. Technology Considerations
4. Product/ Service Marketplace
5. Identification of the Specific Market
6. Marketing Strategy
7. Organizational Structure
8. Schedule
9. Financial Projections

Types of Feasibility Study

1. Technical feasibility

 Technical: Hardware and software

 Existing or new technology
 Manpower
 Site analysis
 Transportation
 

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

Final Word

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.

Feasibility study
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For other uses, see Feasibility study (disambiguation).

A feasibility study is an assessment of the practicality of a project or system. A feasibility study

aims to objectively and rationally uncover the strengths and weaknesses of an existing business
or proposed venture, opportunities and threats present in the natural environment, the resources
required to carry through, and ultimately the prospects for success.[1][2][3] In its simplest terms, the
two criteria to judge feasibility are cost required and value to be attained.[4]

A well-designed feasibility study should provide a historical background of the business or

project, a description of the product or service, accounting statements, details of the operations
and management, marketing research and policies, financial data, legal requirements and tax
obligations.[1] Generally, feasibility studies precede technical development and project
implementation. A feasibility study evaluates the project's potential for success; therefore,
perceived objectivity is an important factor in the credibility of the study for potential investors
and lending institutions.[citation needed][5] It must therefore be conducted with an objective, unbiased
approach to provide information upon which decisions can be based.[citation needed]

Contents

 1 Formal definition
 2 Common factors
o 2.1 Technical feasibility
 2.1.1 Method of production
 2.1.2 Production technique
 2.1.3 Project requirements
 2.1.4 Project location
o 2.2 Legal feasibility
o 2.3 Operational feasibility study
o 2.4 Time feasibility
 3 Other feasibility factors
o 3.1 Resource feasibility
o 3.2 Financial feasibility
 4 Market research
 5 See also
 6 References
 7 Further reading
 8 External links

Formal definition

A project feasibility study is a comprehensive report that examines in detail the five frames of
analysis of a given project. It also takes into consideration its four Ps, its risks and POVs, and its
constraints (calendar, costs, and norms of quality). The goal is to determine whether the project
should go ahead, be redesigned, or else abandoned altogether.[6] The five frames of analysis are:
The frame of definition; the frame of contextual risks; the frame of potentiality; the parametric
frame; the frame of dominant and contingency strategies.

The four Ps are traditionally defined as Plan, Processes, People, and Power. The risks are
considered to be external to the project (e.g., weather conditions) and are divided in eight
categories: (Plan) financial and organizational (e.g., government structure for a private project);
(Processes) environmental and technological; (People) marketing and sociocultural; and (Power)
legal and political. POVs are Points of Vulnerability: they differ from risks in the sense that they
are internal to the project and can be controlled or else eliminated.

The constraints are the standard constraints of calendar, costs and norms of quality that can each
be objectively determined and measured along the entire project lifecycle. Depending on
projects, portions of the study may suffice to produce a feasibility study; smaller projects, for
example, may not require an exhaustive environmental assessment.

Common factors

TELOS is an acronym in project management used to define five areas of feasibility that
determine whether a project should run or not.[7][8][9]

1. T - Technical - Is the project technically possible?

2. E - Economic - Can the project be afforded? Will it increase profit?
3. L - Legal - Is the project legal?
4. O - Operational - How will the current operations support the change?
5. S - Scheduling - Can the project be done in time?

Technical feasibility

This assessment is based on an outline design of system requirements, to determine whether the
company has the technical expertise to handle completion of the project.[10][11][12] When writing a
feasibility report, the following should be taken to consideration:

 A brief description of the business to assess more possible factors which could affect the study
 The part of the business being examined
 The human and economic factor
 The possible solutions to the problem

At this level, the concern is whether the proposal is both technically and legally feasible
(assuming moderate cost).[citation needed]

The technical feasibility assessment is focused on gaining an understanding of the present

technical resources of the organization and their applicability to the expected needs of the
proposed system. It is an evaluation of the hardware and software and how it meets the need of
the proposed system[13]

Method of production

The selection among a number of methods to produce the same commodity should be undertaken
first. Factors that make one method being preferred to other method in agricultural projects are
the following:
  Availability of inputs or raw materials and their quality and prices.
 Availability of markets for outputs of each method and the expected prices for these outputs.
 Various efficiency factors such as the expected increase in one additional unit of fertilizer or
productivity of a specified crop per one thing

Production technique

After we determine the appropriate method of production of a commodity, it is necessary to look

for the optimal technique to produce this commodity.

Project requirements

Once the method of production and its technique are determined, technical people have to
determine the projects' requirements during the investment and operating periods. These include:

 Determination of tools and equipment needed for the project such as drinkers and feeders or
pumps or pipes ...etc.
 Determination of projects' requirements of constructions such as buildings, storage, and
roads ...etc. in addition to internal designs for these requirements.
 Determination of projects' requirements of skilled and unskilled labor and managerial and
financial labor.
 Determination of construction period concerning the costs of designs and consultations and the
costs of constructions and other tools.
 Determination of minimum storage of inputs, cash money to cope with operating and
contingency costs.

Project location

The most important factors that determine the selection of project location are the following:

 Availability of land (proper acreage and reasonable costs).

 The impact of the project on the environment and the approval of the concerned institutions for
license.
 The costs of transporting inputs and outputs to the project's location (i.e., the distance from the
markets).
 Availability of various services related to the project such as availability of extension services or
veterinary or water or electricity or good roads ...etc.

Legal feasibility

It determines whether the proposed system conflicts with legal requirements, e.g., a data
processing system must comply with the local data protection regulations and if the proposed
venture is acceptable in accordance to the laws of the land.

Operational feasibility study

Operational feasibility is the measure of how well a proposed system solves the problems, and
takes advantage of the opportunities identified during scope definition and how it satisfies the
requirements identified in the requirements analysis phase of system development.[14]

The operational feasibility assessment focuses on the degree to which the proposed development
project fits in with the existing business environment and objectives with regard to development
schedule, delivery date, corporate culture and existing business processes.

To ensure success, desired operational outcomes must be imparted during design and
development. These include such design-dependent parameters as reliability, maintainability,
supportability, usability, producibility, disposability, sustainability, affordability and others.
These parameters are required to be considered at the early stages of design if desired operational
behaviours are to be realised. A system design and development requires appropriate and timely
application of engineering and management efforts to meet the previously mentioned parameters.
A system may serve its intended purpose most effectively when its technical and operating
characteristics are engineered into the design. Therefore, operational feasibility is a critical
aspect of systems engineering that needs to be an integral part of the early design phases.[15]

Time feasibility

A time feasibility study will take into account the period in which the project is going to take up
to its completion. A project will fail if it takes too long to be completed before it is useful.
Typically this means estimating how long the system will take to develop, and if it can be
completed in a given time period using some methods like payback period. Time feasibility is a
measure of how reasonable the project timetable is. Given our technical expertise, are the project
deadlines reasonable? Some projects are initiated with specific deadlines. It is necessary to
determine whether the deadlines are mandatory or desirable.

Other feasibility factors

Resource feasibility

Describe how much time is available to build the new system, when it can be built, whether it
interferes with normal business operations, type and amount of resources required, dependencies,
and developmental procedures with company revenue prospectus.

Financial feasibility

In case of a new project, financial viability can be judged on the following parameters:

 Total estimated cost of the project

 Financing of the project in terms of its capital structure, debt to equity ratio and promoter's
share of total cost
 Existing investment by the promoter in any other business
 Projected cash flow and profitability
The financial viability of a project should provide the following information:[16]

 Full details of the assets to be financed and how liquid those assets are.
 Rate of conversion to cash-liquidity (i.e., how easily the various assets can be converted to cash).
 Project's funding potential and repayment terms.
 Sensitivity in the repayments capability to the following factors:
o Mild slowing of sales.
o Acute reduction/slowing of sales.
o Small increase in cost.
o Large increase in cost.
o Adverse economic conditions.

In 1983 the first generation of the Computer Model for Feasibility Analysis and Reporting
(COMFAR), a computation tool for financial analysis of investments, was released. Since then,
this United Nations Industrial Development Organization (UNIDO) software has been developed
to also support the economic appraisal of projects. The COMFAR III Expert is intended as an aid
in the analysis of investment projects. The main module of the program accepts financial and
economic data, produces financial and economic statements and graphical displays and
calculates measures of performance. Supplementary modules assist in the analytical process.
Cost-benefit and value-added methods of economic analysis developed by UNIDO are included
in the program and the methods of major international development institutions are
accommodated. The program is applicable for the analysis of investment in new projects and
expansion or rehabilitation of existing enterprises as, e.g., in the case of reprivatisation projects.
For joint ventures, the financial perspective of each partner or class of shareholder can be
developed. Analysis can be performed under a variety of assumptions concerning inflation,
currency revaluation and price escalations.[17]

Market research

Market research studies is one of the most important sections of the feasibility study as it
examines the marketability of the product or services and convinces readers that there is a
potential market for the product or services.[citation needed] If a significant market for the product or
services cannot be established, then there is no project. Typically, market studies will assess the
potential sales of the product, absorption and market capture rates and the project's timing.[citation
needed]
The feasibility study outputs the feasibility study report, a report detailing the evaluation
criteria, the study findings, and the recommendations.[18]

See also

 Project appraisal
 Environmental impact
 Mining feasibility study
 Proof of concept
 SWOT analysis