What is a Feasibility Study?

Differentiate Feasibility Study with A

Business Plan.
What are the reasons why we should do a
Feasibility Study?

HE IS NOT ALONE
CAN YOU SEE WHAT
HAUNTING THIS
FOX?

is an analysis of the viability of an idea.

focuses on helping answer the essential

question
should we proceed with the proposed project

idea?

All activities of the study are directed

toward helping answer this question.

looks at the viability of an idea with an

emphasis on identifying potential problems
and attempts to answer one main question:
Will the idea work and should you proceed with

it?

Is a preliminary study undertaken before the real work

of a project starts to ascertain the likelihood of the
project's success.

Is an analysis of all possible solutions to a problem and

a recommendation on the best solution to use.

involves evaluating how the solution will fit into the

corporation.

can decide whether an order processing be carried

out by a new system more efficiently than the
previous one.

could be used to test a new working system,

which could be used because:
Although few businesses would not benefit from a

computerized system at all, the process of

carrying out this feasibility study makes the
purchaser/client think carefully about how it is
going to be used.

Before you begin writing your feasibility

study
identify how, where, and to whom you intend to

sell a service or product

assess your competition
figure out how much money you need to start
your business and keep it running until it is
established.

Feasibility studies address things like where

and how the business will operate.
They provide in-depth details about the
business to determine if and how it can
succeed, and
serve as a valuable tool for developing a
winning business plan.

Feasibility studies can be used in many ways

but primarily focus on proposed business
ventures.

Anybody with a business idea should conduct

a feasibility study..
to determine the viability of their idea before

proceeding with the development of a business.

Time
Money
Heartache

generate adequate cash-flow and profits

withstand the risks it will encounter
remain viable in the long-term and
meet the goals of the founders.

> a start-up business

> the purchase of an existing business
> an expansion of current business operations or
> a new enterprise for an existing business.

A feasibility study is only one step in

the business idea assessment ,and
business development process

Economic Feasibility Study

This involves questions such as whether the firm

can afford to build the system, whether its

benefits should substantially exceed its costs, and
whether the project has higher priority than other
projects that might use the same resources.

Technical Feasibility Study

This involves questions such as whether the

technology needed for the system exists, how

difficult it will be to build, and whether the firm
has enough experience using that technology.

Schedule Feasibility Study

This involves questions such as how much time is

available to build the new system, when it can be

built (i. e. during holidays), interference with
normal business operation, etc.

Organizational Feasibility Study

This involves questions such as whether the

system has enough support to be implemented

successfully, whether it brings an excessive
amount of change, and whether the organisation
is changing too rapidly to absorb it.

A study being use as the key initial tool for

assisting hotel, restaurant, leisure and retail
development planning.

There are two main types of feasibility study

and many people confuse the two.
Architects will undertake a development feasibility

study to determine what is possible on a site.

The results should not be confused with a market
feasibility study that determines the financial
viability of a scheme based on the market(s) for which
it will cater.
*The results of such a study should then be used to
inform the architects work to ensure that project
budgets are reasonable.

Market feasibility studies are required to:

raise funding,
satisfy grant awarding bodies, where appropriate, both
financially and in terms of project outputs,
satisfy the directors that a project is viable,
determine the optimum facility mix to maximise
revenue,
ensure that all parties agree on the key elements of a
project,
form the basis for initial market and project planning,
in some cases, provide the argument for business closure
or change of use applications/ planning appeals,
enable third parties to value operating contracts (for
example, enable museums and other visitor attractions to
vale catering contracts).

Hotel, restaurant, leisure and retail market

feasibility studies should be completed for any
capital project.
It is essential that they weigh up all of the
market information available dispassionately
and relate the findings in potential revenue
estimates. These estimates should show the
number of units (rooms, meals, memberships
etc.) estimated to be sold and the expected
tariffs to be achieved, resulting in estimates of
revenue and project outputs.

The information used to form the base for the above assumptions
should include the:
location and visibility of the proposed facilities in respect of the key
sources of demand,
existing and known future competitors, including possible
substitutes,
current and forecast levels of demand and market trends taking
into account known levels of current demand, latent demand,
frustrated demand. This data may include information in the public
domain, competitor research, market surveys and demographic
analysis.
impact of non-direct but influencing changes in the competitive
environment.
Seasonality factors should also be taken into account showing when

demand is likely to be highest and lowest viability can be greatly

different if a business opens at the end or start of a trading season.

Estimates of the project outputs will enable

the study to identify the optimum facility mix
and also determine the costs of the
operation:

costs of sales
staffing costs
marketing expenditure
Maintenance
Insurance
etc.

The end results therefore should be

statements of revenue and expenditure for
the first five years of the project, clearly
showing the links between the markets and
the forecasts.
From these statements will then follow
balance sheet
cash flow forecasts, and
estimates of project value upon completion.

The information you gather and present in your

feasibility study will help you:
List in detail all the things you need to make the

business work;
Identify logistical and other business-related
problems and solutions;
Develop marketing strategies to convince a bank or
investor that your business is worth considering as an
investment; and
Serve as a solid foundation for developing your
business plan.

Even if you have a great business idea you still

have to find a cost-effective way to market and
sell your products and services.

For example, most commercial space leases

place restrictions on businesses that can have a
dramatic impact on income. A lease may limit
business hours/days, parking spaces, restrict the
product or service you can offer, and in some
cases, even limit the number of customers a
business can receive each day.

Description of the Business: The product or services to be offered and

how they will be delivered.
Market Feasibility: Includes a description of the industry, current
market, anticipated future market potential, competition, sales
projections, potential buyers, etc.
Technical Feasibility: Details how you will deliver a product or service
(i.e., materials, labor, transportation, where your business will be located,
technology needed, etc.).
Financial Feasibility: Projects how much start-up capital is needed,
sources of capital, returns on investment, etc.
Organizational Feasibility: Defines the legal and corporate structure of
the business (may also include professional background information
about the founders and what skills they can contribute to the business).
Conclusions: Discusses how the business can succeed. Be honest in your
assessment because investors wont just look at your conclusions they
will also look at the data and will question your conclusions if they are
unrealistic.

A feasibility study is usually conducted after

producers have discussed a series of business
ideas or scenarios.
The feasibility study helps to frame and
flesh-out specific business scenarios so they
can be studied in-depth.
During this process the number of business
alternatives under consideration is usually
quickly reduced.

During the feasibility process you may

investigate a variety of ways of organizing the
business and positioning your product in the
marketplace.
It is like an exploratory journey and you may take
several paths before you reach your destination.
Just because the initial analysis is negative does
not mean that the proposal does not have
merit.
Sometimes limitations or flaws in the proposal
can be corrected.

A pre-feasibility study may be conducted first to help sort

out relevant scenarios.
Before proceeding with a full-blown feasibility study, you
may want to do some pre-feasibility analysis of your own.
If you find out early-on that the proposed business idea is
not feasible, it will save you time and money.
If the findings lead you to proceed with the feasibility
study, your work may have resolved some basic issues.
A consultant may help you with the pre-feasibility study,
but you should be involved. This is an opportunity for you
to understand the issues of business development.

a market assessment may be conducted that will help

determine the viability of a proposed product in the
marketplace.
The market assessment will help to identify opportunities
in a market or market segment.
If no opportunities are found, there may be no reason to
proceed with a feasibility study.
If opportunities are found, the market assessment can
give focus and direction to the construction of business
scenarios to investigate in the feasibility study.
A market assessment will provide much of the information
for the marketing feasibility section of the feasibility
study.

The conclusions of the feasibility study should outline in depth the

various scenarios examined and the implications, strengths and
weaknesses of each. The project leaders need to study the feasibility
study and challenge its underlying assumptions. This is the time to be
skeptical.
Dont expect one alternative to jump off the page as being the best
scenario. Feasibility studies do not suddenly become positive or
negative. As you accumulate information and investigate alternatives,
neither a positive nor negative outcome may emerge. The decision of
whether to proceed is often not clear cut. Major stumbling blocks may
emerge that negate the project. Sometimes these weaknesses can be
overcome. Rarely does the analysis come out overwhelmingly positive.
The study will help you assess the tradeoff between the risks and
rewards of moving forward with the business project.
Remember, it is not the purpose of the feasibility study or the role of the
consultant to decide whether or not to proceed with a business idea. It is
the role of the project leaders to make this decision, using information
from the feasibility study and input from consultants.

The go/no-go decision is one of the most critical

in business development.
It is the point of no return.
Once you have definitely decided to pursue a
business scenario, there is usually no turning
back.
The feasibility study will be a major information
source in making this decision.
This indicates the importance of a properly
developed feasibility study.

A feasibility study is not a business plan.

The separate roles of the feasibility study and
the business plan are frequently
misunderstood.
The feasibility study provides an investigating
function.
It addresses the question of Is this a viable
business venture?

The business plan provides a planning function.

The business plan outlines the actions needed to
take the proposal from idea to reality.
The feasibility study outlines and analyzes
several alternatives or methods of achieving
business success.
The feasibility study helps to narrow the scope
of the project to identify the best business
scenario(s).

The business plan deals with only one

alternative or scenario.
The feasibility study helps to narrow the scope
of the project to identify and define two or three
scenarios or alternatives.
The person or business conducting the feasibility
study may work with the group to identify the
best alternative for their situation. This
becomes the basis for the business plan.
The feasibility study is conducted before the
business plan.

A business plan is prepared only after the business

venture has been deemed to be feasible.
If a proposed business venture is considered to be
feasible, a business plan is usually constructed next
that provides a roadmap of how the business will be
created and developed.
The business plan provides the blueprint for project
implementation.
If the venture is deemed not to be feasible, efforts
may be made to correct its deficiencies, other
alternatives may be explored, or the idea is dropped.

Project leaders may find themselves under

pressure to skip the feasibility analysis step
and go directly to building a business. Individuals
from within and outside of the project may push
to skip this step. Reasons given for not doing a
feasibility analysis include:
We know its feasible. An existing business is
already doing it.
Why do another feasibility study when one was
done just a few years ago?

Feasibility studies are just a way for

consultants to make money.
The market analysis has already been done
by the business that is going to sell us the
equipment.
Why not just hire a general manager who can
do the study?

Feasibility studies are a waste of time. We

need to buy the building, tie up the site and
bid on the equipment.
The reasons given above should not dissuade
you from conducting a meaningful and
accurate feasibility study. Once decisions
have been made about proceeding with a
proposed business, they are often very
difficult to change. You may need to live with
these decisions for a long time.

Conducting a feasibility study is a good business

practice. If you examine successful businesses,
you will find that they did not go into a new
business venture without first thoroughly
examining all of the issues and assessing the
probability of business success.
Below are other reasons to conduct a feasibility
study:
Gives focus to the project and outline alternatives.
Narrows business alternatives

Identifies new opportunities through the

investigative process.
Identifies reasons not to proceed.
Enhances the probability of success by
addressing and mitigating factors early on that
could affect the project.
Provides quality information for decision
making.
Provides documentation that the business
venture was thoroughly investigated.

 Helps in securing funding from lending

institutions and other monetary sources.

Helps to attract equity investment.

NOTE THAT The feasibility study is a critical

step in the business assessment process. If
properly conducted, it may be the best
investment you ever made.

If you are considering conducting a feasibility

analysis to investigate the viability of a
potential business venture, answering the
following six questions will help guide you
through the process. By using these as a
guide, it will help you move through the
process efficiently while helping you get the
most out of the analysis.

The decision to conduct a feasibility study

should not be taken lightly. It is an expensive
and time consuming process. However, not
doing a feasibility analysis can be even more
expensive in terms of the poor decisions you
may make from not conducting the proper
analysis.

You need to be far enough along in the

deliberation process of your business idea to
make the best use of a feasibility study. So you
need to have a clearly defined outline of one or
more alternative business models or scenarios
that you want to explore. And you want to have
conducted sufficient initial investigation of these
alternatives to determine if they have the
potential of being viable. You dont want to
spend your feasibility money investigating ideas
that you can determine are not feasible by just
making a few phone calls.

This means that you will need to have already done

much of the early investigation and exploration of
your business idea before you schedule a full blown
study. This early investigation or pre-feasibility
analysis can be done by members of your committee
or with the help of a consultant. You may start by
doing a marketing study to determine if the business
idea has market viability. If it does not, you have saved
time and money by not commissioning a
comprehensive feasibility study. If the idea has market
viability, you can move forward with the feasibility
analysis and use the market analysis in the feasibility
study.

At the end of the study, provide the

committee with a draft of a final report.
Before you start discussing the conclusions of
the study and what impact they have on the
viability of your project, you must first review
the study to determine if it is accurate,
relevant and complete. It is not uncommon
for the project committee to reject the draft
of the report and ask for further clarification
and analysis.

The study is only as strong as its weakest part. It takes a mistake in only
one part of the study to sink the business venture. So, before you accept
the study you should determine that it:

Is understandable and easy to read

Addresses all of the relevant issues and questions
Lists and discusses all of the underlying assumptions of the project analysis
Meets the expectations of the project committee
Is logically consistent within sections and among sections
Is thoroughly researched using good research techniques
Contains all of the relevant information
Meets the conditions of the consulting contract
It is important that you meet this due diligence requirement because
investors and others may question your procedures and decisions during this
period if the business venture eventually fails. You may want to discuss this
with your attorney to make sure the proper safeguards are in place.

The purpose of the feasibility study is to

provide you with the information needed to
determine if the proposed business venture is
viable. However, it will probably not provide
you with a magic answer. So you will need to
carefully assess the conclusions of the study
and decide if the proposed business venture
has sufficient merit to move forward.

If ever there is a time for unemotional,

rational and logical thinking, it is now.
Mistakes at this time may be with you for a
long time.

1. The committee members have already

made up their minds and rationalize the
study results to fit their decision.

2. Because project committee members tend

to be action oriented rather than
deliberators, they become restless to move
forward with the project and gloss over
important aspects of the study.

3. Because of the importance of the decision

and the lack of clear direction from the
feasibility analysis, committee members find
they cannot bring themselves to make a
decision. Rather, they continually seek more
information.

4. The committee members become confused

by the array of information presented to them
and pressure their consultants and others to give
definitive answers of whether to move forward
with the project. When committee members
respond to questions pertaining to why they
moved forward with a project by replying, our
consultants said it would work, are abdicating
their decision making responsibility.

"He who asks is a fool for five minutes, but

he who does not ask is a fool forever."
(traditional Chinese proverb)

People deny that the innovation is required.

People deny that the innovation is effective.
People deny that the innovation is important.
People deny that the innovation will justify
the effort required to adopt it.
People accept and adopt the innovation, enjoy
its benefits, attribute it to people other than
the innovator, and deny the existence of
stages 1 to 4.
AC 2005. Inspired by Alexander von Humboldt's 'Three
Stages Of Scientific Discovery', as referenced by Bill Bryson in
his book, 'A Short History Of Nearly Everything'.