What Is a Feasibility Study? A Comprehensive Guide

What is a Feasibility Study?

As the name implies, a feasibility analysis is used to determine the viability of an idea, such as ensuring a project is legally, technically feasible, and economically justifiable. It tells us whether a project is worth the investment—in some cases, it may not be doable. There can be many reasons for this, including requiring too many resources, which not only prevents those resources from performing other tasks but also may cost more than an organization would earn back by taking on a project that isn’t profitable.

A well-designed study should offer a historical background of the business or project, such as a description of the product or service, accounting statements, details of operations and management, marketing research and policies, financial data, legal requirements, and tax obligations. Generally, such studies precede technical development and project implementation.

Understanding A Feasibility Study

Project management is the process of planning, organizing, and managing resources to complete specific project goals and objectives successfully. A feasibility study is a preliminary exploration of a proposed project or undertaking to determine its merits and viability. It aims to provide an independent assessment that examines all aspects of a proposed project, including technical, economic, financial, legal, and environmental considerations. This information then helps decision-makers determine whether or not to proceed with the project.

The feasibility study results can also help create a realistic project plan and budget. Without a feasibility study, it cannot be easy to determine whether a proposed project is worth pursuing.

Types of Feasibility Study

A feasibility analysis evaluates the project’s potential for success; therefore, perceived objectivity is essential to the study's credibility for potential investors and lending institutions. There are five types of feasibility study—separate areas that a feasibility study examines, described below.

1. Technical Feasibility

This assessment focuses on the technical resources available to the organization. It helps organizations determine whether the technical resources meet capacity and whether the technical team can convert the ideas into working systems. Technical feasibility also involves the evaluation of the hardware, software, and other technical requirements of the proposed system. As an exaggerated example, an organization wouldn’t want to try to put Star Trek’s transporters in their building—currently, this project is not technically feasible.

2. Economic Feasibility

This assessment typically involves a cost/ benefits analysis of the project, helping organizations determine the viability, cost, and benefits associated with a project before financial resources are allocated. It also serves as an independent project assessment and enhances project credibility—helping decision-makers determine the positive economic benefits to the organization the proposed project will provide.

3. Legal Feasibility

This assessment investigates whether any aspect of the proposed project conflicts with legal requirements like zoning laws, data protection acts or social media laws. Let’s say an organization wants to construct a new office building in a specific location. A feasibility study might reveal the organization’s ideal location isn’t zoned for that type of business. That organization has just saved considerable time and effort by learning that their project was not feasible right from the beginning.

4. Operational Feasibility

This assessment involves undertaking a study to analyze and determine whether—and how well—the organization’s needs can be met by completing the project. Operational feasibility studies also examine how a project plan satisfies the requirements identified in the requirements analysis phase of system development.

5. Scheduling Feasibility

This assessment is the most important for project success; a project will fail if not completed on time. In scheduling feasibility, an organization estimates how much time the project will take to complete.

When these areas have all been examined, the feasibility analysis helps identify any constraints the proposed project may face, including:

• Internal Project Constraints: Technical, Technology, Budget, Resource, etc.
• Internal Corporate Constraints: Financial, Marketing, Export, etc.
• External Constraints: Logistics, Environment, Laws, and Regulations, etc.

Feasibility Assessment Checklist

Here’s a Feasibility Assessment Checklist to evaluate the viability of a project:

1. Technical Feasibility

• Is the required technology available and well-understood?
• Do you have the technical expertise to implement the project?
• Is the infrastructure sufficient to support the project’s technical needs?
• Are there any technological risks or constraints?

2. Operational Feasibility

• Will the project improve operations or solve the identified problem?
• Are the operational processes in place to support the project?
• Will employees adapt to the changes brought by the project?
• Is the project aligned with the organization’s strategic goals?

3. Financial Feasibility

• Is the project budget realistic and well-planned?
• Are there sufficient funds available for the project?
• What is the expected return on investment (ROI)?
• Does the cost-benefit analysis support the project going forward?

4. Market Feasibility

• Is there a demand for the product or service the project will deliver?
• How does the project fit within current market trends?
• What are the potential market risks or competition factors?
• Are there marketing channels in place to support the project’s success?

5. Legal Feasibility

• Are there any regulatory requirements the project must meet?
• Will the project comply with applicable laws and industry standards?
• Are there intellectual property concerns, such as patents or trademarks?
• Are there any contract or vendor considerations?

6. Schedule Feasibility

• Is there a clear timeline with realistic milestones?
• Do you have the resources and personnel to meet deadlines?
• Is there a risk of project delays, and how will they be managed?
• Can the project be completed within the desired timeframe?

7. Environmental/Social Feasibility

• Will the project have any environmental impact?
• How will it affect stakeholders, customers, or the community?
• Are there sustainability considerations to address?
• Is the project socially responsible?

8. Risk Assessment

• Have potential risks been identified, and is there a mitigation plan?
• How likely are risks such as financial loss, technical failure, or regulatory issues?
• What are the contingency plans in case of failure?

9. Resource Feasibility

• Do you have the necessary human resources and skills?
• Are the required tools, equipment, or materials readily available?
• Can existing organizational resources support the project?

Importance of Feasibility Study

A feasibility study is important because it is based on an organizational desire to “get it right” before committing resources, time, or budget. A feasibility study might uncover new ideas that could completely change a project’s scope. It’s best to make these determinations in advance rather than to jump in and learn that the project won’t work. Conducting a feasibility study is always beneficial to the project as it gives you and other stakeholders a clear picture of the proposed project.

Below are some key benefits of conducting a feasibility study:

• Improves project teams’ focus
• Identifies new opportunities
• Provides valuable information for a “go/no-go” decision
• Narrows the business alternatives
• Identifies a valid reason to undertake the project
• Enhances the success rate by evaluating multiple parameters
• Aids decision-making on the project
• Identifies reasons not to proceed

Apart from the approaches to feasibility study listed above, some projects also require other constraints to be analyzed -

• Internal Project Constraints: Technical, Technology, Budget, Resource, etc.
• Internal Corporate Constraints: Financial, Marketing, Export, etc.
• External Constraints: Logistics, Environment, Laws, and Regulations, etc.

Benefits of a Feasibility Study

Preparing a project's feasibility study is an important step that may assist project managers in making informed decisions about whether or not to spend time and money on the endeavor. Feasibility studies may also help a company's management avoid taking on a tricky business endeavor by providing critical information.

An additional advantage of doing a feasibility study is that it aids in creating new ventures by providing information on factors such as how a company will work, what difficulties it could face, who its competitors are, and how much and where it will get its funding from. These marketing methods are the goal of feasibility studies, which try to persuade financiers and banks whether putting money into a certain company venture makes sense.

What Is Included in a Feasibility Study Report?

One of the most important steps in starting a business is conducting a feasibility study. This study will help determine if your business idea is viable and has the potential to be successful. Several factors need to be considered when conducting a feasibility study, including the marketability of your product or service, the competition, the financial stability of your company, and more. A feasibility study should cover the amount of technology, resources required, and ROI.

The results of your feasibility studies study are summarized in a feasibility report, which typically comprises the following sections.

• Executive summary
• Specifications of the item or service
• Considerations for the future of technology
• The marketplace for goods and services
• Approach to marketing
• Organization/staffing
• Schedule
• The financial forecasts
• Recommendations based on research

Tools for Conducting a Feasibility Study

Suggested Best Practices

While every project has its goals and needs, the following are best practices for conducting a feasibility study.

• Do a preliminary analysis. This includes getting feedback from relevant stakeholders on the new project and looking for other business scenarios.
• To ensure the data is solid, determine and ask queries about it in the initial phase.
• Take a survey to identify market demand and opportunities for the new concept or business.
• Create an organizational, operational, or business plan. This includes identifying how much labor is required, what costs, and how long.
• Make a projected income statement that involves revenue, operating expenses, and profit.
• Create an opening day balance sheet.
• You will need to identify and address any vulnerabilities or obstacles.
• Take an initial decision to go ahead with the plan.

Suggested Components

Here are some suggested components for conducting a feasibility study:

• Executive Summary: Write a narrative describing the project, product, or service.
• Technological considerations: Ask yourself what it will take. Can you afford it? How much will it cost?
• Current marketplace: Find out the market for your product, service, or plan in the local and global markets.
• Marketing strategy: Define it in a detailed description.
• Required staff: What human resources are needed for this project?
• Timeline and schedule: Use important interim markers to indicate when the project will be completed.
• Project financials. Project financials are how managers can account for money spent and earned on projects. One of the most important aspects of financial management is creating and tracking accurate project financials.

Examples of a Feasibility Study

A local university was concerned about the state of the science building, which was built in the 1970s. Given the scientific and technological advances over the past twenty years, school officials sought to determine the costs and benefits of expanding and upgrading the building. Therefore, a feasibility study was conducted.

School officials considered several options and weighed the costs and benefits of updating and expanding the science building. They expressed concerns about the project's cost and public reaction. The proposed new science building will be larger than the current one. The community board has rejected similar proposals in the past. The feasibility study will address these concerns and any possible legal or zoning issues.

The feasibility study examined the technology requirements of the proposed concept(new science building), the potential benefits for students, and its long-term viability. Modernizing the science facility will increase the potential of scientific research and ameliorate its modules. It also would attract new students.

Financial projections provided information about the scope & cost of this project and also provided information on raising funds. This covers issuing an investor's bonds and tapping into its endowment. Projections also help determine how the new science program attracts more fresh students to enroll in offered programs, increasing tuition and fee revenue.

The feasibility study proved that the proposed concept was feasible, allowing for the expansion and modernization of the science building. Without it, school administrators would not have known if the expansion plans were feasible.

What is the Purpose of a Feasibility Study?

A feasibility study is an important first step in starting a new business. It is a detailed examination of whether or not a proposed business venture is likely to be successful. A feasibility study aims to provide information to help business owners make informed decisions about their new venture.

The feasibility study will answer important questions about the proposed business, including:

• What is the target market for this business?
• Who are the competitors?
• What are the costs associated with starting and running this business?
• What are the potential risks and rewards associated with this venture?
• How much revenue can this business generate?
• What are the estimated profits and losses for this business?
• What is the potential for growth in this industry?

How Do You Write a Feasibility Study?

This feasibility study will outline why your business idea is worth pursuing and will also help you identify any potential risks or problems. When writing a feasibility study, there are a few key things to keep in mind:

1. Outline your target market and how you plan to reach them.
2. Discuss your product or service and explain why it is unique and needed.
3. Outline your financial projections and explain how you plan to make a profit.

7 Steps to Do a Feasibility Study

1. Conduct a Preliminary Analysis

A preliminary investigation is necessary to determine whether a full feasibility study is warranted. During this stage, key information will be gathered to assess the project's potential and make a preliminary decision about its feasibility. This should include reviewing relevant documents, interviews with key personnel, and surveys of potential customers or users.

2. Prepare a Projected Income Statement

To do a feasibility study, you must create a projected income statement. Your projected income statement will show how much your business is expected to make in the coming year. It will include both your estimated revenue and your estimated expenses. This document will be essential in helping you make informed decisions about your business.

3. Conduct a Market Survey or Perform Market Research

Conducting market research is an important step in any feasibility study. By understanding the needs and wants of your potential customers, you can determine if there is a market for your product or service. You can also get an idea of what your competition is doing and how to position your business best to meet the needs of your target market.

There are various ways to conduct market research. One popular method is to conduct a survey. You can survey potential customers directly or use data from secondary sources, such as surveys conducted by other organizations. You can also use focus groups or interviews to get feedback from potential customers.

Once you have gathered your data, you can use it to create your ideal customer profile. This will help you understand your target market and how to reach them.

4. Plan Business Organization and Operations

When starting a business, one of the first things you need is to plan your organization and operations. This involves creating a structure for your company and figuring out the logistics of how you will run it. There are many factors to consider when planning your organization and operations, such as:

• Company Structure: What type of company will you be (sole proprietorship, partnership, corporation, etc.)? What will the hierarchy look like?
• Location: Where will your business be located? Will you have a physical storefront or operate online only?
• Marketing: How will you promote your business?

5. Prepare an Opening Day Balance Sheet

The opening day balance sheet is a snapshot of the company's financial position at the beginning of the business venture. The purpose of the opening day balance sheet is to give an idea of the amount of money the company has to work with and track its expenses and income as they occur. This information is vital to making sound business decisions. The opening day balance sheet will include the following:

• Cash on hand
• Accounts receivable
• Inventory
• Prepaid expenses
• Fixed assets
• Accounts payable
• Notes payable
• Long-term liabilities
• Share

6. Review and Analyze All Data

The feasibility study should include reviewing and analyzing all data relevant to the proposed project. The data collected should be verified against source documentation, and any discrepancies should be noted. The purpose of the feasibility study is to provide a basis for making a decision, and the data should be sufficient to support that decision.

The analysis should consider both the proposed project's positive and negative aspects. The financial analysis should be thorough, and all assumptions should be documented. The risk assessment should identify any potential risks and mitigation strategies. The team assigned to the project should review the feasibility study and recommend the organization's leadership.

Based on the feasibility study's findings, organizational leadership should decide whether to proceed with the project. If the project is approved, the organization should develop a project plan that includes a detailed budget and timeline

7. Make a Go/No-Go Decision

Knowing when to cut your losses when starting a business is important. The go/no-go decision in a feasibility study comes in. The go/no-go decision is a key part of a feasibility study, and it can help you determine whether or not your business idea is worth pursuing.

Making the go/no-go decision is all about risk assessment. You need to weigh the risks and rewards of starting your business and decide whether the potential rewards are worth the risks. If the risks are too high, you may reconsider your business idea.

How to Conduct a Feasibility Study

Now, let's discuss a few of the steps we take to do the feasibility study.

• To begin with, we conduct a preliminary study of the business case to define what is included and to determine whether what we are examining and attempting to find is realistic.
• Following that, we generate a forecasted income statement. We need to understand the revenue sources; how will we profit from this? Where does the income originate? Additionally, we must do a market study.
• We need to find out whether this is a demand for our product. How much demand does this have? Is there a market for this product or service?
• The fourth step is to plan your company's structure and operations. Specifically, what type of organization do we need, and what resources do we have? Do we have any specific personnel needs?
• We also plan to generate a balance sheet on the first day. What are the income and expenses, and how can we be confident that we'll be able to decide whether we'll make our ROI?
• As a result, we plan to review and examine all of our data before making a final decision on whether or not to pursue this project or business opportunity.

Feasibility Study vs. Business Plan

When starting a business, you must create two very important documents: a feasibility study and a business plan. While they may seem similar, they are two different things with different purposes.

A feasibility study is a preliminary document that assesses the feasibility of a proposed business. It looks at the market potential, the competition, the costs and benefits of starting the business, and the risks and rewards involved.

On the other hand, a business plan is a more detailed document that outlines how a business will be run and its goals. It includes information about its mission statement, products and services, target market, finances, and management team.

Reasons to Do or Not to Do a Feasibility Study

There are many factors to consider when deciding whether or not to conduct a feasibility study. The most important question is whether the study will help you make a better decision.

Some reasons to do a feasibility study include:

• You are considering a major change or investment
• You want to assess the viability of a new business or product
• You need to understand the risks and potential rewards associated with a project

On the other hand, some reasons not to do a feasibility study include:

• You are pressed for time and don't think the study will provide enough value to justify the time commitment.
• You are confident that your idea is feasible, and a study will only confirm your beliefs.
• The change or investment is not significant enough to warrant the study.

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Conclusion

This article introduces the concept of a feasibility study and provides a few tips on conducting one. A feasibility study is important for evaluating a project before starting it. Understanding its feasibility can help you make better decisions about whether to proceed.

We hope this helps you understand the feasibility study concept better. To learn more about similar project management concepts, explore our library of Project Management articles or check out our Postgraduate Program in Project Management, which covers new trends, emerging practices, tailoring considerations, and core competencies required of a Project Management professional.

FAQs

1. How do you describe a feasibility study?

A feasibility study is an analysis to assess the practicality and potential success of a proposed project or idea. It examines technical, operational, financial, and legal viability factors to determine if the project is worth pursuing and identifies any risks or challenges.

2. Why is it called a feasibility study?

A feasibility study evaluates whether a project or plan is feasible—meaning practical and achievable—by analyzing the necessary resources, risks, and outcomes before starting the project.

3. What is feasibility study in one word?

Viability.

4. What do you mean by feasibility analysis?

Feasibility analysis is assessing a proposed project's strengths, weaknesses, opportunities, and threats to determine its potential for success. It evaluates technical, financial, and market factors to ensure the project is feasible.

5. What is method feasibility?

Method feasibility refers to assessing whether a proposed method or approach for completing a task or project is practical, effective, and efficient. It ensures that the methodology can be implemented successfully with the available resources.