What Is a Feasibility Study?
A feasibility study is an in-depth evaluation that examines the vital aspects of a proposed project to determine the likelihood of its success.
Success in business can often be defined through return on investment (ROI), meaning that the project will generate enough profit to justify the investment. However, other critical factors such as community reaction and environmental impact may also play significant roles. Although feasibility studies assist project managers in evaluating the risks and returns of a potential venture, several steps should be taken before proceeding.
Key Takeaways
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- A feasibility study’s primary aim is to identify factors influencing the viability of a project.
- It includes an evaluation of the expected costs and projected benefits in great detail.
- It is prudent to prepare a contingency plan in case the primary project turns out impractical.
Understanding a Feasibility Study
A feasibility study assesses whether a proposed plan or project is practically achievable. It evaluates the project’s potential success by identifying potential issues and obstacles that may arise during execution.
As part of the feasibility study, project managers must ascertain if they have adequate human resources, financial backing, and technology. The study also needs to determine the ROI, either as financial gain or societal benefit, as with nonprofit projects.
Feasibility studies might consist of a cash flow analysis to measure revenue-generated cash versus operating costs while also completing a risk assessment to verify if the anticipated return justifies the risks.
Benefits of a Feasibility Study
Feasibility studies offer various benefits, including:
- They help project managers evaluate the advantages and disadvantages of undertaking a project before significant time and financial investments are made.
- They provide critical data that could prevent organizations from venturing into risky businesses.
- They clarify operational growth avenues and market analysis for informed decision-making.
- They offer solid backing to attract and retain investors, convincing them of the potential project’s profitability.
How to Conduct a Feasibility Study
The process of conducting a feasibility study varies depending on the organization’s nature. However, common best practices exist that apply to most studies.
Preliminary Analysis
Key steps include:
- Gathering initial feedback from stakeholders regarding the new concept.
- Evaluating early-phase data for reliability.
- Performing market surveys or research to understand the market demand.
- Drafting organizational and operational plans, highlighting labor requirement duration and costs.
- Preparing projected income statements encompassing revenue, operating costs, and profit projections.
- Preparing a day-one balance sheet.
- Identifying possible challenges and fallback measures.
- Making an initial decision to proceed or not.
Suggested Components
Components typically included in a feasibility study:
- Executive Summary: Outline project details.
- Technological Requirements: Evaluate if you have or can obtain the necessary technology and its costs.
- Market Analysis: Analyze the existing marketplace.
- Marketing Strategy: Detail plans.
- Staffing Needs: Illustrate human capital requirements.
- Schedule and Timeline: Include project completion milestones.
- Financial Projections.
- Findings and Recommendations: Divide into technology, marketing, organizational, and financial subcategories.
Inspirational Examples of Feasibility Studies
A University Science Building
University officials aiming to modernize an outdated 1970s-built science building considered the costs and benefits of upgrading. The feasibility study revealed key information:
- Preliminary Analysis: Explored cost-benefit options, addressing potential legal issues and community opposition.
- Tech Needs and Benefits: Highlighted technological advancements, curriculum improvements, and new student attraction.
- Financial Projections: Showed funding through bonds and endowments, with expected tuition revenue increase from new enrollments.
A High-Speed Rail Project
Washington State Department of Transportation explored constructing a high-speed rail connecting Vancouver, Seattle, and Portland. Highlights included:
- Governance Framework: Developed decision-making frameworks from expert and stakeholder interviews, formulating extensive governing entities.
- Engagement Plan: Designed flexible engagement for various entities, including public officials, advocacy groups, and local communities.
- Financial Plan: Estimated project costs between $24-$42 billion, with potential $160-$250 million revenue. Strategies covered grams, appropriative local investments, equity investments, and government bonds.
- Benefits: Enhanced regional connectivity and job accessibility, predicting growth, significant development, and easing automobile congestion.
Key Objectives of a Feasibility Study
The main aim of a feasibility study is to guide decision-makers in assessing whether or not a proposed project or investment is likely to achieve its goals. It identifies known costs and forecasts benefits.
Steps in a Feasibility Study
Starts with preliminary analysis through stakeholder interviews, comprehensive market research, and business planning. This leads to a thorough feasibility assessment involving various business aspects and a crucial go-or-no-go decision.
Who Conducts Feasibility Studies?
Feasibility studies can be conducted internally by senior management or outsourced to expert consultants if needed.
Exploring the Four Types of Feasibility
Technical: Identify required hardware, software, and skilled labor.
Financial: Predict costs and expected returns.
Market: Analyze product/service demand, competition, and growth projections.
Organizational: Outline necessary business structure and management teams.
The Finale: Your Feasibility Study Roadmap
Feasibility studies are essential for understanding the success potential of projects by identifying pivotal factors. A feasibility study includes detailed analysis of the project requirements, technology, required financial resources, potential obstacles, benefits, and decision-making outcome (whether to proceed or not).
Related Terms: return on investment, cash flow analysis, contingency planning, risk management, market research.
References
- Washington State Department of Transportation. “Ultra-High-Speed Rail Study”.
- Washington State Department of Transportation. “Cascadia Ultra High Speed Ground Transportation Framework for the Future”.
- Washington State Department of Transportation. “Ultra-High-Speed Rail Study: Outcomes”.
- Washington State Department of Transportation. “Ultra-High-Speed Ground Transportation Business Case Analysis”. Page ii.
