This is a stage where business idea is being converted into conceptual framework. Feasibility study is a systematic activity. Good manager understands that it is better to invest little extra time on the drawing board than waste the whole year trying to reverse a costly mistake. A feasibility study is an assessment of the practicality of a proposed plan or method. In other words, feasibility study is an evaluation and assessment of a planned project to determine it:
a. Technically viable,
b. Achievable within a given projected cost, and
It is always conducted where large sums of money are at stake and it can also be called feasibility analysis.
Six Components of Feasibility Study
A systematic step by step method enables project managers and their teams to reach the point of delivering their findings to stakeholders in a clear and concise manner. The generated written study at the conclusion of the exercise will help the team into the presentation stage of the project stakeholders. The steps involve in moving readers through will help clarify questions on the study recommendations.
The most important page of the report is often the only page that many stakeholders actually take the time to read. Although it should always be presented on the first page of a report, the executive summary is a digest of the following five feasibility study steps.
1. Clear Project Description
A recap of the project as it is defined for the study can help stakeholders understand the questions asked and the results generated. Stating the project description in very basic terms removes uncertainty about a project for stakeholders who might otherwise be unfamiliar with the ideas the project represents.
Reviewing the strengths, weaknesses, opportunities, and threats faced by a project helps decision makers focus on the big picture. In some organizations, leaders may not want to approach a new market unless they know they can dominate it. Other companies prefer to focus on profits gained instead of market share. Either way, the challenges faced should be clearly defined, along with the consequences of failure.
3. Operating Requirements
When following this set of feasibility study steps, authors can use this point in the report to stay clear, focused, and unbiased about a project’s real needs. Project managers that understate the physical and fiscal resources required for a new product or service often end up with failed projects or unfulfilled promises.
4. Financial Projections
More than ever, Investors and CFOs focus on the finance in a feasibility study to make sure that projects can generate the kind of scalable profits that warrant their approval. Expert project managers emphasize the break-even analysis, a timeline view of the moment a project can pay for itself.
5. Recommendations & Findings
Summarizing all of the previous feasibility study steps, the recommendations and findings can shape the outcome of a project proposal. Instead of simply stating a “yes” or “no” answer to the question of project approval, this section offers an opportunity to enhance a project by pointing out areas of opportunity.
Project managers can cover the first four phases of the project cycle by conducting a comprehensive feasibility study.
Factors to Consider
No matter how attractive a feasibility analysis may look, there are salient factors to consider.
Comparing a market size for instance; two million potential clients, to Seven Million potential clients, the probability of maximizing profit is higher in the later market. Entrepreneur may developed a system that is web base driven, but if the targeted market has low internet penetration no matter how effective such a system may be, it is not economically profitable.
Quality of the Product or Service
To get the attention of customers, you must ensure the product or services that is entering the market is of high quality compare to your competitors. For customer who are already used to a particular brand or products and services, there should be clear and easily identifiable features in the new products that make it better than what is currently obtainable in the market.
Returns On Investment
The ultimate test of feasibility of a venture is its forecast profit and loss statement, and the management team’s confidence that the forecast is attainable. Companies create a business model that shows the factors that will lead to the company being extremely profitable. The success factor is also important in a scenario if investor is to be attracted in pulling resources together. Important consideration is given to low corporate overhead, low cost of production which leads to high gross margins, operating in a market with no strong entrenched competitors. A feasible venture is one in which everyone involved agrees that the financial opportunity is outstanding and the risk of failure is relatively low.
In 21st century business model, product life cycle has drastically reduced due to advancement in technology. In smart phones industry for instance, in terms of quality and market acceptance, Apple and Samsung are almost on par. However, consumers can easily make a choice base on the product that is readily available in the market. The lead time from when an order is initiated till when it is delivered to the destination in this globalized business world is of high consideration, since the quality is almost the same.
Business owner have to determine the strength of the management team being put together. Focus should be on their skills, marketing strategy, and experience required for the business to kick off on a positive note. The founders must engage personnel manager with track record that really understands the market and the suitable manpower to take charge. Having great products or services is not enough without competent management team that will align the venture corporate objectives and image with the products and service because incomplete management team will reduce the venture competitive edge and reduces the chances the venture will succeed. It’s not enough to have a great product or a superior business plan. The management team must be capable of efficiently and precisely executing the plan.
Reasons to conduct feasibility study
As the name implies, a feasibility study is an examination of the viability of a business idea and is the first step in creating a successful business. Most entrepreneurs are in too much haste to do the basic thing of conducting a feasibility study. The below are the five key reasons to conduct a feasibility study.
A feasibility study will give you a correct understanding of the human, financial and technological resources that is needed to successfully start the business venture to avoid hiccup.
With the aid of a sound feasibility study, it is easier to identify an alternative option and idea base on cost effectiveness, risk analysis, challenges and technical viability of a venture identified by the feasibility study.
Funding and Investment
Investors and financial institution will only invest in a business that is seen as viable and with profit potential and ability of good return on investment. A feasibility study will help to quantify market size, market potential and the sustainability of the business idea. All critical elements when looking for funding.
Feasibility studies do cost money because they need to be conducted by a professional market research company or independent consultants; however, in the long term, you can avoid the costly mistake of investing your own and other people’s money in a venture that is not viable thereby losing your investment.
Increase chance of success
The most important reason to conduct a feasibility study is that it will allow you to make an informed business decision on the studied project. Your chances of being successful will increase because the study will look at all possible opportunities, threats and barriers like legal issues and ultimately indicate whether or not it is viable to proceed. Businesses that make informed decisions have a far greater success rate.