Feasibility Study
Feasibility study refers to the set of documents containing an analysis of the costs of the resources that are necessary for the expected results of a project. In other words, it is carried out to determine the feasibility and economic efficiency of a business idea.
The feasibility study allows investors to understand whether investing in the proposed project is worth it and whether it will generate positive returns. The negative and positive impact of a business project on various external (effect of the activity on the environment) and internal factors is also taken into account.
Feasibility Study explained
The feasibility study demonstrates whether the plan is feasible and whether it’s worth using a company’s budget. It shows whether it’s possible to introduce a new product, service, process or technology and it allows business owners to understand how likely the idea is to succeed. Besides, it is expected to help avoid issues that can arise during the planning and other stages.
The preparation of a feasibility study is a task that, if carried out properly, requires information from many branches. Specialists that are responsible for organizing and executing the project must decide on the number of people that will participate in the project, financial requirements, and technologies and innovations. The main purpose of the feasibility study is to determine whether the project has the potential for success and whether the company will receive financial or non-financial benefit if it invests in it.
The components of the feasibility study may differ, depending on the overall goal. It may contain a statement of cash flows that provides the calculation of operating assets of the company required for the current or ongoing projects of the enterprise and the total cash that the company earns conducting the projects.
Risk project analysis is also needed while carrying out a feasibility study. Project risks are associated with the uncertainty that occurs in the project, and the main task of the risk management is to reduce this uncertainty, especially if it’s connected with the return.
Nevertheless, it’s always a good idea to have backup options to not let unfavorable events ruin the project.
Importance of Feasibility Study
The feasibility study allows business owners to determine whether the benefits that a company will get from the project are worth the investments and efforts.
In addition to this, it can help the company management choose the necessary equipment, implement the right technologies in the production, as well as organize the business correctly. It can help business owners decide whether expansion of the business is feasible. It may even uncover a need for additional resources.
The more competently the feasibility study is done, the more chances the company will have to identify new markets and directions for business growth.
Components of Feasibility Study
The sections included in the report may be different, depending on the sphere the company operates in and the purposes of the feasibility report. Despite this fact, there are common components that underlie the study.
Preliminary Analysis. After determining the project mission and the main objectives, a preliminary analysis should be carried out.
There are some tips for doing a feasibility study:
- Find out the stakeholders’ opinion on the business idea.
- Review and analyze information about the feasibility of the project, return on investment you collected earlier in order to check it and make conclusions about it.
- Analyze the market to make sure that the project is relevant and the outcome will be efficient.
- Create an organizational, operational, or business plan that will include a detailed description of your project with calculations and prospects for the next few years.
- Make predictions about the financial results you'll get from the project.
- Complete an opening day balance sheet.
- Based on the data collected, decide whether the project is worth the risk or not.
The main sections of the feasibility study that are usually present in one form or another are executive summary, technological considerations, existing marketplace, marketing strategy, etc.
