Feasibility Studies

What is a Feasibility Study?

As the name implies, a feasibility study is an analysis of the viability of an idea. The feasibility study focuses on helping answer the essential question of "should we proceed with the proposed project idea?" All activities of the study are directed toward helping answer this question.

Feasibility studies can be used in many ways but primarily focus on proposed business ventures. A feasible business venture is one where the business will generate adequate cash-flow and profits, withstand the risks it will encounter, remain viable in the long-term and meet the goals of the company. The venture can be a new start-up business, the purchase of an existing business, an expansion of current business operations or a new enterprise for an existing business.

ValueScope will review this process and help put the role of the feasibility study in perspective.

Evaluate Alternatives

A feasibility study is usually conducted after producers have discussed a series of business ideas or scenarios. The feasibility study helps to "frame" and "fleshout" specific business alternatives 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 if organized in a different fashion or if there are market conditions that need to change for the idea to be viable. Sometimes limitations or flaws in the proposal can be corrected.

Pre-Feasibility Study

A pre-feasibility study may be conducted first to help sort out relevant alternatives. 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.

Results and Conclusions

The conclusions of the feasibility study should outline the various alternatives examined and the implications and 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. Don't expect one alternative to "jump off the page" as being the best one. 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 often is 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.

Go/No-Go Decision

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 venture, 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.

Feasibility Study vs. Business Plan

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?"

Reasons Given Not to Do a Feasibility Study

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 it's 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 feasibility 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.

Reasons to Do a Feasibility Study

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
• Surfaces 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
• Helps to increase investment in the company
• Provides documentation that the business venture was thoroughly investigated
• Helps in securing funding from lending institutions and other sources

The feasibility study is a critical step in the business assessment process. If properly conducted, it may be the best investment you ever made.