How to Conduct a Feasibility Study
Posted 20 Jul by Pavel Gorbachenko
What is a Feasibility Study?
In simple terms, this process establishes if a project is feasible, meaning it is practical and possible to complete and will deliver a successful outcome. Success is generally defined as giving what the customer requires to provide a sufficient return on investment.
A feasibility study aims to identify both if the project can be a success and if the company developing the project can achieve this success. Typical processes following the principles of a SWOT analysis, looking at the strengths and weaknesses, the opportunities and threats.
The output of the activity should be the evidence for the go/no go decision for the project and, in the case of a go, any additional resources or capabilities that the company must acquire to satisfy any assumptions and prerequisites that underpin the decision.
What is a Pre-Feasibility Study?
You may come across the term pre-feasibility study, so what is meant by this term.
It is the process of taking the concept for a project and analyzing the various business scenarios that could be embraced to deliver that project.
Where there are several possible options, the pre-feasibility study will select which option will produce the best technical and financial results and fit with the business's strategic goals. This option is then carried forward for a more in-depth analysis in the main study.
How to Conduct a Feasibility Study
The study is best performed as a sequential stepped process. Each step provides the opportunity for the business to review feasibility at each stage and choose to halt the process if a no-go decision is likely.
The study should follow the following steps:
Preliminary Feasibility Analysis
The Stages of a Feasibility Study
Each of the steps identified above defines the process for completing the feasibility study. It follows from the business case that sets out what the business intends to do for the end customer. Its aim is to establish if the business case's goals can be successfully achieved.
1. Study Scope
A feasibility study can have many objectives, from technical feasibility to financial feasibility.
It is essential that the scope of the study is clearly defined and agreed upon with all stakeholders to prevent the study from excluding areas that may later prove disastrous to the success of the project.
Finding out that the company does not possess the correct development tools until the project has begun may result in additional costs that compromise the project's financial feasibility.
2. Preliminary Feasibility Analysis
The analysis starts with a preliminary survey of the marketplace for the planned product or service. The project must deliver something for which there is a market need to be successful.
There must be an untapped demand, or the planned product or service must be better than the existing products or services that currently meet the demand.
Here, better can be cheaper, faster, easier to use, or any other factor sufficiently strong to persuade the end customers to move away from an established product/service to the new product/service.
3. Financial Analysis
The financial analysis will look at how much it will cost to produce the new product or service and the predicted revenue streams based on the preliminary analysis of market demand and price points.
This will provide an indication of investment requirements, cash flow profiles and eventual return on investment.
The analysis will include the feasibility of obtaining the required investment and any project requirements for early prototypes to support interim investment or MVP to generate revenue streams during the development lifecycle.
4. Market Survey
The purpose of the market survey is to validate the assumptions made in the financial analysis in terms of customer demographics, supply and demand profiles, product or service pricing, delivery schedules, and growth potential.
This will require comprehensive competitor analysis to verify that the predicted demand is achievable, both for competitors active in the marketplace and any potential competitors known or believed to be developing competing products or services.
The market survey results are refined to revenue predictions that can be fed back into the financial analysis for an impact assessment of the changes. The results will also drive the marketing strategy and sales planning exercises in terms of key milestone dates.
5. Operational Planning
With the financial and marketing preparation in place, operational planning can begin. This step develops organizational, technological, and development planning. These are necessary to realize the implementation of the project within the required timescales.
Organizational planning will balance resource requirements with the existing organizational structure. The aim is to identify any resourcing or facility shortfalls. These will require investment, outsourcing, or subcontracting to resolve. The planning will also balance existing skillsets and capabilities against project requirements, identifying any gaps.
Technology planning will compare specific project requirements against existing technological capability, identifying where new capabilities must be acquired, purchased, leased, or contracting to third parties with the necessary facilities.
Development planning will identify the processes and methodologies that will best meet the project requirements and develop plans that require product or service capability at each delivery point, driven by program milestones, marketing strategy, and customer expectations.
6. Financial Planning
The outcomes of the operation planning processes will produce detailed costings for implementing the project. This will include the costs of acquiring necessary resources and capabilities, supply chain expenditure, and business investment.
The results of the operation planning are further refined to revenue predictions that can be fed back into the financial analysis for an impact assessment of the expected costs. The results will also affect the marketing strategy and external investment requirements.
7. Risk Analysis
A vulnerability analysis will look at the outputs of the planning processes and identify critical threats to the project.
The results will create a set of credible risks to the project that can then be assessed against the corporate risk appetite. Those risks deemed too great can be reduced or eliminated by introducing contingency planning and risk mitigation strategies.
The risk analysis exercise will end when all credible threats have been identified and either eliminated, reduced to an acceptable level, or accepted by the stakeholders as being accepted.
8. Project Review
The final step in the feasibility study process is the formal review of all evidence by stakeholders and an agreed-go or no-go decision. This decision is driven by the previous steps but will be mindful of the business's tactical aims and long-term strategic goals.
Feasibility Study Example
So how do you write a feasibility study?
The documented results typically adopt the following structure, which can form a feasibility study template for your own analysis:
1. Executive Summary
A summary of the project, the feasibility study process, and the agreed scope of the study.
2. Product/Service Description
A summary of the product or service that the project will deliver.
3. Operational Considerations
Details of the organization regarding facilities and resources required to complete the project include what is currently available and what will need to be obtained.
Details of the technology regarding equipment, tools, and skills required, including what resources and capabilities will need acquisition or outsourcing.
Details of development processes regarding tools, skills, capabilities, and resources required to complete the project, including what is currently available and what will need to be obtained.
This section should include purchasing, leasing, and training costs associated with the operation factors that are not currently available.
4. Target Marketplace
Analysis of the marketplace for the product or service, defining target demographics, competitors, growth potential, and existing presence that can be leveraged.
5. Marketing Strategy
Detail strategy for marketing the product or service including any marketing requirements for prototypes or MVP and sales plans.
6. Resourcing Plan
Identification of resourcing requirements and analysis against the organizational structure to identify any recruitment or training requirements.
7. Project Schedule
Definition of key milestones, task dependencies, and overall project timescales highlighting resource requirements, critical paths, task prerequisites, and critical program dates.
8. Financial Projections
Details of initial and interim investment requirements, cost breakdowns, spend profiles, and predicted revenue streams to generate cash flow forecasts and quantify the expected return on investment.
9. Risk Register
List of all significant and credible risks to project success along with planned mitigations and stakeholder agreement for acceptance of those risks that cannot be eliminated or reduced to a level below the company's risk appetite.
10. Contingency Planning
For each significant risk unmitigated in the risk register, a plan for actions to be taken should the risk materialize.
11. Findings and Recommendations
The study's conclusions clearly laid out to facilitate decision-making and the recommendations that must be actioned to support the findings.
What is the Purpose of a Feasibility Study?
This process can fulfil a range of purposes; the scope of the study must be defined and agreed upon with all stakeholders before any detailed analysis is undertaken.
Typically, a feasibility study will fulfil one or more of the following purposes and answer the relevant questions for that purpose.
1. Financial Feasibility
What initial investment is required, and is it available?
What financial resources will be required, and are they available?
What will be the projected return on investment, and is it sufficient?
2. Technical Feasibility
What infrastructure will be required, and is it available?
What development tools will be required, and are they available?
What development skills will be required, and do we have them?
What technologies will need to be acquired, and are they available?
What facilities will be required, and are they available?
3. Market Feasibility
Is there a non-saturated market for the end product or service, and what is its growth potential?
What are the demographics of the target market, and do they exist in sufficient numbers?
Are the competitors in the marketplace dominant or vulnerable?
Does the end product or service have unique selling points?
What is the marketing strategy, and is it achievable?
What are the project sales, and are they sufficient?
4. Organizational Feasibility
Does the business have the capability to complete the project on time and within budget?
Does the business have the required resources and skillset to realize the project?
Does the business have the correct structure and governance to realize the project?
Why Do Feasibility Studies Fail?
Feasibility studies help businesses avoid making bad decisions, taking on projects that are not technically feasible or produce products for non-existent markets.
Getting the research right is essential for the future viability and profitability of the business. So, what is one of the most common mistakes made in the market feasibility study?
What Are The Common Pitfalls?
The biggest problem is insufficient effort spent on the study.
Feasibility studies should be considered a self-contained project, requiring management to guide the process and sufficient resources to achieve its aims. Without adequate time and resources, the study will not be helpful, and the integrity of the decision-making processes compromised.
Some other common pitfalls we have seen when businesses conduct these studies include:
The study must have a clear and complete scope to ensure essential factors that influence the decision-making process are not omitted. Critical components and competencies required to complete the project are not overlooked.
The study must be inclusive of all stakeholders for the project and not just within the business. Not listening to target users or representatives' supply chain may exclude vital information that affects the study's outcome.
The stakeholders must embrace all opinions and not reject views that do not match the prevailing views to prevent a preconceived go or no-go decision from adversely influencing the evidence and railroading the decision.
The Bottom Line
A feasibility study is a vital step in ensuring the success of a project.
It doesn't matter how brilliant the development team is and how experienced the project management is. If a project is not feasible, then by definition, it cannot be a success.
The study is an assessment of the practicality of a project undertaken before the project starts.
It establishes the gaps between what the business needs to carry out the project, what is missing from this list and how it will fill the gaps
It then establishes if the costs of completing the project, including filling those gaps, will be sufficiently compensated by predicted revenue to deliver a return on investment
It then balances this financial argument against the goals of the business.
We hope this has shown you how to do a feasibility study and emphasized the disadvantages to your business of not conducting such a study before starting a project.