Have a business endeavor or a project you or your company is interested in pursuing? Not sure if the idea is actually a feasible one? It's wise to conduct a feasibility study in order to determine whether or not your endeavor or project can possibly pan out the way you see it in your head.
But what is a financial feasibility study, what are the different types of financial feasibility studies and how can you conduct a feasibility study?
Let's dive in.
What is financial feasibility study?
A feasibility study is "an analysis that takes all of a project's relevant factors into account — including economic, technical, legal and scheduling considerations — to ascertain the likelihood of completing the project successfully," according to Investopedia.
If you're wondering, what is feasibility report in project management? The short answer is that project managers use these kinds of feasibility studies in order to discern the various pros and cons of undertaking a project before they invest a lot of time and/or money into that project. Feasibility studies can also offer a company's management critical information that could prevent the company from accidentally going into risky business.
For example, Bright Hub Project Management adds that "a feasibility study is performed by a company when they want to know whether a project is possible given certain circumstances," but "feasibility studies are undertaken under many circumstances — to find out whether a company has enough money for a project, to find out whether the product being created will sell or to see if there are enough human resources for the project." According to Bright Hub Project Management, "a good feasibility study will show the strengths and deficits before the project is planned or budgeted for."
So, companies that want to play it smart and save themselves money and resources will use a feasibility study before going through with any major projects or business endeavors that'll cost them time or money (and could end up costing them a heck of a lot more if things go south).
What are the types of feasibility study?
There are several different types of feasibility studies — not only financial ones. Here are just a few to give you an idea of the different types of feasibility studies that you can (and perhaps should) do.
- Technical Feasibility Study: This study questions whether or not the company has the technological resources to undertake the project. In other words, are the processes and procedures conducive to the project's ultimate success?
- Schedule FeasibilityStudy: This study asks whether or not the company currently has the time in order to undertake such a project?
- Economic Feasibility Study: This study asks whether or not, given the financial resources of the company, the project is affordable? The economic feasibility study is also known as (and sometimes more commonly called) the cost/benefit analysis.
- Cultural FeasibilityStudy: This study questions whether or not the project will impact local and general cultures? In other words, it asks what sort of environmental implications the project may have?
- Legal/Ethical FeasibilityStudy: This study asks what the legal implications of the project are. In other words, it looks at what the ethical considerations are, as well as any legal and ethical requirements that must be handled before the project can be done.
- Resource FeasibilityStudy: This study questions whether or not the company has enough resources for the project, as well as looks at what resources will be required of the company to complete the project and what facilities will be required for the project, etc.
- Operational Feasibility Study: This study measures how well the company will be able to solve problems and take advantage of opportunities that may come up throughout the project.
- Marketing Feasibility Study: This study asks whether or not anyone will even want the product or service once it's been created? It asks the major questions such as what the target demographic is, if test runs should be necessary and if there's been enough buzz surrounding the product or service in order for it to really take off.
- Real Estate FeasibilityStudy: This study looks at the kind of land, property or facility spaces that will be required in order to undertake the project. It asks all the important real estate questions: What is the real estate market currently like? What are the zoning laws here? Will the business impact the area and, if so, how?
- Comprehensive Feasibility Study: This study looks at a number of aspects involved in the undertaking of a new project, such as all of the aforementioned factors: technical, schedule, economic, cultural, legal, resource, operational, marketing, real estate and even more. This is usually the most common type of study performed, since it takes into account everything we've covered already — all of which are important in order to take on a new business endeavor or project.
How do you do a feasibility study?
Remember that the goal of a feasibility study is to "thoroughly understand all aspects of a project, concept or plan; become aware of any potential problems that could occur while implementing the project; and determine if, after considering all significant factors, the project is viable — that is, worth undertaking," according to Investopedia.
Now that you understand why you need a feasibility study, how do you conduct one? Here are three simple steps.
1. Determine the factors you need to consider.
Depending on your project, determine which of the aforementioned factors you're going to need to consider for your study. Do you need to look at the real estate market? Is consumer interest something you need to prove? Is timing something you're unsure of? Figure out what exactly you need to study first.
2. Conduct an analysis of your business plan (which you should already have!).
Once you have the different factors at play figured out, conduct a preliminary analysis. Because a feasibility study takes time (and resources), first look at it all this way:
- Outline your planned business idea so you can get a grasp on what it is you're trying to do and why.
- Examine the market space and the commercial viability of that plan to get an overall feel of your target demographic.
- Compare your plan with other existing products, services or actions like it that already exist.
- Look into the unique characteristics of the plan and determine the strengths and weaknesses.
- Determine if there are insurmountable risks or challenges.
- Outline the project scope and costs, etc.
3. Review your analaysis.
One you've completed the analysis of the aforementioned factors, take a look at it all and consider what it really, truly means for your business. Determine whether the risks are worth it and whether or not you do have the time, resources, finances, space, etc. to follow through with your plan and see it to fruition.
AnnaMarie Houlis is a feminist, a freelance journalist and an adventure aficionado with an affinity for impulsive solo travel. She spends her days writing about women’s empowerment from around the world. You can follow her work on her blog, HerReport.org, and follow her journeys on Instagram @her_report, Twitter @herreportand Facebook.