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. Farmers and others
with a business idea should conduct a feasibility study to determine the viability of their idea before proceeding with
the development of a business. Determining early that a business idea will not work saves time, money and
heartache later.
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?” The business plan provides a planning function. The business plan outlines the actions
needed to take the proposal from “idea” to “reality.”
The feasibility study outlines and analyzes several alternatives or methods of achieving business success. The
feasibility study helps to narrow the scope of the project to identify the best business scenario(s). The business plan
deals with only one alternative or scenario. The feasibility study helps to narrow the scope of the project to identify
and define two or three scenarios or alternatives. The person or business conducting the feasibility study may work
with the group to identify the “best” alternative for their situation. This becomes the basis for the business plan.
The feasibility study is conducted before the business plan. A business plan is prepared only after the business
venture has been deemed to be feasible. If a proposed business venture is considered to be feasible, a business plan
is usually constructed next that provides a “roadmap” of how the business will be created and developed. The
business plan provides the “blueprint” for project implementation. If the venture is deemed not to be feasible, efforts
may be made to correct its deficiencies, other alternatives may be explored, or the idea is dropped.
Five common factors
The acronym TELOS refers to the five areas of feasibility - Technical, Economic, Legal, Operational, and
Scheduling.
Technology and system feasibility
The assessment is based on an outline design of system requirements, to determine whether the
company has the technical expertise to handle completion of the project. When writing a feasibility report,
the following should be taken to consideration:
A brief description of the business to assess more possible factor/s which could affect the study
The part of the business being examined
The human and economic factor
The possible solutions to the problems
At this level, the concern is whether the proposal is both technically and legally feasible (assuming
moderate cost).
Economic feasibility
In case of a new project, financial viability can be judged on the following parameters:
Total estimated cost of the project
Financing of the project in terms of its capital structure, debt equity ratio and promoter's share of
total cost
Existing investment by the promoter in any other business
Projected cash flow and profitability
Legal feasibility
Determines whether the proposed system conflicts with legal requirements, e.g. a data processing system
must comply with the local Data Protection Acts.
Operational feasibility
Operational feasibility is a measure of how well a proposed system solves the problems, and takes
advantage of the opportunities identified during scope definition and how it satisfies the requirements
identified in the requirements analysis phase of system development. [4]
Schedule feasibility
A project will fail if it takes too long to be completed before it is useful. Typically this means estimating
how long the system will take to develop, and if it can be completed in a given time period using some
methods like payback period. Schedule feasibility is a measure of how reasonable the project timetable is.
Given our technical expertise, are the project deadlines reasonable? Some projects are initiated with
specific deadlines. You need to determine whether the deadlines are mandatory or desirable.
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.
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.
The reasons given above should not dissuade you from conducting a meaningful and accurate feasibility study. Once
decisions have been made about proceeding with a proposed business, they are often very difficult to change. You
may need to live with these decisions for a long time.
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
Identifies 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.
Provides documentation that the business venture was thoroughly investigated.
Helps in securing funding from lending institutions and other monetary sources.
Helps to attract equity investment.
The feasibility study is a critical step in the business assessment process. If properly conducted, it may be the best
investment you ever made.
When to do a study?
The decision to conduct a feasibility study should not be taken lightly. It is an expensive and time consuming process.
However, not doing a feasibility analysis can be even more expensive in terms of the poor decisions you may make
from not conducting the proper analysis.
You need to be far enough along in the deliberation process of your business idea to make the best use of a
feasibility study. So you need to have a clearly defined outline of one or more alternative business models or
scenarios that you want to explore. And you want to have conducted sufficient initial investigation of these
alternatives to determine if they have the potential of being viable. You don’t want to spend your feasibility money
investigating ideas that you can determine are not feasible by just making a few phone calls.
This means that you will need to have already done much of the early investigation and exploration of your business
idea before you schedule a full blown study. This early investigation or pre-feasibility analysis can be done by
members of your committee or with the help of a consultant. You may start by doing a marketing study to determine if
the business idea has market viability. If it does not, you have saved time and money by not commissioning a
comprehensive feasibility study. If the idea has market viability, you can move forward with the feasibility analysis and
use the market analysis in the feasibility study.
Who will conduct the analysis?
If you plan to do a feasibility study, you will want to strongly consider hiring a consultant to conduct the study. You are
responsible for choosing the proper consultant to fit your needs. Time and money spent in choosing and using a good
consultant is an important investment that will pay dividends later.
The cost of a feasibility study can vary greatly depending on the depth and breadth of the study. A high quality, in-
depth study can cost as much as $100,000, although the cost is usually significantly less. When selecting a
consultant for a feasibility study, it is often recommended that you send a Request for Proposals (RFP) to prospective
consultants, outlining what you want done. When selecting a consultant from among those responding to the RFP,
first identify which ones provide the type and quality of answers needed to adequately assess your business idea.
Then select the consultant who can provide the required analysis for the least cost.
Consultants often feel pressured to tell you what you want to hear. Farm groups usually are excited about a business
prospect and, without realizing it, indirectly influence the consultant to tell them what they want to hear - “the proposal
is a good idea.” So, communicate to the consultant that you want an accurate assessment of the feasibility of the
venture.
How will you monitor the progress of the study?
Hiring a consultant does not negate your responsibility for insuring that the feasibility study is conducted properly.
You need to be engaged in the project and the evaluation process, understand the issues involved, question the
basic assumptions used in the study, and challenge the conclusions of the study.
A member of the project committee or a small group of members can to be selected to work with the consultant. They
function as the liaison between the consultant and the rest of the committee members to insure that the study
progresses according to the wishes of the project committee. To adequately perform these duties they must have a
thorough understanding of the project. They must also understand the purpose of the study and be knowledgeable of
the provisions of the consulting contract. They will:
Represent the project committee’s needs and interests to the consultant
Review and clarify what is needed from the consultant
Monitor the work of the consultant
Provide periodic reports to the project committee
How to accept or reject the study?
At the end of the study, the consultant will provide the committee with a draft of a final report. Before you start
discussing the conclusions of the study and what impact they have on the viability of your project, you must first
review the study to determine if it is accurate, relevant and complete. It is not uncommon for the project committee to
reject the draft of the report and ask for further clarification and analysis.
The study is only as strong as its weakest part. It takes a mistake in only one part of the study to sink the business
venture. So, before you accept the study you should determine that it:
Is understandable and easy to read
Addresses all of the relevant issues and questions
Lists and discusses all of the underlying assumptions of the project analysis
Meets the expectations of the project committee
Is logically consistent within sections and among sections
Is thoroughly researched using good research techniques
Contains all of the relevant information
Meets the conditions of the consulting contract
It is important that you meet this “due diligence” requirement because investors and others may question your
procedures and decisions during this period if the business venture eventually fails. You may want to discuss this with
your attorney to make sure the proper safeguards are in place.
How to use the study results?
The purpose of the feasibility study is to provide you with the information needed to determine if the proposed
business venture is viable. However, it will probably not provide you with a magic answer. So you will need to
carefully assess the conclusions of the study and decide if the proposed business venture has sufficient merit to
move forward.
If ever there is a time for unemotional, rational and logical thinking, it is now. Mistakes at this time may be with you for
a long time. Common mistakes made by groups at this stage are:
1. The committee members have already made up their minds and rationalize the study results to fit their decision.
2. Because project committee members tend to be action oriented rather than deliberators, they become restless to
move forward with the project and gloss over important aspects of the study.
3. Because of the importance of the decision and the lack of clear direction from the feasibility analysis, committee
members find they cannot bring themselves to make a decision. Rather, they continually seek more information.
4. The committee members become confused by the array of information presented to them and pressure their
consultants and others to give definitive answers of whether to move forward with the project. When committee
members respond to questions pertaining to why they moved forward with a project by replying, “our consultants said
it would work,” are abdicating their decision making responsibility.
Extracted from an article by Don Hofstrand
https://www.extension.iastate.edu/agdm/wholefarm/html/c5-65.html
