WHAT IS A FEASIBILITY STUDY?

• a feasibility study is the initial design stage to any project or plan.

As the name implies, a feasibility study is an analysis into the
viability of an idea.
• It helps answer the essential question, “should we proceed with
the proposed idea?”
• 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.
 Contents of a Feasibility Study
vThe most-common feasibility study should include the following sections:

• An Executive Summary
• Description of Product or Service
• Technology Considerations
• Product or Service Marketplace
• Identification of Specific Market
• Marketing Strategy
• Organization Structure
• Schedule
• Financial Projections
 Feasibility Study Outline
I. Description of the Project or Service

a. Identification and exploration of business scenarios

• Identify alternative scenarios or business models of what the project will

entail, how it will be organized, and how it will generate profits. These
may come from the idea assessment or market assessment that you may
have already completed.
• Eliminate scenarios that don’t make sense.
• Flesh-out the scenario(s) that appear to have potential for further
exploration.
b. Define the project and alternative scenarios

Describe the type and quality of product(s) or service(s) to be marketed.

Outline the general business model (i.e. how the business will make money).
Include the technical processes including size, location, kind of inputs, etc.
Specify the time horizon from the time the project is initiated until it is up and
running at capacity.

c. Relationship to the surrounding geographical area

Outline the economic and social impact on local communities.

Describe the environmental impact on the surrounding area.
II. Market Feasibility (Strategy)

a. Industry or marketplace description

• Describe the size and scope of the industry, market or market segment(s).
• Estimate the future direction of the industry, market or market segment(s).
• Describe the nature of the industry, market or market segment(s). Is it
stable or going through rapid change and restructuring?
• Identify the life-cycle of the industry, market and/or market segment(s). Is
it emerging, growing, mature, declining?
b. Industry competitiveness

• Describe the industry concentration. Are there just a few large producers or
many small producers?
• Describe the major competitors? Will you compete directly against them?
• Analyze the barriers to entry of new competitors into the market or industry.
Can new competitors enter easily?
• Analyze the concentration and competitiveness of input suppliers and
product or service buyers.
• Describe the price competitiveness of your product or service.
c. Specific market potential

• Identify whether the product be sold into a commodity market or a

differentiated product/service market.
• Identify the demand and usage trends of the market or market
segment in which the product or service will participate.
• Examine the potential for emerging, niche or segmented market
opportunities.
• Explore the opportunity and potential for a branded product.
• Assess market usage and your potential share of the market or
market segment.
d. Access to market outlets

• Identify the potential buyers of the product or service and the

associated marketing costs.
• Investigate the product or service distribution system and the costs
involved.

e. Sales projection

• Estimate sales or usage.

• Carefully identify and assess the accuracy of the underlying
assumptions in the sales projection.
• Project sales under various assumptions (i.e. selling prices, services
provided, etc.).
III.Technical Considerations
a. Facility needs

• Estimate the size and type of production facilities.

• Investigate the need for related buildings, equipment, rolling-stock, etc.

b. Suitability of production technology

Investigate and compare technology providers.

Determine reliability and competitiveness of technology (proven or unproven,
state-of-the-art, etc.).
Identify limitations or constraints of the technology.
c. Availability and suitability of site

• Investigate access to:

ü raw materials
ü transportation
ü labor
ü production inputs (electricity, natural gas, water, etc.)
• Investigate potential emissions problems.
• Analyze other environmental impacts.
• Identify regulatory requirements.
• Explore economic development incentives.
d. Raw materials

• Estimate the amount of raw materials needed.

• Investigate the current and future availability and access to raw
materials.
• Assess the quality and cost of raw materials.

e. Other inputs

• Investigate the availability of labor including wage rates, skill level, etc.
• Assess the potential to access and attract qualified management
personnel.
IV.Financial Projections or Economic Feasibility

a. Estimate the total capital requirements

• Assess the “seed capital” needs of the business project during the
investigation process and start-up, and how these needs will be met.
• Estimate capital requirements for facilities, equipment and inventories.
• Estimate working capital needs.
• Estimate start-up capital needs until revenues are realized at full capacity.
• Estimate contingency capital needs due to construction delays,
technology malfunction, market access delays, etc.
• Estimate other capital needs.
b. Estimate equity and credit needs

• Estimate equity needs.

• Identify alternative equity sources and capital availability - family,
producers, local investors, angel investors, venture capitalists, etc.
• Estimate credit needs.
• Identify and assess alternative credit sources - banks, government
(i.e. direct loans or loan guarantees), grants and local and state
economic development incentives.
Budget expected costs and returns of various alternatives
• Estimate the expected revenue, costs, profit margin and expected net profit.
• Estimate the sales or usage needed to break-even.
• Estimate the returns under various production, price and sales levels. This may
involve identifying “best case”, “typical”, and “worst case” scenarios or more
sophisticated analysis like a Monte Carlo simulation.
• Assess the reliability of the underlying assumptions of the analysis (prices,
production, efficiencies, market access, market penetration, etc.)
• Benchmark against industry averages and/or competitors (cost, margin, profits,
ROI, etc.).
• Identify limitations or constraints of the economic analysis.
• Calculate expected cash flows during the start-up period and when the
business reaches capacity.
• Prepare pro forma income statement, balance sheet, and other statements of
when the business is fully operating.
V. Organization Structure and Managerial Feasibility

a. Business structure

• Identify the proposed legal structure of the business.

• Outline the staffing and governance structure of the business along with
lines of authority and decision making structure.
• Identify any potential joint venture partners, alliances or other important
stakeholders.
• Identify the availability of skilled and experienced business managers.
• Identify the availability of consultants and service providers with the skills
needed to realize the project, including legal, accounting, industry experts,
etc.
b. Business founders

• Character matters - are the people involved of outstanding character?

• Do the founders have the “fire in the belly” required to take the
project to completion?
• Do the founders have the skills and ability to complete the project?
• What key individuals will lead the project?
• Is there a reward system for the founders? Is it based on business
performance?
• Have the founders organized other successful businesses?
q Study Conclusions

After the feasibility study has been completed and presented to the
leaders of the project, they should carefully study and analyze the
conclusions and underlying assumptions. It is important that the study
conclusion:

ü Identifies and describes alternative business scenarios and

models.
ü Compares and contrasts scenarios based on goals of the producer
group.
ü Outlines criteria for decision making among alternatives.