What is Feasibility Analysis? Explained

Feasibility analysis evaluates all key factors pertinent to a project, including the economic, technological, and legal aspects and project time frame — all of which help predict the likelihood of project success.

Feasibility analysis, also known as Feasibility Study, intends to equitably and logically examine the pros and cons of an existing or a proposed business, dangers related to the venture, required resources to carry out the operations, and eventually the probability of success. 

Feasibility analysis gives a clear picture of the budget required and the returns that can be expected. A feasibility study is not restricted to forecasting monetary benefits. It can be used for other purposes depending upon the target of the project and the industry to which it belongs. 

Here’s looking at the key pointers of a Feasibility analysis:

  • Feasibility Study evaluates the viability and feasibility of a proposed venture.
  • The feasibility of a project depends on the cost required and forecasted profits. 
  • A company carries out a feasibility study to decide whether to launch a new venture or a new product range. 
  • A well-structured and executed feasibility analysis will provide a clear history of the business or a venture, a complete study of the product, financial records, attributes of the operation, details of the market research, legal policies, tax, and other financial information. 
  • Feasibility studies are a prelude to technical execution and project commissioning. 
  • Any venture or business proposal with considerable capital heavily relies on feasibility analysis before taking the plunge. 
  • In some instances, Feasibility studies also include cash flow analysis and studying the changes in business after a merger or acquisition. 

Four Factors Included in a Feasibility Analysis

Several factors are analyzed in a feasibility study, but the most critical factors that are given the top priority are listed below: 

  • Operational feasibility:

The study of the extent to which the business proposal might work for the company. It includes analyzing the common public’s ideas about the venture and how well they may receive it

  • Technical feasibility:

the study of the rationality and practicality of a specific solution or idea and the available technological resources and proficiency in implementing the same. 

  • Schedule Feasibility:

The evaluation of the project deadline and the feasibility of achieving it. 

  • Economic Feasibility

This evaluates whether or not a project/ business is cost-effective. It is done by studying the budget required and forecasting the revenue from a particular project.

How Does a Feasibility Study Work?

The techniques of carrying out a feasibility study vary depending on the nature and goals of a project. However, there are common factors or practices involved in the feasibility analysis. 

Here are the steps involved in conducting a feasibility study:

  • A feasibility study always begins with a preliminary survey. It involves recording feedback related to the venture or taking account of the solutions and ideas offered by stakeholders and other people associated with the business. It also includes studying relevant, crucial business situations.
  • A complete study of the above preliminary statistics determines if the proposed idea or solution is substantial. 
  • It is followed by market research and surveys to assess the market demand and the possibility of the project succeeding. 
  • After that, we generate a detailed report of the operational and business plans and create an estimate of labour required and its costs.
  • We then create a forecasted income statement with projected revenue, operational cost, and estimated profits. 
  • The next step is to generate a balance sheet for the opening day.
  • Then it is followed by predicting the likelihood of hassles or associated risks and outlining a plan to tackle them. 
  • Finally, we make a firm decision on whether or not to proceed with the plan.

Types of Feasibility Analysis

The feasibility of a project, business, or service will be decided based on the analysis of various parameters. Some of the standard parameters are listed below:

  • Financial feasibility
  • Commercial feasibility
  • Technical feasibility
  • Economic feasibility
  • Social feasibility
  • Environmental feasibility
  • Legal feasibility
  • Operational feasibility
  • Schedule feasibility
  • Market feasibility
  • Resource feasibility

Feasibility Study Report

After completing the preliminaries, a Feasibility Study Report (FSR) is generated to summarize the analysis stating if the project is feasible.

An FSR also outlines alternative ways of carrying out the project with a special mention of the most befitting one. It also provides relevant background details of the project. This report helps investors decide whether to invest in a project and eventually assign project managers to carry out the same.

Components of an FSR 

An ideal FSR should have the following components:

  1. Executive Summary
  2. Technical considerations
  3. Target Marketplace
  4. Marketing techniques
  5. Staff requirement
  6. Project schedule and deadline
  7. Financial needs of the project
  8. Relevant assessments and suggestions

Importance of a Feasible Study Report

  • It offers technical and legal clearance and is an affirmation of the project’s viability and practical feasibility. 
  • Decisions on budget and investment strategies by stakeholders are made based on the report.
  • The template of a well-made FSR report assists in creating solutions for project Analysis.
  • It bridges the efficiency of the project with a fixed budget.
  • It alleviates risk factors by forecasting associated risks and evaluating effective strategies to tackle them. 
  • It also helps the management create an efficient team to carry out the project and recruit or train specialists. 

How do you generate an FSR? Step-by-step Analysis

Step 1: Project Description

This step involves collecting and listing relevant background information on the project and presenting them as a description. A crisp and vivid description makes it easy for the reader to identify the objective of FSR.

Step 2: Project Alternatives

It involves analyzing alternatives and describing the possible solutions for the project.

Step 3: Evaluation Criteria of Alternatives

The third step involves reporting a defined set of criteria for narrowing down the possible alternatives. The solutions must be assessed and evaluated against a set of criteria.

Step 4: Suggestion of the Most Feasible Solution

Possible solutions must be studied in detail to determine if they are economically, practically, and technically feasible. 

It helps the company to:

  • Streamline the use of project resources
  • Maximize the profit

The report should declare the most feasible solution and confirm that the project is cost-effective and viable. 

Step 5: Conclusion

 The final step of writing an FSR report. It contains a summary of the project’s objective with the most feasible solution. 

Advantages of Conducting Feasibility Study

  • Feasibility analysis helps project managers to investigate the advantages and disadvantages of undertaking a venture before investing.
  • It prevents a company from entering into a venture that may not be profitable.
  • The feasibility study helps the companies develop new business development strategies, know the potential threats & risks, competitors, and the required resources to diversify the business. 
  • Feasibility studies provide marketing strategies that help convince the stakeholders and banks to invest in a particular project. 
  • They help us understand whether or not there is an actual demand for a proposed product or service in the market. It is true for both internal ventures as well as consumer offerings.
  • It helps the company to understand if they have the required human resources.
  • The study supports the project managers to determine if the proposed venture or service has already saturated the market. It also helps identify legal hassles like patent issues, trademarks, and other intellectual property rights issues. 
  • The greatest benefit of feasibility analysis is that it proposes a reasonable and logical schedule or timeline for a project. It helps the project managers to pace the project and set an attainable deadline. 

Feasibility Study Example: Expansion of a Clothing store

Let’s take a feasibility study example of a clothing store to understand the feasibility analysis: 

A clothing store is interested in expanding its place and conducts a feasibility analysis to determine if the expansion is profitable or not.

The feasibility study will investigate a lot of factors:

  • Analyzing the labour cost – the process of expansion involves a lot of workforce and its associated expenses. 
  • Analyzing the material cost – the construction of a clothing store requires plenty of building materials. Therefore, we will examine the charges for resourcing and transporting the same.
  • Analyzing the change in revenue – this is a vital step that determines if the project is economically feasible or not. It includes several days required to complete construction, cost of same, and the number of days for which the store might be closed during the process — all of which will be analyzed and accounted for.
  • We will take a look at the amount of inconvenience it might cause to the patrons. The inconvenience caused to the staff is also noted.
  • Other important information like the patronage of the store, public’s liking, and opinion about the expansion will also be taken into account.
  • We will also record the feedback and suggestions of partners (in case the store is owned by more than one person) and what they feel about the expansion.

 

Conclusion

All the above factors will be evaluated, and the advantages and disadvantages of the store’s expansion will be studied in detail. The results of the study will be assessed against other standard criteria to conduct a comprehensive analysis. Based on the study, a feasibility study report will be generated, which will help us decide if the expansion is profitable or not.

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What are the different types of feasibility analysis?

There are five types of feasibility analysis:
1. Technical
2. Economical
3. Legal
4. Operational
5. Scheduling

What is the primary purpose of conducting a feasibility analysis?

A feasibility study is mainly conducted to evaluate the cost viability of a new business venture and ascertain the likelihood of its success. In addition to this, we also assess the practicality of the underlying technical, legal, operational, and scheduling aspects of the project.

What are some feasibility study examples?

Here are three examples of a feasibility study:
1. A housewife conducting a material quality feasibility test while purchasing goods from the grocery store.
2. Tesla wants to invest in developing a humanoid robot.
3. Creating an automobile prototype.

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