Economics/Business

Define feasibility study/Types/Components/Benefits/Steps to conduct

feasibility study , also known as a feasibility, profile or pre-investment study, is developed to determine the success that a project can achieve based on the evaluation of its technical and economic aspects. Define feasibility study

Below we will introduce you to what this type of study consists of, what are the benefits it brings and how to do it step by step.

What is a feasibility study?

A feasibility study is an in-depth study that tries to determine the profitability of a business idea. This type of research also tries to determine if it is possible to turn the idea into a commercial endeavor. 

A company usually conducts a feasibility study to determine the potential benefit that may exist in a new business idea. The study can be done from several different angles, so that all aspects of a new idea or business are reviewed in detail before going live. 

The most common areas of a feasibility study include market research , technical aspects, business model, and management. 

Other aspects can also be included in the analysis depending on the idea and the chances that the implementation will not be successful. The time a company spends studying also varies depending on the aspects of new operations.

Types of feasibility studies

There are several types of feasibility studies, among which are:

  • Technical feasibility Determine if you have the technical resources and experience necessary to meet the project requirements. Define feasibility study
  • Economic viability: It consists of the evaluation of the economic factors to determine the financial viability of the project. To do this, a cost-benefit analysis is used to compare financial costs with expected benefits.
  • Legal feasibility: A project must meet certain legal requirements in order to be carried out, which includes the laws and regulations that apply to all activities and expected results.
  • Operational feasibility: It consists of the adaptation of the project to the planning of the capacity, the resources, the strategic goals and the business objectives of the organization.
  • Temporary viability: Refers to the allocation of a specific time to carry out the project execution and the fulfillment periods for each phase of the project. Next, think about how your project schedule fits in with your current operations, demand planning, production schedule, etc.

Components of a feasibility study

These are some of the components that are usually found in a feasibility study:

  • Executive summary: Formulate a narrative that describes the details of the project, product, service, plan, or business.
  • Technological considerations: List the equipment needs and technological resources that will be necessary for the project to work, and if you do not have them, include the acquisition costs.
  • Existing Market: This component is in charge of examining the local market and the broader one for the product, service, plan or business.
  • Marketing strategy: Describes the objectives, goals, activities and program of activities that will be carried out to bring the products or services proposed in the project to the clients or target audience.
  • Necessary personnel: This must include an organization chart that describes all the positions that will be necessary to fill to achieve the project successfully. Define feasibility study
  • Calendar and Schedule: Includes significant intermediate markers for the project completion date. 
  • Financial data. Includes all files and data systems related to project finance, administration and accounting.
  • Conclusions and recommendations: Finally, a description is added that breaks down the scope of the proposal into subsets of technology, marketing, organization and finance.

Benefits of the feasibility study

Some of the benefits of conducting a feasibility study are:

Support a business vision

Feasibility studies can be a fundamental part of sizing the scope of a business vision. By assessing the landscape surrounding that vision, including where customers would come from and who you will compete with, you can realistically gauge the likelihood of success. 

Help define goals and objectives

A feasibility study will help you clarify what business objectives and strategies need to be put in place to be successful, providing benchmarks for the viability of a project. 

A feasibility study allows you to understand the costs of your investment, as well as its potential to obtain income. With this information in hand, you can obtain the necessary resources to complete your project or size it based on available resources. Define feasibility study

Facilitates the development of an effective plan

With the help of a feasibility study, as you define your goals, you will have a better understanding of the next steps in the development cycle. From there, you can come up with a plan and combine it with a financial forecast and an economic impact study to attract funding partners.

It allows to execute the plan successfully

By learning about development costs, the competitive landscape, where potential customers come from, and income potential, you will have an idea of ​​the sources of capital, partners, and the business model required to be successful. 

Steps to conduct a feasibility study

Now that you know what a feasibility study consists of, what are its benefits, types and most common components, we will present the most important steps that you must take into account to carry it out:

1. Perform a preliminary analysis

Start by outlining your project plan. It’s important that you can focus on an unmet need, a market where demand is greater than supply, and whether the product or service has a distinct advantage. 

Next, you must determine if the viability factors are too high to get ahead, that is, if they are too expensive, if they cannot be marketed effectively, and so on. Define feasibility study

2. Prepare a projected return on investment (ROI)

This step requires you to work backwards. Start with what you expect the income from the project to be, and then what funding is needed to reach that goal. 

Consider what services are needed and how much they will cost, any adjustments to income, such as reimbursements, etc.

3. Carry out a market study

Conduct a market study to collect information and conduct a comprehensive analysis on supply, demand, and the market environment for your project. 

Keep in mind that there are currently market research software tools that will allow you to facilitate the process and save costs, or you can consider hiring an external provider.

4. Plan the organization and operations of the business

Once you have completed the previous steps, it is time to establish the organization and operations of the planned project to meet its technical, operational, economic and legal feasibility factors. 

It is not a rough and superficial effort. It should be thorough and include start-up costs, fixed investments, and operating costs, among others.

5. Prepare an opening balance

The opening balance sheet includes an estimate of assets and liabilities and should be as accurate as possible. For this, it is advisable to draw up a list that includes the items, sources, costs and available financing.

6. Review and analyze all the data

All these steps are important, but the review and analysis of data more, because they allow us to make sure that everything is going as it should be, or to identify the causes and consequences of unexpected results, think about the risk and anticipate any contingency. Define feasibility study

For example, compare your current results with the expected return on investment and evaluate whether it is still realistic or not. 

7. Decision making

Now is the time to decide if the project is viable or not. It sounds simple, but all the steps above lead to this tipping point.

Some aspects you should take into account before making that decision is if the commitment is worth the time, effort and money, and if it is aligned with the strategic objectives of the organization.

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