When to Do and How to Use a Feasibility
If you are considering conducting a
feasibility analysis to investigate the viability of a potential business
venture, answering the following six questions will help guide you through
the process. By using these as a guide, it will help you move through the
process efficiently while helping you get the most out of the analysis.
What is a
Feasibility Study helps you understanding the concept of a
feasibility study and how it is used in the business development process. Information
Feasibility Study Outline provides you with a framework for
creating your feasibility analysis. You also need to understand how a
feasibility study fits into the overall business development process.
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. To help you understand when to conduct a
feasibility study, you may want to review the Information File
Idea Assessment / Business Development Process.
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. For help in choosing which consultant to hire, refer
to Information File
Selecting a Consultant.
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.
A consultant can respond to the RFP by describing how the study will be
conducted, what questions will be answered by the study, a time-line for
completing the analysis and how much it will cost. 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. 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
- Monitor the work of the consultant, and
- Provide periodic reports to the project
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
- Lists and discusses all of the
underlying assumptions of the project analysis,
- Meets the expectations of the project
- Is logically consistent within sections
and among sections,
- Is thoroughly researched using good
- Contains all of the relevant
- Meets the conditions of the consulting
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
- The committee members have already made
up their minds and "rationalize" the study results to fit their
- 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
- 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.