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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 the
business.
Determining early-on that a business idea will not work saves time,
money and heartache later.
A feasible business
venture is one where the business will generate adequate cash-flow and profits,
withstand the risks it will encounter, remain viable in the long-term and meet
the goals of the founders.
The venture can be a new start-up business, the
purchase of an existing business, an expansion of current business operations or
a new enterprise for an existing business.
Information File
A Feasibility Study Outline
is provided to give you guidance on how to proceed with the study and what to
include.
Also, Information File
How to Use and When to Do a Feasibility
Study will help you through the process and help you get the
most out of your study.
A feasibility study is
only one step in the
business idea assessment and business development process.
Reviewing this
process and reading the information below will help put the role of the
feasibility study in perspective.
Evaluate
Alternatives
A feasibility study is
usually conducted after producers have discussed a series of business ideas or
scenarios.
The feasibility study helps to "frame" and "flesh-out" specific
business alternatives so they can be studied in-depth.
During this process the
number of business alternatives under consideration is usually quickly reduced.
During the feasibility
process you may investigate a variety of ways of organizing the business and
positioning your product in the marketplace. It is like an exploratory journey
and you may take several paths before you reach your destination.
Just because
the initial analysis is negative does not mean that the proposal does not have
merit if organized in a different fashion or if there are market conditions that
need to change for the idea to be viable. Sometimes limitations or flaws in the
proposal can be corrected.
Market Assessment
A
market assessment may be conducted to help determine the viability of a
proposed product in the marketplace.
The market assessment will help you
identify opportunities in a market or market segment.
If no opportunities are
found, there may be no reason to proceed with a feasibility study.
If
opportunities are found, the market assessment can give focus and direction to
the construction of business alternatives to investigate in the feasibility
study.
A market assessment will provide much of the information for the
marketing section of the feasibility study.
Results and
Conclusions
The conclusions of the
feasibility study should outline in depth the various alternatives examined and
the implications and strengths and weaknesses of each.
The project leaders need
to study the feasibility study and challenge its underlying assumptions.
This is
the time to be skeptical.
Don't expect one
alternative to "jump off the page" as being the best one.
Feasibility studies do
not suddenly become positive or negative.
As you accumulate information and
investigate alternatives, neither a positive nor negative outcome may emerge.
The decision of whether to proceed often is not clear cut.
Major stumbling
blocks may emerge that negate the project. Sometimes these weaknesses can be
overcome.
Rarely does the analysis come out overwhelmingly positive.
The study
will help you assess the tradeoff between the risks and rewards of moving
forward with the business project.
Remember, it is not the
purpose of the feasibility study or the role of the consultant to decide whether
or not to proceed with a business idea, it is the role of the project leaders.
Go/No-Go Decision
The go/no-go decision is
one of the most critical in business development.
It is the point of no return.
Once you have definitely decided to pursue a business venture, there is usually
no turning back.
The feasibility study will be a major information source in
making this decision.
This indicates the importance of a properly developed
feasibility study.
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.
So the feasibility study helps to narrow the scope of the project to
identify the best business model.
The business plan deals with only one
alternative or model. The feasibility study helps to narrow the scope of the
project to identify and define two or three scenarios or alternatives.
The
consultant 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, then a business plan constructed 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.
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.
*
The
feasibility analysis has already been done by the business that is going to sell
us the equipment.
*
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
**
Surfaces 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
**
Helps to increase investment in the company
**
Provides documentation that the business venture was thoroughly investigated
**
Helps in securing funding from lending institutions and other sources
The feasibility study is a critical step in the business assessment process.
If properly conducted, it may be the best investment you ever made.
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