UNIT I.

OVERVIEW OF A PROJECT FEASIBILITY STUDY

Lecture Proper

What is a Feasibility Study?

The growth and recognition of project management during the last few years has raised the need
for feasibility studies. Quickly stated, 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.

Feasibility studies help answer the essential question, “should we proceed with the proposed idea?”
The objective study may be completed in conjunction with a SWOT planning process, which looks
at the strengths, weaknesses, opportunities, and threats that may be present externally (the
environment) or internally (resources).

Feasibility studies help determine:

a) does the company possess the required resources or technologies; and
b) does the proposal offer a reasonable return vs. risk from the investment.

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 and incurring upfront development costs. Determining
early that a business idea will not work saves time, money and heartache later.

A feasible operating change or business restructure is one where the business will generate
adequate cash-flow and profits to withstand (a) the short-term risks it will encounter, and (b)
remain viable in the long-term to meet the goals of the owner/founders. The venture might be an
investment start-up or the purchase/expansion of an existing business, beyond its present business
footprint or enterprise.
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.

Likely to succeed?
The term “feasible” describes an action or event that has uncertainty risks, e.g. probable, likely,
possible, etc. A feasibility study is the total of the actions - specific, focused. A feasibility study is
an investigative tool and is not the same as a business plan, though a well-done business plan (the
call to action) should include many answers from the feasibility study. The feasibility study is an
in-depth process to determine factors that will lead to a project’s success or failure and addresses:
• Technical feasibility
• Legal
• Operational feasibility
• Realistic project timeline
• Economic feasibility

Contents of a Feasibility Study

The 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

Companies should be careful to NOT blindly follow feasibility templates. A well-designed

feasibility study is one that is focused upon and centered on the business organization.
Typical Steps to a Feasibility Study
1. Preliminary Analysis
To efficiently evaluate alternatives, a pre-feasibility study is often conducted after discussing a
series of business ideas or scenarios. This pre-feasibility study helps to “frame” and “flesh-out”
specific business scenarios, with only some studied more in-depth. It is not unusual that during
this preliminary analysis, the number of business alternatives under consideration is reduced from
the initial starting point.

During this first step to the feasibility process you may investigate a variety of ways to organize
the business and/or to position the 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. Sometimes limitations or flaws in
the proposal can be corrected.

If the findings lead you to proceed with the feasibility study, your work may have resolved some
basic issues. A consultant may help you with the pre-feasibility study, but you should be involved.
This is an opportunity for you to understand the issues of business development.

2. Market Assessment
A market assessment may be conducted that will help determine the viability of a proposed product
or service in the marketplace. The market assessment will also help to identify demand in the
market, and at what price. If no opportunities are found, there may be no reason to proceed further
with the feasibility study. If opportunities are found, the market assessment can give focus and
direction in the construction of business scenarios to investigate in the feasibility study. A market
assessment will provide much of the information for the marketing feasibility section of the
feasibility study.

3. Organizational Structures
This step in the feasibility analysis pertains to organization. Staffing requirements, including
management and labor alignment are studied. How many workers are needed for how long? What
other resources will be needed?
4. Financial Controls
It is important to formalize an opening day balance sheet. In this step, first efforts at projected
revenues and expenses are attempted.

5. Points of Vulnerability
Factors that are internal to the project and represent vulnerability to the project’s short- term or
long-term steps should be reviewed and analyzed. These points then can be controlled or otherwise
eliminated.
6. Results and Conclusions
The conclusions of the feasibility study should outline in-depth the various scenarios examined.
The project leaders need to carefully examine 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 scenario. 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 is often 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 trade- off
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 plan. It is the role of the project leaders to make this
decision, using information from the feasibility study and input from consultants.

7. 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 scenario, 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. The feasibility study helps to narrow the scope of the project to identify the best business
scenario(s). The business plan deals with only one alternative or scenario. The feasibility study
helps to narrow the scope of the project to identify and define two or three scenarios or alternatives.
The person or business 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, a business plan is usually constructed next that provides a “road-map” 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 to Do or 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 market 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.

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
• Identifies 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.
• Provides documentation that the business
venture was thoroughly investigated.
• Helps in securing funding from lending
institutions and other monetary sources.
• Helps to attract equity investment.
Idea Assessment and Business Development Process

An important aspect of successful business development is to follow a process of how you will
assess a business idea or concept (project), decide whether to move forward with the project and
build a business if it is decided to move forward. The five steps below help outline a simple process
you can follow. The steps are not a rigid structure to follow. Rather they identify issues you need
to address and when to address them.
If you do not follow a process, you will find yourself going in circles and revisiting the same issues
over and over without making progress. In addition to wasting time, the frustration may cause you
to make poor decisions that can haunt you later.

Following the steps outlined here does not guarantee business success. However, it can greatly
increase your chances of success.

Step 1 – Initial Idea Exploration, Identification and Assessment

The origination of a new business idea can come from a variety of sources. It may come from the
board room of an existing business or a group of producers sitting around the kitchen table.
Regardless of the setting, you may want to use the following approach to formulate the business
concept. Anytime during Steps 1 and 2 you may decide that your idea is not viable, in which case
you may want to abandon the idea.
• Form a project committee – Creating a good project committee involves bringing together
individuals who have the business development skills needed to investigate the idea/concept and
carry through with business formation if the concept is viable.
• Formulate general business idea(s) or concept(s) – Define your business idea or concept and
describe why it has merit. Your idea may involve filling an unmet need in the marketplace with a
new product, providing an existing product in a new form, producing a product better or cheaper
than competitors, or other ways in which value can be added. Remember, an idea is only viable if
people are willing to pay you for what it provides. For example, a premium product is only viable
if someone is willing to pay more for it.
• Identify alternative business models or scenarios for the idea(s) – A business model describes
how the business will function in producing the product or service and providing it to the customer.
A business scenario is a logical assemblage of the essential business elements starting with raw
materials procurement and ending with the sale of the final product, and all the stages in between.
• Investigate idea/concept and alternative business scenarios – Conduct an initial informal
investigation of the validity of your idea. Investigate the scenarios or models. Early in the process
this may be nothing more than a series of telephone calls to knowledgeable individuals. Does your
idea make sense? Identify business scenarios/models for further study and eliminate those that are
not viable.
• Formal investigation – You may want to conduct a formal assessment such as a pre-feasibility
study or a marketing study of the idea and various scenarios or models. This may involve using
consultants to investigate various aspects of the project. It may involve eliminating additional
scenarios/models or identifying new ones.
• Refine scenarios – Select those scenarios that are viable for further study and eliminate the rest.
As you go through Step 1 you should accomplish two things:
1. Through the process of elimination you will reduce the number of scenarios/models under
consideration for further study.
2. Refine and flesh-out the remaining scenarios/ models.
Step 2 – Idea/Concept and Scenario/ Model Deliberation and Assessment
• Further refine the business scenarios/models – If you have conducted any of the formal
assessments described above, you have information that can be used to further refine your business
scenario/models. So by now you should have refined your idea to one or a small number of specific
and detailed business scenario/models that you want to assess. This is critical before you move to
the next step.
• Conduct feasibility study – A feasibility study will provide a comprehensive and detailed
assessment of the market, operational, technical, managerial and financial aspects of your business
project. These factors will feed into the economic assessment of your project (is it profitable?). If
you have already conducted a pre-feasibility study, marketing study or other study; these materials
can be used in the feasibility study. Feasibility studies are usually prepared by consultants, so you
will need to investigate consultants who are familiar with your type of business and experienced
in preparing feasibility studies.
• Analyze the feasibility study – When you receive the feasibility report, the first step is not to
begin deliberations on whether to proceed with the project. Rather, you need to determine the
completeness and accuracy of the study. Does it address the issues you want addressed? Was there
a thorough investigation of the critical issues? Challenge the assumptions and conclusions of the
study. Only after you have accepted the study as being complete and comprehensive can you move
to Step 3.
• Further refine the idea and scenario/model However, before you proceed you may see the
need for further study of various aspects of the business project. It is not uncommon for the
feasibility study to uncover new issues that need to be investigated. This may create the need for
additional negotiations with your consultants to expand on the original scope of the feasibility
study.
Step 3 – Go/No-Go Decision This is the most critical step in the entire business development
process. In a sense, it is the point of no return. Once you start down the path of creating a business,
it is difficult to turn back. If you have unresolved doubts or reservations about the project, you
should not proceed. That is why it is important to have an open, honest and thorough discussion
when making this decision. You may find that there is division in your committee. Some members
may want to move forward while others may want to end it. This is not uncommon. If the issues
cannot be resolved, each side needs to go its own way with no bad feelings. At this point, the
remaining members need to determine if they want to proceed with business creation. Commitment
to the project is another important factor to consider before you proceed. Most beginners to
business development greatly underestimate the time and effort required to start a business. A
financial commitment by project members at this time (everyone throws some money in the pot)
is an important sign of commitment to creating the business.
This step involves making one of the three possible decisions listed below:
• Decide that the project is viable and move forward with it.
• Decide to do more study and or analyze additional alternatives.
• Decide that the project is not viable and abandon it.

Step 4 – Business Plan Preparation and Implementation

If you decide to proceed with creating a business, you will need to prepare a business plan. A
business plan is an outline or blueprint of how you will create your business. If you conducted a
feasibility study, it will provide some of the information needed for your business plan. Also,
business planning often involves the use of consultants. However, don’t turn the process
completely over to a consultant, you need to stay integrally involved in the planning process.
Remember, it is your business. Although planning can involve considerable time and effort, it is
the easiest part. Implementing the plan is much more difficult. Many prospective businesses
experience problems or failure due to the improper implementation of their business plan. This
step requires commitment and dedication. Unforeseen problems will emerge.
Your persistence is critical. Implementing your business plan will include, but is not limited to:
• Creating a legal structure
• Securing market access
• Raising equity and securing financing
• Hiring management and staff
• Constructing facility
• Other
Step 5 – Business Operations
Now that you have successfully started your value-added business, your work has just begun.
Producer groups often forget that once the business is created, it takes constant attention for it to
remain healthy and viable. Operating a business is very different than starting a business. It
requires a different set of skills. So the people who create the business may not be the best people
to manage the business. Conclusion These are the five steps you will want to follow for taking an
idea and making a viable business from it. These steps will not guarantee success. However, they
will increase your odds of success. Also, you will make more efficient use of your time.