FEASIBILITY STUDY

By: Zernan L. De Ramos

In any start up business project or plan, the initial stage requires feasibility study. As the
name implies, a feasibility study is an analysis of the viability of an idea in the business venture,
primarily business idea of an existing company or start-up enterprise. The business idea can be
(a) introduction of new product or service (b) market development (or expansion) of an existing
business, (c) acquiring/buying of business unit from another company. The need for early
determination that a business idea will not work, always leads to saving time, money and
heartache later.
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).

Primarily, the feasibility studies help determine:

a) does the company possess the required resources or technologies; and
b) does the proposed business proposal offer a reasonable return vs. risk from the investment.
Other factors must be considered in the feasibility study.

Feasibility studies can be used in many ways but primarily focus on proposed business
ventures. The top management and owners of the company, including small businesses owners
with a business idea should conduct a feasibility study to determine the viability of their idea
before proceeding and incurring upfront and significant development costs.
Whatever is the nature of the new business concept of the company, these will imply
feasible operating changes and business restructuring, which needs generation of adequate cash-
flow and profits to withstand (a) the short-term risks that the company will encounter, and (b)
remain viable in the long-term to meet the goals of the shareholders or owner/founders of the
company. The venture might be an investment start-up or the purchase/expansion of an existing
business, beyond its present business footprint or enterprise.
Steps in Conducting 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 several factor (or questions to be
considered). Usually, during this preliminary analysis, the number of the company’s business
concept (or business alternatives) considerations is reduced from the initial starting point.
During this first step to the feasibility process there is a need to 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 that may take several paths before reaching the destination. In some
isolated case, just because the initial analysis shows low indicator of profitability, it does not
mean that the proposal does not have total merit. Sometimes limitations or flaws in the proposal
can be corrected.
If the findings leads to proceed with the feasibility study, the result may have resolved
some basic issues. Still, an expert or consultant may provid help with the pre-feasibility study,
but the concerned managers or employed committee should be involved. This is an opportunity
to understand the issues of business development.
As the first step of the feasibility study, this will include answering some or all questions
in the four areas of the feasibility study, namely: (1) Product and/or Service and Operational
Feasibility, (2) Market and Industry Feasibility, (3) Organizational Feasibility (4) Analyzing the
Financial Feasibility.

2. Full Market Assessment

A market assessment may be conducted in order to help determine the viability of a
proposed product or service in the marketplace. The market assessment will also help in
identifying the 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 market
feasibility section of the feasibility study.
3. Analyze the Operations and Organizational Structures
This step in the feasibility analysis pertains to the organization primarily the people in the
marketing department, operations, human resource, and finance/accounting department.
Infrastructure, processing, staffing requirements, including management and labor alignment are
studied. Questions will include: How many workers and how long are they needed? What other
resources and processes 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. In the accumulation of 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 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 feasibility study
expert or consultant to decide whether to pursue or not to proceed with a business plan. It is the
role of the involved people or project leaders to make this decision, using information and
analysis from the feasibility study and input from that consultant.

7. Go/No-Go Decision
The go/no-go decision is a significant and critical step in business development. It is the
point of no return. Once the committee of the feasibility study have 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 completely conducting all steps
of feasibility study.

Four Areas in Testing the Viability of Business Idea

1. Product and/or Service and Operational Feasibility

The product/service and operational feasibility analysis, is a major area of assessment of
the overall appeal of the product or service being proposed in the marketplace, using the general
awareness of the resources required to get this product/service to the market. This step focuses
on assessing whether the product can be technically developed within the system of the
company. It involves evaluating the processes and technology needed to create the product,
considering any technical challenges or limitations, and assessing the availability of resources
and expertise to develop the product. The resources being assessed here is the processes and
other technologies, to support the successful implementation of the proposed product or service.
The product/service feasibility takes the new venture idea beyond the wishful thinking everyone-
will-love-this concept stage by using research-driven data to show whether a market not only
exists for the product/service but whether the market is accessible given the resources available
to the new venture. What is often overlooked are trend lines or potential changes to the product
or service in the longer-term. Even though the data for the product/service and operations
feasibility analysis may be absolutely correct today, however, without analysis of the future and
trend assessment, the potential challenges may be overlooked or ignored.

Key questions to answer include:

1.1. Can the new product or service be produced and delivered profitably, in an ongoing manner?
1.2. Is there sufficient customer demand for the product or service based on initial market
assessment?
1.3. Does the company have the necessary resources and process expertise for the new venture?
1.4. Is the technology available or feasible to be developed, relative to the creation of the product
or service to be developed?
1.5. Are the equipment and process utensils available?
1.6. Are there any technical obstacles that need to be overcome like the availability of the raw
materials as inputs and its logistics?
1.7. Are there environmental obligations of the company that can be affected by this new product
or service?

2. Market and Industry Feasibility

This step involves evaluating the potential market for the product. It includes researching
the target market, understanding customer needs and preferences, analyzing competitors, and
assessing market trends. Industry/market feasibility analysis evaluates the overall business
external environment and industry attractiveness, the size of the industry and the availability of
niche markets that could be successfully accessed and served by the company or the business
organization. Industry/market feasibility analysis also looks at the existing competitors and
substitute products or services, and forces attention on questions of competitive advantage,
geographic and demographic market forces, and cost/profit considerations given the possible
scale advantages or entrenched market control of known competitors. The analysis thus far is
mostly current and historical; however, competitors are not static and will possibly respond
aggressively as new entrants. Established players often have built-in cost advantages and thus
may have huge flexibility to cut prices in the marketplace to combat new competition. Markets
may be growing or shrinking or saturated with products very similar to what the new venture is
proposing to bring to the marketplace, and the new venture needs to understand these market
forces. Because market forces are rarely stable, the result is that what is true today may not be
true tomorrow as even the entrance of the new venture itself is a market disruption. Some degree
of future consideration is required in the market and industry feasibility.
Key questions to answer include:
2.1. Is there a quantifiable demand for the product?
2.2. Who are the target customers?
2.3. Who are some potential customers by name?
2.4. What customer needs will your new product, service address?
2.5. What is the size of the market?
2.6. Is the market growing or declining?
2.7. How attractive is the business idea of the company in the proposed industry?
2.8. Do any strategic, defensible niches exist in the proposed market?
2.9. Are there any major obstacle that needs to be considered in the general external environment
like relevant law and regulations?

3. Organizational Feasibility
Organizational feasibility analysis helps in identifying the human resource competencies
necessary for the opening and then the management of the new product to be introduced or new
venture together with the new product. Although the product & operational, market and industry,
and financial feasibility analysis may all be positive, if the human resource of the company and
corresponding team does not have the ability or experience to implement the plan and make the
various parts work together, then the proposed business concept will likely fail. Organizational
feasibility analysis is concerned with two main issues: expertise of the people and resource
sufficiency. Resource sufficiency here pertains to human resource. Attention to both areas is
critical, because management sufficiency without resource sufficiency, and vice versa, likely
results in failure. This is a difficult area of analysis as many concerned managers in the
feasibility tend to over-estimate their own abilities in terms of talent and skill, while at the same
time under-estimating the ability of competitors to respond and compete.
Organizational feasibility examines whether the existing organizational structure,
administrative processes, and culture are conducive to innovation, collaboration, and
adaptability. It also considers whether the organization is agile enough to respond to changing
market conditions and customer needs.

Key Questions:
3.1. Are the people resources of the company have the knowledge and skills that are needed for
the operations/production, delivery and marketing relative to the new business venture?
3.2 How many specialists and workers are needed? How long are they needed in terms of time
period?
3.3. Does the concerned team, staff and crew require intensive and special training needed
relative to the new product or service to be developed??
3.4. Are the top management have the managerial experiences and capabilities to effectively
manage and oversee the proposed new venture of the company?
3.5. Does the company have the culture that are conducive to the innovation, collaboration and
adaptation and response based on changing market condition?

4. Analyzing the Financial Feasibility

The financial feasibility analysis focuses on the resources needed for start-up costs, on
estimating costs and potential revenues and on the necessary financial reserves to cover losses
until break-even is reached, which might be several years. This analysis examines how funding
will be provided not only for the startup phase but for ongoing business operations and is focused
on helping managers avoid the common crisis of running out of cash faster than bringing in
customers or generating sufficient sales revenue. Financial feasibility analysis provides
entrepreneurial managers with an understanding of the amount, timing and types of financial
resources needed, factors that are frequently misunderstood or under-estimated. The early stages
of financial analysis are often fraught with more questions than answers because gross revenue,
total and ongoing expenses, and net revenue streams are difficult to predict accurately. The date
of break-even is often a mystery. The financial feasibility is the most forward looking of the four-
part traditional feasibility analysis.
This step involves analyzing the financial aspects of the product. It includes estimating
the costs involved in developing and launching the product, projecting potential revenues and
profits, and assessing the return on investment (ROI).

Key questions to answer include:

4.1. What are the research & development and production costs? (Extensive cost makes the
business concept less attractive as compared to business concept with minimal cost)
4.2. How much revenue can be generated from the product? What are the other potential other
source of revenue, if applicable?
4.3. What is the potential profitability of the product? (Describe it qualitatively, as preliminary
analysis)
4.4. What will be the pricing strategy?
4.5. Can the company sustain the business operations through the phase of no profit time period
of the proposed product and service?
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. In the
feasibility study, normally, several business concepts were assessed, then it is narrowed down.
This will helps reduce 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. The best alternative becomes the basis for the
creation of business plan. Hence, the feasibility study is conducted first 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.
Here are the possible reasons or scenarios why some companies are not conducting feasibility
analysis:
1. Relying too much in an existing business of a separate company (probably a competitor or
companies in other countries) who is already doing it. This leads the company to quickly decide
that the business idea feasible.

2. The company depends already in an old feasibility study that was conducted few years ago.
3. The top management believes that feasibility is a waste of time and resources. They even see
that the cost of consultant’s feasibility fee is just a waste of money.

4. Most of the content of market analysis of the feasibility study is provided already by a vendor
supplier of equipment. The company was easily persuaded by the information and
recommendation of this vendor supplier.

5. The company has relied to the decision of the hired general manager who can do the feasibility
study? Such company is highly depended on the experience of that hired general manager.

6. Some deliverables of the project like buying the building, sharing of physical site location
with another company and bid on the equipment are all urgent. Hence, the company believes that
feasibility studies are just a waste of time.

The reasons given above should not dissuade the company 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. The company may need to live with these
decisions for a long time.
Conducting a feasibility study is a good business practice. In the successful examination
of the businesses, it will be observed 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 the additional reasons why need to conduct a feasibility study.
1. Gives focus to the project of exploring business ventures
2. Narrows business alternatives.
3. Identifies new opportunities and internal strengths and others supporting factors towards the
success of the business venture through the investigative process.
4. Analyzes the potential threats and internal weaknesses of the business idea. This clarifies the
reasons to discontinue the business concept of the venture.
5. Enhances the probability of success of the business venture by addressing the mitigating
factors early on that could affect the project.
6. Provides quality information for decision making.
7. Provides documentation that the business venture was thoroughly investigated.
8. Helps in securing funding from lending institutions and other monetary sources.
9. Helps to attract equity investment.