What Is a Feasibility Study? Definition, Benefits and Types
Updated March 10, 2023
Having a structured plan before proceeding with a new project at work is the first step to deciding whether that project is the right choice for you and your business. A feasibility study can help you focus on various aspects of the proposal before choosing a plan of action.
A feasibility study may help determine many factors, such as cost-effectiveness and whether the proposed plan would benefit your company in the future. In this article, we discuss what a feasibility study is, the elements involved, the benefits of conducting a feasibility study and different types of studies.
A feasibility study is an assessment tool that helps determine if a proposed product, service or business will be successful.
The study considers many factors, including technical, economic and legal, to evaluate the proposal.
There are several types of feasibility studies to consider based on the project.
The study provides useful information for the next steps after the study.
What are feasibility studies?
A feasibility study is an assessment that determines the likelihood of a proposed project being successful, such as a new product line or technical system. The study analyzes the project's relevant factors, such as technical, economic and legal considerations, to assess whether the project is worth an investment. The study can also identify potential issues and problems that could arise from pursuing the project.
Feasibility studies also help companies with new business development, including determining how it will operate, potential obstacles, competition, market analysis and the amount and source of financing needed to grow the business. They can help develop marketing strategies to convince investors and banks that investing in a particular project or business is a wise choice.
Once the feasibility study is complete, stakeholders should be able to fully understand all aspects of the project and can then determine whether they want to move forward with the project. For example, a manufacturer may review a feasibility study to decide if a plant expansion will pay off in increased revenue.
Related: How To Perform a Risk Analysis
Who conducts a feasibility study?
A company’s management or directors may conduct a feasibility study or delegate the process to senior managers if they don’t have the in-depth knowledge or the time to complete the study themselves.
Importance of feasibility studies
Feasibility studies are extremely important when contemplating the undertaking of a new project. Agreeing to a proposed business plan is an investment for any company, so it is helpful to examine all the factors that go into a project from pre-planning to its completion.
Below are a few reasons feasibility studies are important:
Identifies valid reasons to advance or veto a project idea
Improves the focus of the project team
Provides useful information for the next steps after the study
Narrows potential business alternatives
Evaluates current and needed resources and technology
Enhances the success or failure rate of the project by assessing all variables
Estimates the return on investment
Related: What Is a Business Plan?
Types of feasibility studies
There are numerous feasibility studies a consultant can perform before a company decides on a project, and multiple study types may be combined to cover all aspects of the project from start, progress, completion and delivery. A few of them are:
1. Technical feasibility
Technical feasibility includes checking for accessibility to technical resources and applications within the organization. If the resources already exist, you must then determine if the technical team can customize the technology into new working systems for the project. Not only do you need the correct technical resources, but the equipment also needs to be evaluated to ensure it has the proper hardware and software for the proposed plan.
2. Economic feasibility
Economic feasibility allows the company to determine the cost and benefits analyses, which helps provide decision-makers with a list of potential economic benefits to the organization. They need to know the total cost, including accidental expenses, so that during the project, they may be able to anticipate any potential unforeseen monetary challenges.
3. Operational feasibility
Operational feasibility assesses how well a proposed plan fits within the existing business environment, and if developed, whether current purchasers will use it. Some variables that affect the outcome of this analysis are whether management support, how buyers feel about the current system in place and if the proposed system will benefit the organization.
4. Legal feasibility
Before beginning a project, legal feasibility checks to ensure that all parts of the proposed project adhere to legal rules and requirements in that specific geographic area. Zoning laws, social media laws and many others need to be examined because the law must permit all aspects of the project for an organization to get consent to begin.
5. Schedule feasibility
The final, but very important feasibility study is that of the schedule check. It estimates how much time a team needs to complete the project. All invested groups should recognize and agree that the project is to be finished within an agreed-upon timeframe for the proposed plan to be successful.
Related: How To Write a Feasibility Study
6 elements of a feasibility study
If you're planning on conducting a feasibility study, you may include the following elements:
1. Project scope
Creating a project scope is part of the planning process and defines all aspects of the proposed plan. It should address all parts of the business that could be impacted when the plan goes into motion. In addition, it's important to address the potential outcome of the project in the product scope. This includes all work that needs to get completed to deliver the project such as project goals, tasks, costs, deliverables and deadlines.
Related: A Guide To Project Scope Management
2. Current analysis
The purpose of the current analysis is to define and understand the current methods being used in the organization. With this analysis, you can identify the benefits and disadvantages of the current product or system. This information is used to determine whether it's possible to use certain components of the current product when creating the prospective product or potentially save money when producing the new product or system.
The requirements of the potential project depend on the project's overall purpose. Two components to identify are the technical and capital requirements of the venture. Investors should possess information about technology obligations as well as how much money to invest overall so they can identify the proper approach to obtain the requirements.
After analyzing the requirements, a consultant typically recommends a course of action to satisfy the requirements that were established in the previous step. Sometimes, using existing systems already in place is more beneficial than choosing a brand new system, which can be more costly. The consultant then weighs all options and recommends the most beneficial solution to the organization before proceeding.
After choosing an approach, a consultant usually evaluates the cost-effectiveness of the selected approach. A consultant may analyze and estimate the total projected cost, as well as estimate alternative approaches. Finally, an evaluation and cost summary are prepared, including items such as cost and benefit analysis as well as return on investment (ROI).
A consultant collects all the above elements into a feasibility study and conducts a formal review. The review shows the accuracy of the overall study and helps make a project decision. At this point in the study, the project gets approved, revised or rejected. If approved, all parties then sign a document stating their agreement to the project.
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