A quick intro to technical feasibility studies
A feasibility study is an evaluation of the practicality of an intended project. The technical aspect of a feasibility study helps you determine the efficacy of your proposed project by examining the details of your intended process, including materials and labor, logistics and technology related to producing, delivering and tracking the products or services you intend to develop.
A technical feasibility study can provide relevant context to the different aspects of your project and serve as a great planning tool by providing an overhead view of how your project can evolve during the course of its development, troubleshooting and tracking the progress of your project from concept to reality.
How to conduct a technical feasibility study
Follow these steps to begin your technical feasibility study:
- Prepare a preliminary analysis
- Create a projected income statement
- Conduct a market survey
- Make a business plan
- Prepare a balance sheet
- Review your data and make a decision
1. Prepare a preliminary analysis
A preliminary analysis can help you determine whether your project is worth embarking on potentially costly and time-consuming activities before the time and money are spent. The two main branches of this analysis include the following:
- Project outline: With as much detail as possible, describe the necessary elements of the project. These can include who your target markets will be, what need you’ll fulfill, whether your product or service currently exists and how you will improve existing offerings.
- Investigation of accessibility: Examine possible barriers to entry or any factors that could hinder profitability. These can include unavailable or especially expensive capital requirements, an inability to market or refer your offerings or production costs that exceed projected revenues.
If your preliminary analysis seems optimistic, consider continuing a deeper feasibility study.
2. Create a projected income statement
If your preliminary analysis determined that your product or service will fulfill a need, anticipate the income that can be generated and compare it to the costs of producing your offerings, paying your debts and maintaining normal business operations. If your anticipated net income is positive, continue to the next phase in your study.
3. Conduct a market survey
A market survey will help you get a more realistic idea of the revenues your project will generate. As this is an in-depth study, the market survey will require several steps, including:
- Consider population and demographic trends, cultural aspects and the average amount of disposable income of consumers in your target market as they will affect your project’s success
- Evaluate similar or competing offerings in your target market, including their strengths and weaknesses related to location, products, pricing, marketing, quality and customer loyalty.
- Estimate expansion opportunities such as adding new products or services, franchising possibilities and projected response by the community.
4. Make a business plan
A business plan describes your product or service offerings in detail, outlines a production schedule and offers explanations related to startup costs, cost of ongoing operations and detailed planning in regards to the following:
- Organizational chart
- Materials, equipment and supplies
- Marketing and merchandising
- Facility location
- Labor costs
- Overhead such as insurance, taxes and utilities
5. Prepare a balance sheet
A day-one balance sheet should show the assets and liabilities of the undertaking at the time of project completion, or opening day, before income is generated. Required assets include the project’s initial cash and financing capital as well as buildings, land and equipment, while liabilities involve anticipated investments, rent, finance payments and allowance margins for accounts receivable.
6. Review your data and make a decision
When you’ve conducted all of your research and compiled your facts and estimations, a final review is necessary. This final review serves to revisit the preliminary analysis and compare it to the data you’ve obtained since then for the purpose of deciding whether your project is still feasible. This reflection helps you to more clearly assess the risks and costs associated with this undertaking and make a final decision on whether to begin production. The last step in making a decision regarding whether to move forward with your project involves asking the following questions:
- Do the analyses show that this project will generate the minimum profitable ROI?
- Does this project have growth potential?
- Does potential reward (income, growth and market share) outweigh the risks (time, energy and monetary costs)?
Answering ‘yes’ to all three of these questions indicates that your project has a good chance of succeeding.
Related: How to Grow Your Business
Technical feasibility study FAQs
The following questions are commonly asked about technical feasibility studies:
What should the technical aspect of my feasibility study focus on?
Since this is a study that ultimately determines the viability of your proposed project, the following list of questions should be part of your investigation:
- What is the desired outcome of the project?
- Is the proposed product/service available on the current market? If so, how will my product improve on the concept and if not, how realistic and/or risky is it to introduce it to this market?
- What unfulfilled need will this project satisfy?
- What resources are required for completing this project, and are the necessary resources available?
- What are the legal or regulatory concerns associated with this product or service?
What are some best practices for conducting technical feasibility studies?
Some of the best practices for conducting in-depth feasibility studies include:
- Use templates, tools and technology designed to provide you with the most accurate and useful information
- Ask for feedback and suggestions from stakeholders and other potential investors
- Hire a market research firm to conduct the necessary surveying
- Ask questions and investigate to get solid data
- Break your study into as many parts as necessary and evaluate the subsets of information (technology, marketing, financing, labor) and research them separately and together