Feasibility Study

Feasibility Study Project Management Investment Appraisal Financial Appraisal Economic Appraisal Business Analysis Risk Assessment Decision Making
A feasibility study is an analytical process used to determine the viability of a project, venture, or business activity. It assesses various aspects, including financial, technical, legal, and operational factors, to evaluate the potential for successful completion and a satisfactory return on investment.
On this page

What is a Feasibility Study?

A feasibility study is an in-depth analysis conducted to assess the practicality and profitability of a proposed project or business venture. This critical evaluation involves examining different aspects of the project, including economic, technical, legal, and operational factors, to determine the likelihood of successful implementation and potential return on investment. The primary goal of a feasibility study is to establish whether the project is worth pursuing and to identify any potential risks or challenges that may need to be addressed.

Key Components of a Feasibility Study

  1. Executive Summary: A brief overview of the project, including its objectives and key findings.
  2. Market Research: Analysis of the current market conditions, competition, and potential customer base.
  3. Technical Analysis: Evaluation of the technical requirements, including resources, technology, and infrastructure.
  4. Financial Analysis: Detailed financial projections, including costs, revenue, profitability, and funding requirements.
  5. Legal and Regulatory Considerations: Assessment of legal factors, permits, and regulatory compliance.
  6. Operational Feasibility: Examination of the operational processes, workforce, and management structure.
  7. Risk Assessment: Identification and analysis of potential risks and mitigation strategies.

Examples of Feasibility Studies

  1. New Product Launch: A company conducts a feasibility study to evaluate the viability of launching a new product. The study examines market demand, production costs, potential revenue, and competition.
  2. Real Estate Development: A developer performs a feasibility study to assess the feasibility of a new housing project. The study considers factors such as land acquisition costs, construction expenses, market trends, and potential return on investment.
  3. IT System Implementation: An organization conducts a feasibility study to determine the practicality of implementing a new IT system. The study evaluates technical requirements, costs, potential benefits, and impact on operations.

Frequently Asked Questions (FAQs)

Q1: Why is a feasibility study important? A: A feasibility study is crucial as it helps businesses and project managers make informed decisions by identifying the potential risks, financial implications, and overall viability of a project or venture.

Q2: How long does it take to complete a feasibility study? A: The duration of a feasibility study varies depending on the complexity of the project. It can take anywhere from a few weeks to several months.

Q3: Who typically conducts a feasibility study? A: Feasibility studies are usually conducted by project managers, business analysts, or external consultants specializing in the relevant field.

Q4: What is the difference between a feasibility study and a business plan? A: A feasibility study focuses on evaluating the viability of a project or idea, while a business plan outlines the strategy and roadmap for implementing a viable business or project.

Q5: What methods are used in financial analysis within a feasibility study? A: Common methods include cost-benefit analysis, break-even analysis, net present value (NPV), internal rate of return (IRR), and sensitivity analysis.

  • Financial Appraisal: The process of evaluating the financial aspects of a project to determine its profitability and financial viability.
  • Economic Appraisal: The assessment of the economic impacts and potential benefits of a project, considering factors such as cost-efficiency and socio-economic effects.
  • Cost-Benefit Analysis (CBA): A method of comparing the costs and benefits of a project to determine its overall value or profitability.
  • Risk Assessment: The identification and analysis of potential risks that could affect the success of a project and the formulation of strategies to mitigate those risks.

Online References

Suggested Books for Further Studies

  1. “The Art of Project Management” by Scott Berkun
  2. “Feasibility Studies for Small Business: How to Determine if Your Business Idea Will Pay Off Before You Start Your Business” by Sarah Truen
  3. “Principles of Project Finance” by E. R. Yescombe
  4. “Business Analysis and Leadership: Influencing Change” by Penny Pullan and James Archer
  5. “Risk Management for Project Managers: Concepts and Practices” by Arnold Kaufmann

Accounting Basics: Feasibility Study Fundamentals Quiz

### What is the primary goal of a feasibility study? - [ ] To create a marketing plan - [x] To determine the viability of a project - [ ] To manage project resources - [ ] To finalize a project timeline > **Explanation:** The primary goal of a feasibility study is to assess the practicality and potential success of a project. It helps in determining whether the project is worth pursuing. ### Which component of a feasibility study evaluates market conditions and competition? - [x] Market Research - [ ] Technical Analysis - [ ] Legal Considerations - [ ] Financial Analysis > **Explanation:** Market research evaluates current market conditions, potential customer base, and competition to understand the project's market viability. ### What is included in the financial analysis section of a feasibility study? - [ ] Employee job descriptions - [x] Detailed financial projections - [ ] Technical specifications - [ ] Project timeline > **Explanation:** The financial analysis section includes detailed financial projections such as costs, revenue, profitability, and funding requirements. ### Which method is commonly used in financial analysis for feasibility studies? - [ ] SWOT Analysis - [x] Cost-Benefit Analysis (CBA) - [ ] PERT Chart - [ ] Fishbone Diagram > **Explanation:** Cost-Benefit Analysis (CBA) is commonly used in financial analysis to compare costs and benefits to determine a project's overall value or profitability. ### Who typically conducts a feasibility study? - [ ] Marketing Executives - [ ] Sales People - [x] Project Managers or Business Analysts - [ ] Human Resource Managers > **Explanation:** Feasibility studies are usually conducted by project managers, business analysts, or external consultants who specialize in relevant fields of the project or venture. ### What is the output of a successful feasibility study? - [x] Detailed report of the project's viability - [ ] Just an executive summary - [ ] Only financial projections - [ ] Marketing strategies > **Explanation:** The output of a successful feasibility study is a detailed report that covers all aspects of the project's viability including technical, financial, legal, and market research. ### What aspect assesses the legal and regulatory requirements in a feasibility study? - [ ] Operational Feasibility - [x] Legal and Regulatory Considerations - [ ] Technical Analysis - [ ] Risk Assessment > **Explanation:** Legal and Regulatory Considerations assess the project's compliance with legal requirements and necessary permits or regulations. ### Risk assessment in a feasibility study primarily identifies what? - [ ] The opportunities for market expansion - [ ] The best marketing strategies - [ ] The potential for new customers - [x] Potential risks and challenges to the project > **Explanation:** Risk assessment identifies potential risks and challenges that could affect the project's success and formulates strategies to mitigate those risks. ### Which section of a feasibility study examines workforce needs? - [ ] Financial Analysis - [ ] Market Research - [ ] Technical Assessment - [x] Operational Feasibility > **Explanation:** The operational feasibility section examines the operational processes, including workforce and management structure, necessary for project success. ### What differentiates a feasibility study from a business plan? - [ ] The length of the document - [x] A feasibility study evaluates viability; a business plan outlines implementation strategies - [ ] A feasibility study is for small projects, while a business plan is for large projects - [ ] Business plans do not include financial projections > **Explanation:** A feasibility study evaluates the viability and potential success of a project, while a business plan outlines the detailed strategy and roadmap for implementing that project successfully.

Keep exploring and understanding the world of feasibility studies to enhance your project management and decision-making skills!

Tuesday, August 6, 2024
Feather One's Nest
FCT - Fellow of the Association of Corporate Treasurers
Appraisal January 1, 1
Capital Budgeting January 1, 1
Case-Study Method January 1, 1
Completion Risk January 1, 1
Cost-Benefit Analysis January 1, 1
Financial Appraisal January 1, 1
Probability January 1, 1

Accounting Terms Lexicon

Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.