What is a feasibility study and why is it important?

Updated 30 September 2022

A feasibility study is important when determining the viability of a project. It considers several aspects of a project, including legalities, personnel and resources needed so that businesses can make actionable plans. Understanding what this study is and what it includes ensures you make informed business decisions. In this article, we outline what a feasibility study is, why it's important and discuss the different elements of a feasibility study.

What is a feasibility study?

A feasibility study is an analysis that assesses all aspects of a business proposal. This includes economic, legal and technical aspects. Accounting for these elements means that businesses can ascertain whether they can complete a project successfully and whether the yielded results justify the use of resources. This preliminary study also helps identify any potential problem areas in a project so that you can remedy them before you set a plan in motion. Once you've completed a feasibility study, you can determine whether a project goes ahead or gets abandoned.

Whether something is feasible is different according to the industry you work in and your businesses' end goals. For example, one company may consider a project successful based on return on investment (ROI) or revenue generated by consumers, while another company may determine success through customer loyalty and retention. Feasibility studies apply to a vast range of business decisions, from company-wide policy changes to small team assignments.

Why is a feasibility study important?

Feasibility studies are important because they can assist in the formation of business plans and cross-functional assignments. Here are some specific reasons why a feasibility study is important:

Reassure banks and investors: A feasibility study can convince investors that a project is worth investing in and can therefore boost the amount of project spending you have at your disposal.
Facilitate new business developments: A business considers several factors if it wants to expand its operations. Feasibility studies allow you to determine any obstacles, necessary resources and how your new undertakings stand in terms of the current market.
Prevent risk: Feasibility studies provide crucial information regarding a project's success and shortcomings, allowing management to eliminate risk when undertaking new business ventures.
Create effective plans: The information gathered from a feasibility study can help you implement a realistic and actionable plan for your project.
Identify project issues: If a feasibility study concludes that your project isn't viable, you can make alterations to accommodate a new plan. This means you can retain what's working while eliminating any issues.
Reduce investment: A feasibility study provides an accurate account of a project's demands, meaning you can identify any areas where you can reduce costs before the project gets underway.

What does a feasibility study include?

Now that you know what a feasibility study is and why it's important, you can begin learning how to make your own. There are several elements to a feasibility study. These are:

Executive summary

An executive summary gives a brief overview of important information about a business plan and outlines the contents of the ensuing document. An executive summary usually begins with a short statement that encapsulates the purpose of the study. It also contains any findings, conclusions, or recommendations informed by the feasibility study. Therefore, although it's the first section in the feasibility study, it's usually written last.

Finances

A financial assessment evaluates the economic viability of a project or business proposal. It considers how much finance you require to complete a project and compares it to the amount of income a project may generate. A feasibility study can also assess the financial condition of an existing proposal to assess its future operational performance. Understanding the financial requirements of a project helps determine how much money you can service from internal funding and how much you need from investors or loans.

Resources

A project usually relies on physical resources, in addition to cash assets, for successful completion. Be sure to account for raw materials, technical equipment, machinery and space when determining what resources you need. It's essential that you differentiate between which resources are readily available and which resources you require, as the resources you purchase affect your financial costs.

Timeline

Most business projects are time-sensitive, so it's important to have a realistic timeline in place. Feasibility studies allow you to examine whether your initial timeline is reasonable and how long each element of a project might take. They can also ensure that you account for risks when constructing a timeline and determine how problems impact your progress. If all components of your project interrelate and the progress of one aspect depend on the completion of another, then your project has a large risk margin when it comes to meeting the projected timeline.

Legality

Understanding the legality of your project helps determine whether it conflicts with any legal requirements. For example, a software company may ensure that its data processing systems comply with data protection regulations as outlined by the local area. General and industry-specific laws are decisive factors when it comes to deciding whether a project goes ahead. If the project conflicts with legal regulations, make sure you make necessary modifications before reassessing the validity of the project.

Staffing

Some businesses choose to account for personnel requirements under the resources section of the feasibility study, but having a separate section for your staffing needs means you can relay in detail how you plan to recruit new members and what level of expertise you require your personnel to have. It may be that you simply restructure your teams to fulfil the demands of a proposal with current staff options.

Market analysis

A market analysis searches for an intersection between supply and demand to determine if there's a market for your new product or service. It may be that there are no current products with the same purpose as yours, meaning the market's underserved in your area and therefore ready for you to infiltrate. Alternatively, you may find that there are similar options, but your product improves upon them in some way. In this instance, your product has an edge over competitors. A market analysis, therefore, assesses whether your new project is profitable and likely to yield positive results.

Marketing

A marketing feasibility study provides a detailed plan on how you intend to reach your target audience. There are several types of marketing, including outbound, inbound, social media and search engine marketing. It's important that you select the right method according to your product, target audience and budget requirements. Understanding your marketing requirements means you can optimise sales and increase ROI quickly and efficiently.

Public relations

A public relations feasibility assessment examines whether the public is likely to respond to your business venture positively or negatively. Your project is still viable if the response to your venture is negative, but only where the magnitude is controllable and there are potential solutions. This section is only necessary where your project impacts public actions.

Tips for running a feasibility study

If you plan on running a feasibility study to assess the viability of a new product, service or business venture, consider these top tips for its best practice:

Analyse the data you obtain in the early phase of your studies to account for any gaps or contradictions.
Come up with viable solutions to any problems or risks you identify in any stage of your feasibility study.
Conduct a preliminary analysis by asking appropriate colleagues and stakeholders for their opinion on the business proposal.
Construct an outline of your feasibility study first by identifying your primary assessment areas and adding elements under each of them.
Prepare a balance sheet so you can alter projected incoming and outgoing expenditures with each section.
Ask others to contribute to your feasibility study with their expertise or own research findings.
Have a clear idea of your project's goals before starting your feasibility assessment so you can determine whether your aims are achievable.
Use your feasibility study to make an initial ‘yes' or ‘no' decision about moving ahead with a project.
Write in a clear and concise manner.
Perform a non-biased assessment, irrespective of whether the conclusions you reach are what you want to hear or not.

What is a feasibility study and why is it important?