Conducting a feasibility study is the first step after the project concept is visualized. This process starts before creating a business case and signing the project charter.
The project business case document establishes the validity of the benefits of the project and builds the case for project authorization. Feasibility studies enhance your success rate by evaluating many parameters, identifying reasons to proceed or not with a project.
The project charter authorizes the project’s existence.
In today’s blog post, we will discuss how to conduct a feasibility study for a project.
Feasibility is about validating an idea. It shows how realistic a venture can be. We call it a venture because a level of risk or uncertainty is involved.
Definition of a Feasibility Study
According to the Merriam-Webster dictionary, a feasibility study is an investigation to show that the venture is doable.
From a business perspective, a feasibility study shows if a venture is worth the investment. The feasibility study is based on objective data.
In this study, you find the answer to the following questions:
- Can it be done?
- Is it realizable considering the various constraints?
- Will it provide the desired result?
- Is it aligned with the organizational goal?
How to Conduct a Feasibility Study
The feasibility study has many aspects, such as market feasibility (demand and supply forces), technical feasibility (do we have the technical know-how or do we outsource, train, retrain, etc.), and financial/economic feasibility (do we have the capital strength for this investment, or do we secure a loan? What are the financing options available?).
We will adopt MTELOS Model for conducting a feasibility study that looks at the following six aspects:
- Market Analysis
Market analysis is applied to new products or improvements of existing ones.
Evaluate the market for your product’s demand against the supply dynamics. You can use a survey for this purpose. The survey must have objective questions.
Here you find the answer to the following questions:
- Who are my competitors?
- What is driving the demand?
- How is the supply chain for the intended product?
A quick SWOT analysis can help you find answers to the following questions:
- What are my strengths? e.g., a good brand name, skilled personnel, a large workforce, proprietary technology, a large capital base, strategic location, etc.
- What are my weaknesses? e.g., administrative bureaucracy, resource limitation, etc.
- What are the opportunities of this venture? e.g., large market share, market penetration, few competitors, packaging, promotions, etc.?
- What are the threats? e.g., government regulations and policies, price fluctuations, a competitive market?
Other aspects of market analysis are pricing and distribution channels. For example:
- How do you set the price for your products?
- What pricing model would you adopt?
- Is the model a flexible or rigid one?
- What are the effects of the exchange rate, inflation, demography, population rise, urban-rural migration on price forecast?
- Is the price dependent on an international benchmark like crude oil?
- What is the market history?
- What is the market forecasting?
Answers to these questions must be analyzed before reaching a decision. The feasibility study must be objective, as the investment decision will be based on its outcome.
You will analyze the supply chain. Here you will try to find answers to the following questions:
- When will the customer receive the product after production starts? Good products with poor distribution often result in a loss in revenue.
- What strategy would you adopt to get orders from customers as quickly as possible?
Launch plans are equally important. Here, you can find answers to the following questions:
- What is your rollout plan?
- Do you intend to have a promotion?
- How will you penetrate the market?
- How do you want to beat your competitors?
A business analyst will be helpful in answering these questions.
Technical Feasibility Study
While conducting the technical feasibility study, you see if you are technically capable of completing the project or not.
The following table will show us the parameters and questions for conducting the technical feasibility study.
|S/N||Technical feasibility heading||Desired level or prompt questions||Outcome / To-do||Recommendation|
|1||Plant layout -This is related to the construction of buildings, equipment requirements, and production operations.||Do we have adequate space for the facility?|
What is the suitable layout to adopt?
|Indicate whether Yes or No|
Product flow, process flow, Combination, etc.
Establish the practicality of the proposed layout.
|2||Production input -This is related to the resources required to produce goods or services.||What about human resources? |
Can we get a skilled workforce easily?
What skills are required for the project?
Do we possess these skills, or need training?
What are the tools, equipment, machines required? Do we have them, or do we need to rent them?
Do the people have the right mindset?
Do we have a competent leader to drive the process?
|Establish the availability of personnel (skilled, semi-skilled, or unskilled) for the project.|
List out your skills pool, e.g., Bricklaying, negotiation, marketing, sales, customer relationship, coding, pipe laying, etc. Match with the required and do a gap analysis.
List out the equipment, machinery, tools to get the job done.
Survey your key personnel, such as supervisors, site engineers, project leaders, for entrepreneurial skills. If this is lacking, then train them or change their roles.
Match the above outcomes with the required in a gap analysis method.
|3||Technology -This is related to the techniques and processes required for completing the project.||What technology is required?|
Do we have the requisite technology in-house?
Is the technology locally available? Can it be imported?
What are the licensing requirements, and can we meet them?
What options are available?
What are the pros and cons of the new technology? Is training of personnel involved?
Give a thought to the technology lifecycle.
|Scan your in-house technology and match it with the intended job.|
Have a list of the locally available technology for the job.
Research and review the licensing requirement for both short- and long-term implications.
List out your options.
Research and review the technology required if it is practicable given your level of staffing and other constraints.
Determine the stage of the technology life cycle. If it is at its decline stage, then it may become obsolete soon.
|4.||Spare parts and maintenance||Are the spare parts available or sourced?|
Is the solution easy to maintain or poses severe maintenance demand?
|Find a source for spare parts for the selected technology.|
Evaluate recovery time.
|5||Supply contracts||Are contracts identified for material supply?|
What is the average lead time? What options are available?
Are there warehouses for the supply?
What are the storage/handling conditions and requirements? Do we have them?
Do we have a replenishment plan in case we run out of stock?
|Complete thorough in-house research in collaboration with the Supply chain or procurement department.|
|6||Utilities -Common utilities are electricity, water, steam, compressed air, etc.||What utilities are required, and do we have them?|
How much electricity, steam, fuel, gas, etc., do we need?
Where do we source the utilities?
Are we producing them in-house or buying them?
Do we have a steady power source, or will we rely on standby generators?
The site in view, how accessible is it to sources of utilities?
|Prepare a list of the required utilities and their practical sources.|
Do a gap analysis.
|7||Environment||How will the project impact the environment?|
What are the associated environmental risks such as natural disaster tendency, flooding, volcano, landslides, earthquakes, tsunamis, and harsh weather conditions?
Is the soil fit for the proposed activity?
What are the local community’s demands?
Is it a hostile or friendly environment, and how can it be managed?
What are the project’s waste products, and how will you manage them?
|Conduct an EIA (Environmental Impact Assessment) to answer most of these questions.|
List all the environmental risks and how to mitigate them.
Conduct a soil test.
Determine a community liaison personnel to interact with the host community.
List your wastes and preventive approach.
|8||Design approach -This is a design methodology that provides a solution-based approach to solving problems.||What design codes and standards will be involved?|
What approaches can you adopt? For example:-Traditional or Agile approach?-Batch or Continuous Flow Process?
What are the various processes/phases involved in the project?
|Review and select design codes and standards.|
Use a flow diagram or flowchart to describe the end-to-end process of the job.Research the pros and cons of each design approach.
Divide the project into phases.
Economic Feasibility Study
In the economic feasibility study, you review if you are economically capable of doing the project. It is the basis for preparing the business case after the feasibility study.
|S/N||Economic feasibility heading||Desired level or prompt questions||Outcome / To-do||Recommendation|
|1||Project costing – This deals with the costs associated with the venture.||What is the cost of the proposed project?|
What are the CAPEX (Capital Expenditures) involved?
These are huge capital investments and involve equipment purchases, plant and machinery purchases, land or building purchases.
What are the OPEX (Operating Expenditures)? – This comprises both direct and indirect costs.
What is the direct cost?
Direct costs include labor, materials, inventory, production expenses, equipment/plant maintenance.
What is the indirect cost?
Indirect costs include electricity, rent, utilities, taxes, overhead costs from management, training, remuneration, personnel benefits/allowances, travels/logistics expenses, medical insurance, etc.
Are there intangible costs such as regulatory costs, environmental impacts, etc.?
What are the tangible and intangible benefits?
Tangible benefits are revenue, stakeholder equity, market share, fixtures, tools, etc.
Intangible benefits include the brand name, goodwill, reputation, social responsibility, strategic alignment, personnel development, etc.
What is the financial performance of the product/job/venture?
What financing options are applicable for the project such as loan facility, venture capital, overdraft, retained profits, grants and funding, sale and leaseback, PPP (Public-private partnership also called PFI (Private Finance Initiative), debenture, share capital, business angels, off-take agreement, supply agreement?
|Review commercial databases to estimate standard costs for skills, human resources, and materials. |
Use published seller price lists to estimate prices.
At this early stage, a rough order of magnitude -25% to +75% may be used in cost estimating.
Take into consideration the exchange rate, inflation rate and build them into your cost estimate.
Cost of financing e.g., interest on loan should also be captured.
Three-point estimating can be used (c=O+3ML+P)/3)WhereO = Optimistic costP = Pessimistic costML = Most likely costC = estimated cost
Aggregate all the costs to arrive at a budget.
Determine the payback period, net present value or profitability index, break-even point, and cost-benefit ratio.
Determine a suitable funding model by carrying out Alternatives analysis.
|IfC/B <1The project is economically feasible.Where C =CostB = Benefit|
If NPV>0 venture is acceptable
If PI>1 accept the venture,otherwise, reject.WherePI = Profitability index
Operational Feasibility Study
The operational feasibility study examines the suitability of a solution. A solution that is not operational or impracticable is not worth pursuing.
|S/N||Operational feasibility heading||Desired level or prompt questions||Outcome / To-do||Recommendation|
|1||Maintainability -This shows how easily the product or process can be restored in case of failure.||How maintainable is the process? |
Maintenance cost can be a burdensome recurring expenditure in the long run.
|Analyze the lifecycle maintenance demands of the initiative.||Integrate these parameters early enough – at the design stage for ease.|
|2||Supportability -This shows how easily the existing system can integrate the initiative.||Do we have software or applications that can support this program?|
Can our database/server or present IT facilities support it?
Does the project conflict with existing ones or with future projects?
Does it fit into the company culture and strategic objectives?
|Match the operational demands with existing facilities and identify the gap.|
|3||Reliability -This examines the availability of this initiative/technology when needed. It also means consistency.||How reliable is the equipment/approach?||Evaluate reliability using correlation tests.|
|4||Disposability -This considers the ease of disposal within acceptable standards.||At the product life cycle, how easily can it be disposed of?||Design of experimental and pilot-scale studies.|
Legal Feasibility Study
Legal feasibility study shows whether or not the project is violating any government guidelines.
|S/N||Legal feasibility heading||Desired level or prompt questions||Outcome / To-do||Recommendation|
|1||Regulations -These are guidelines or restrictions imposed by the government.||Does the project follow the laws? For example, a food industry along the right of way of overhead high-tension wire.|
Does it align with health and safety regulations?
Are there equal employment opportunity laws and permits governing the project?
|Review the legal requirement of the project/approach.||Compliance|
|2||Intellectual property -These are creations of human intellect that are protected but can be used with permission.||Are there copyrights, patents, trademarks, licenses, etc.?||Review the legal requirement of the project/approach.||Compliance|
Government regulations are mandatory dependency or hard logic. It can result in project termination and must be properly researched to avoid the potential waste of resources.
Schedule Feasibility Study
Schedule feasibility study shows if the project can be completed within the required duration.
You can also use the Gantt chart.
|S/N||Schedule feasibility heading||Desired level or prompt questions||Outcome / To-do||Recommendation|
|1||Timeliness -The completion of the task/project within the allotted time.||What is the project duration?|
Will the project outputstill be relevant when the project ends?
Is the project duration realistic?
|You could introduce schedule compression tools such as fast-tracking and crashing.|
Find the project duration schedule model.
Conducting a feasibility study ensures the project is worth pursuing and pursuable. It is done after the conceptual stage of a project. Project sponsors conduct this study themselves or they can take help from a third-party consultancy, project managers have no role here. This study is the first step toward a project creation.
Have you ever involved with conducting feasibility study in your organization? If yes, please share your experience through the comments section.