Should we or shouldn’t we? This is the question project managers need to ask themselves before going ahead with a project that might require a huge expense of time and money—and no guarantee of success. Companies conduct a feasibility study to get the lay of the land and gauge the probability of success or the cost of failure. The ins and outs of feasibility studies presented here can guide you in deciding your next project’s viability.
What is a feasibility study?
A feasibility study tells a company why it’s a good or bad idea to undertake a project. It considers matters of law, financial factors, timing issues, and much more in making this recommendation, allowing project managers to see the many pros and cons before deciding to pursue a venture.
Companies must ask themselves if they have the people, tools, technology, and resources needed for success. Will the project give them an adequate return on investment (ROI)? Feasibility studies help sharpen marketing practices that can encourage investors to support a proposed project.
In the ideal project management process, the feasibility study answers the “how” after a company decides “what” it wants to accomplish in a project and “why” it should undertake it, including anticipated benefits.
A feasibility study is different from a project plan. A feasibility study answers the question, “Is this project viable?” A project plan covers the steps needed to take the feasibility study from concept to reality.
Key functions of a feasibility study.
Feasibility studies are a key feature of the business development process, helping companies understand how they operate. It helps identify obstacles that may derail a project and how much funding it needs to get up and running.
Other benefits of feasibility studies include:
- Give focus to projects and reveal alternatives if the projects aren’t feasible.
- Enhance the probability of success by identifying and compensating for problematic factors early in the process.
- Provide insights into project constraints.
- Provide high-quality information for important decision-making and strategic planning.
- Reveal whether projects are technically, economically, and operationally feasible.
- Show how long projects take to complete.
- Help secure funding.
What should a feasibility study include?
There are several types of feasibility studies:
- Technical: For example, upgrading or adding new hardware or software, including staff training required.
- Market or industry: For example, considering the potential for market growth, competitive landscape, and projected sales.
- Financial: For example, potential investors and what ROI to expect
- Organization: For example, management competencies, legal questions, and structure.
Common components of feasibility studies include:
- An executive summary: This describes the details of the proposed project. This section is crucial because some time-strapped executives may decide on the project’s viability on what they read here.
- Technological analysis: Is the technology required to do the project in place, or do you need to introduce or upgrade it? What will it cost?
- Identifying marketplaces: What are the local and broader marketplaces for the product or service?
- Marketing strategy: Detail the marketing strategy. Define and align clear priorities with possible execution.
- Organization structure: The organization chart should cover staffing requirements for the project.
- Schedule and timeline: Set dates for significant project deliverables, showing the timeline to project completion and providing markers to measure progress.
- Financial projections: This is a forecast of the various costs of the project against the revenue projected.
How to conduct a feasibility study in 6 steps.
Every project is unique and may require different steps in conducting a feasibility study. That said, there are common steps that are almost always included.
The purpose of the feasibility study is not always black and white—to kill or greenlight a project—but to adjust the scope of the proposed enterprise according to project constraints that can include budgeting, scheduling, and risk issues.
The following are some important steps to take when conducting a feasibility study:
1. Decide the feasibility of the project.
With an idea roughly in mind for a project, you should undertake a preliminary analysis to determine if what you want to accomplish is doable. Would people want your product or service? Have you come up with something original, or is it more of the same?
Even at this early stage of a feasibility study, it’s possible that you may hit roadblocks that seem to stop the project in its tracks. However, that doesn’t mean you need to give up. You can take corrective steps to make the project viable.
2. Create an initial outline of the project in question.
Explore the parameters of a project once you have a basic understanding of what it may require. Can you accomplish everything within set time constraints? Can you handle the project’s technical and operational demands? The project might also involve legal issues that need to be understood and addressed before work gets underway.
3. Determine the project’s economic viability.
To judge whether a project is economically viable, you need to decide if it will provide enough value to justify its expense. What kind of revenues do you expect it to bring in, and how much do you think it will cost to complete the project? Do the profits justify the investment? Once you’ve started the project, what is its break-even point?
To accurately determine viability, consider all expected costs, investments, and revenues. Do you expect any outside investments in the project? Have you taken into account all the costs of required technologies? Are there any risks to the project that may have economic impacts?
4. Conduct relevant market research.
Without doing ample market research, a good idea for a project can fall flat and fail. Whether you hire an outside firm or use your own staff and time, you need to conduct the research required to thoroughly understand your marketplace and the demographic you’re after.
A competitive analysis is necessary, helping you determine the market share you can win at their expense. Research the customers you are after, their consumer behaviors, what drives them or turns them off, and build a buyer’s persona to guide important decisions about the project. With enough market research, you should have an even better idea of the financial viability of the enterprise.
5. Set up organizational and operational structures.
To really envision the organizational structure of a project, you might want to create an organizational chart showing the chain of command, which might include department heads and supervisors and those under them. Operational considerations should take into account all the related costs, including startup costs, fixed investments, and the costs for running the operations. What kind of staffing is required, and at what cost? Do you need to rent or buy real estate?
6. Make the final decision.
With the data and insights accumulated, it’s time to thoroughly analyze them to decide whether the project is feasible and aligns with your company strategy. Is it worth the time, effort, and money to complete, or should you modify or abandon the project idea?
Are there others involved that you need to present your feasibility findings to, such as company executives and project stakeholders? Even if others make the final decision, they should have your project team’s recommendation to help guide their decision.
From possibility to project.
Taking on a major project can involve great risk and expense. By conducting a feasibility study first, project managers can minimize risk while gaining insight into what the project takes as far as cost, staffing, planning, marketing, technology, and many other important considerations.
With a feasibility study under their belt, a project manager can proceed to execute the project with greater confidence.