Business Feasibility Study

A Business Feasibility Study can be defined as a controlled process for identifying problems and opportunities, determining objectives, describing situations, defining successful outcomes and assessing the range of costs and benefits associated with several alternatives for solving a problem.

Understanding a Feasibility Study

A feasibility study is an assessment of the practicality of a proposed plan or project. A feasibility study analyzes the viability of a project to determine whether the project or venture is likely to succeed. The study is also designed to identify potential issues and problems that could arise from pursuing the project.

As part of the feasibility study, project managers must determine whether they have enough people, financial resources, and the appropriate technology. The study must also determine the return on investment, whether it's measured as a financial gain or a benefit to society, as in the case of a nonprofit.

In some cases, a feasibility study might include a significant change in how a business operates, such as an acquisition of a competitor. As a result, the feasibility study might include a cash flow analysis, measuring the level of cash generated from revenue versus the project's operating costs. A risk assessment must also be completed to determine whether the return is enough to offset the level of risk of undergoing the venture.

When doing a feasibility study, it’s always good to have a contingency plan that you also test to make sure it’s a viable alternative in case the first plan fails.

Benefits of a Feasibility Study

There are several benefits to feasibility studies, including helping project managers discern the pros and cons of undertaking a project before investing a significant amount of time and capital into it. Feasibility studies can also provide a company's management team with crucial information that could prevent them from entering into a risky business venture.

Feasibility studies also help companies with new business development, including determining how it will operate, potential obstacles, competition, market analysis, and the amount and source of financing needed to grow the business. Feasibility studies aim for marketing strategies that could help convince investors and banks that investing in a particular project or business is a wise choice.

Tools for Conducting a Feasibility Study

Suggested Best Practices

Although each project can have unique goals and needs, below are some best practices for conducting a feasibility study:

Conduct a preliminary analysis, which involves getting feedback about the new concept from the appropriate stakeholders; consider other business scenarios and ideas
Analyze and ask questions about the data obtained in the early phase of the study to make sure that it's solid
Conduct a market survey or market research to identify the market demand and opportunity for pursuing the project or business
Write an organizational, operational, or business plan, including identifying the amount of labor needed, at what cost, and for how long
Prepare a projected income statement, which includes revenue, operating costs, and profit
Prepare an opening day balance sheet
Identify obstacles and any potential vulnerabilities, as well as how to deal with them
Make an initial "go" or "no-go" decision about moving ahead with the plan

Suggested Components

Once the initial due diligence has been completed, listed below are several of the components that are typically found in a feasibility study:

Executive summary: Formulate a narrative describing details of the project, product, service, plan, or business.
Technological considerations: Ask what will it take. Do you have it? If not, can you get it? What will it cost?
Existing marketplace: Examine the local and broader markets for the product, service, plan, or business.
Marketing strategy: Describe it in detail.
Required staffing (including an organizational chart): What are the human capital needs for this project?
Schedule and timeline: Include significant interim markers for the project's completion date.
Project financials.
Findings and recommendations: Break down into subsets of technology, marketing, organization, and financials.

It's important that a project being considered should be able to generate a return that justifies the risk involved in taking on the project.

Examples of a Feasibility Study

Below are two examples of a feasibility study. The first one involves the expansion plans for a university. The second example is a real-world example conducted by the Washington State Department of Transportation and had private contributions from Microsoft Inc.

Upgrading a University's Science Building

School officials at a local university were concerned that the science building—built in the 1970s—was outdated. Considering the technological and scientific advances of the last 20 years, school officials wanted to explore the cost and benefits of upgrading and expanding the building. As a result, a feasibility study was conducted.

In the preliminary analysis, school officials explored several options, weighing the benefits and costs of expanding and updating the science building. Some school officials had concerns about the project, such as the cost and public opinion. The new science building would be much larger, and in the past, the community board had rejected similar proposals. The feasibility study would need to address these concerns and any potential legal or zoning code issues.

The feasibility study explored the technological needs of the new science facility, the benefits to the students, and the long-term viability of the college. A modernized science facility would expand the school's scientific research capabilities, improve its curriculum, and attract new students.

The financial projections showed the cost and scope of the project and how the school planned to raise the needed funds, which included issuing a bond to investors and tapping into the school's endowment. The projections also showed how the expanded facility would allow more students to be enrolled in the science programs, increasing revenue from tuition and fees.

The feasibility study demonstrated that the project was viable, paving the way to enacting the modernization and expansion plans of the science building. Without conducting a feasibility study, the school administrators would never have known whether its expansion plans were viable.

High-Speed Rail Project

The Washington State Department of Transportation decided to conduct a feasibility study to construct a high-speed rail that would connect Vancouver, British Colombia, Seattle, Washington, and Portland, Oregon. The goal was to create an environmentally responsible transportation system to enhance the competitiveness and future prosperity of the Pacific Northwest.1

The preliminary analysis outlined a governance framework for future decision-making. The study involved researching the most effective governance framework by interviewing experts and stakeholders, reviewing governance structures, and learning from existing high-speed rail projects in North America. As a result, governing and coordinating entities were developed to oversee and follow the project if approved by the state legislature.

A strategic engagement plan involved an equitable approach with the public, elected officials, federal agencies, business leaders, advocacy groups, and indigenous communities. The engagement plan was designed to be flexible, considering the size and scope of the project and how many cities and towns would be involved. A team of the executive committee members was formed and met to discuss strategies, lessons learned from previous projects and met with experts to create an outreach framework.

The financial component of the feasibility study outlined the strategy for securing the project's funding, which explored obtaining funds from federal, state, and private investments. The project's cost was estimated to be between $24 billion to $42 billion. The revenue generated from the high-speed rail system was estimated to be between $160 million and $250 million.

The report bifurcated the money sources between funding and financing. Funding referred to grants, appropriations from the local or state government, and revenue. Financing referred to bonds issued by the government, loans from financial institutions, and equity investments, which are essentially loans against future revenue that needs to be paid back with interest.

The sources for the capital needed were to vary as the project moved forward. In the early stages, most of the funding would come from the government, and as the project developed, funding would come from private contributions and financing measures. Private contributors included Microsoft Inc., donating more than $570,000 to the project.2

The benefits outlined in the feasibility report show that the region would experience enhanced interconnectivity, allowing for better management of the population and spur economic growth by $355 billion throughout the region. The new transportation system would provide people with access to better jobs, affordable housing, and increase collaboration throughout the community. The high-speed rail system would also relieve congested areas from automobile traffic.1

The timeline for the study began in 2016 when an agreement was reached with British Columbia to work together on a new technology corridor that included high-speed rail transportation. The feasibility report was submitted to the Washington State land Legislature in December 2020. As of 2021, the project has yet to begin construction.