A feasibility study is an evaluation and analysis of a project or system that somebody has proposed. We also call it a feasibility analysis. The study tries to determine whether the project is technically and financially feasible, i.e., is it technically or financially viable? Financially feasible, in this context, means whether the project is feasible within the estimated cost.
A feasibility study also determines whether a project makes good business sense, i.e., will it be profitable?
Put simply; the study is an analysis of how easily or successfully we could complete something. It also tries to determine how profitable or unprofitable it might be.
When large sums of money are at stake, companies and organizations typically carry out feasibility studies.
Feasibility study vs. business plan
The term is similar to a business plan, but the meaning is not the same. When somebody has an initial business idea, the company carries out a feasibility study.
The study aims to flesh out the possibilities in that business idea.
The business plan, on the other hand, describes the company, its goals, strategies, and financial projections (forecasts).
A feasibility analysis tells you whether something will work. A business plan tells you how it will work.
Definition of feasibility
The word ‘feasibility‘ means the degree or state of being easily, conveniently, or reasonably done. If something is ‘feasible,’ it means that we can do it, make it, or achieve it. In other words, it is ‘doable’ and also ‘viable.’
A viable business, for example, is one we expect will make a profit every year for a long time.
On an Iowa State University webpage, Mary Holz-Clause and Don Hofstrand write:
“A feasibility study is an analysis of the viability of an idea.”
“The feasibility study focuses on helping answer the essential question of ‘should we proceed with the proposed project idea?’ All activities of the study are directed toward helping answer this question.”
A viability study is similar to a feasibility study. However, the viability study only looks at how profitable or commercially successful an idea or project might be. It does not determine whether something is doable.
According to BusinessDictionary.com, a feasibility study is: “An analysis and evaluation of a proposed project to determine if it (1) is technically feasible, (2) is feasible within the estimated cost, and (3) will be profitable.”
Feasibility study – example
A hospital, for example, aiming to expand, i.e., add an extension to the building, may perform a feasibility study. The study will determine whether the project should go ahead.
The people carrying out the study will take into account labor and material costs. They will also take into account how disruptive the project might be for staff and patients.
The study may have to gauge public opinion regarding the new extension. In other words, would the local community be in favor or against such a project?
It is important to determine how the stakeholders will respond. A stakeholder is a person with an interest or concern in a project, business, or organization.
Hospital stakeholders are, for example, doctors, nurses, other hospital staff, patients, hospital visitors, and the hospital’s owner. Members of the local community may also be stakeholders.
Those conducting the study go through all the pros and cons of the project. They then weigh them against each other. Finally, they determine whether it is a good idea to go ahead.
Cost vs. value
In its simplest terms, the two main criteria to determine whether a project is feasible are:
- How much will it cost?
- What value will the project bring upon completion?
A good feasibility study
According to Wikipedia, a good feasibility study should provide:
- A historical background of the project or business.
- Accounting statements.
- Details of all the operations and management.
- A detailed description of what it is.
- Financial data.
- Tax implications and obligations.
- Legal requirements.
- Marketing research data and policies.
Feasibility Study is an important step in the entrepreneurial process.
This Penn State Extension video tells us that feasibility studies are an important step in the entrepreneurial process.
Apart from explaining what a feasibility study is, the speaker also shows how it is different from a business plan.