Feasibility study: definition, importance, and timing

A feasibility study serves as a roadmap that helps set the project in the right direction, mitigate mistakes and risks, and create a strategic plan to achieve goals and enhance the chances of success.

Feasibility study concept

A feasibility study involves a thorough analysis of a new project idea, assessing its practical viability to determine the probability of its success. This success is typically measured by the return on investment and potential profits.

In other words, a feasibility study is a preliminary exploration of a proposed project, assessing its advantages, sustainability, and investment worthiness. Moreover, it helps identify the project's strengths, weaknesses, potential for success, and any threats and challenges it may encounter objectively and logically. 

A feasibility study delves into all aspects impacting the project, leaving no detail unexplored. This includes the economic aspect, which encompasses evaluating costs, revenues, and expected profits; the operational and organisational aspect, which determines how to manage and run the project effectively; and the technical aspect, which assesses the feasibility of implementation in terms of technology, equipment, and technical requirements. Additionally, the legal aspect evaluates whether the project idea complies with the legal requirements of the intended investment location, while the marketing aspect identifies the target market, potential customers, and competitors' capabilities.

The importance of feasibility studies: guiding project success

A feasibility study is a critical tool for any company or investor seeking growth and success. It is an effective method for assessing and analysing the economic and financial aspects of a project through:

Providing critical information for decision-making

A feasibility study provides investors and business owners with sufficient information, a comprehensive overview, and an understanding of key project aspects. This enables them to make well-informed decisions about whether to proceed with the project. Also, it offers clear justifications and explanations for either initiating or discontinuing the project before allocating any budget or time.

For instance, if the project idea is an online clothing store, a feasibility study might reveal a rising demand for such goods online, especially with the prevalence of smart device usage. It could also reveal the potential to gain a significant competitive advantage through attractive marketing promotions and excellent customer service, making the decision to proceed with this project straightforward.

Conversely, if the project idea involves opening a fine dining restaurant, and the feasibility study indicates a low demand for this type of cuisine or a potential increase in food costs, opting to halt the project can prevent financial losses.

Determining potential risks

A feasibility study provides crucial insights and information to avoid high-risk projects, such as those dependent on new, untested technology. It also identifies potential risks the project may face and suggests ways to avoid them, such as the entry of strong competitors offering similar products or services at lower prices, unexpected cost increases in raw materials, funding delays, or natural disasters that could damage the project's infrastructure.

Identifying optimal project execution methods

A feasibility study offers valuable information that forms a solid foundation for planning and executing the project effectively. For instance, market and competitor data aid in setting the appropriate price for the product or service, identifying optimal methods to reach target customers, and utilising financial and budget-related information to gauge operational costs and employee salaries.

When to conduct a feasibility study

A feasibility study should precede any significant investment or decision concerning a project. This applies to the commencement of a new project, the allocation of time, budget, and resources, and the development of a work plan, which should only be created after validating the project’s feasibility. A feasibility study is also necessary when planning to change or expand current project services, such as adding new production lines, to evaluate profitability and the potential to increase customer satisfaction. 

Moreover, a feasibility study is necessary when considering the acquisition of market competitors or other competing companies for private ownership and branding purposes. For example, suppose a clothing company plans to acquire a startup with unique new designs. In this case, the study should assess the startup market value, the compatibility of its new designs with the company's existing ones, and other relevant factors to support an informed decision.

In conclusion...

A feasibility study provides essential insights and information that significantly impact business decisions and project trends, making its execution a critical step. Although a feasibility study does not guarantee absolute project success and can sometimes be costly and time-consuming, the potential costs of incorrect decisions and pursuing unviable projects are much higher. Therefore, conducting a thorough feasibility study based on reliable data and information undoubtedly reduces risks and increases the chances of success.