- 14 Dec
What is Feasibility Study and Its Importance in Project Management
The growth and recognition of project management training have changed significantly over the past few years, and these changes are expected to continue and expand. And with the rise of project management comes the need for a feasibility study.
Feasibility study checklist
Most feasibility studies are structured in a similar way. These documents serve as an assessment of the practicality of a proposed business idea. Creating a clear feasibility study helps project stakeholders during the decision making process.
A feasibility study contains:
- An executive summary describing the project’s overall viability.
- A description of the product or service being developed during this project.
- Any technical considerations, including technology, equipment, or staffing.
- The market survey, including a study of the current market and the marketing strategy.
- The operational feasibility study, evaluating whether or not your team’s current organizational structure can support this initiative.
- The project timeline.
- Financial projections based on your financial feasibility report.
6 steps to conduct a feasibility study
You likely won’t be conducting the feasibility study yourself, but you will probably be called on to provide insight and information. To conduct a feasibility study, hire a trained consultant or, if you have an in-house project management office (PMO), ask if they take on this type of work. In general, here are the steps they’ll take to complete this work:
1. Run a preliminary analysis
Creating a feasibility study is a time-intensive process. Before diving into the feasibility study, it’s important to evaluate the project for any obvious and insurmountable roadblocks. For example, if the project requires significantly more budget than your organization has available, you likely won’t be able to complete it. Similarly, if the project deliverables need to be live and in market by a certain date, but they won’t be available for several months after the fact, the project likely isn’t feasible either. These types of large-scale obstacles make a feasibility study unnecessary, because it’s clear the project is not viable.
2. Evaluate financial feasibility
Think of the financial feasibility study as the projected income statement for the project. This part of the feasibility study clarifies the expected project income and outlines what your organization needs to invest—in terms of time and money—in order to hit the project objectives.
During the financial feasibility study, take into account whether or not the project will impact your business's cash flow. Depending on the complexity of the initiative, your internal PMO or external consultant may want to work with your financial team to run a cost-benefit analysis of the project.
3. Run a market assessment
The market assessment, or market feasibility study, is a chance to identify the demand in the market. This study offers a sense of expected revenue for the project, and any potential market risks you could run into.
The market assessment, more than any other part of the feasibility study, is a chance to evaluate whether or not there’s an opportunity in the market. During this study, it’s critical to evaluate your competitor’s positions and analyze demographics to get a sense of how the project will do.
4. Consider technical and operational feasibility
Even if the financials are looking good and the market is ready, this initiative may not be something your organization can support. To evaluate operational feasibility, consider any staffing or equipment requirements this project needs. What organizational resources—including time, money, and skills—are necessary in order for this project to succeed?
Depending on the project, it may also be necessary to consider the legal impact of the initiative. For example, if the project involves developing a new patent for your product, you will need to involve your legal team and incorporate that requirement into the project plan.
5. Review project points of vulnerability
At this stage, your internal PMO team or external consultant have looked at all four elements of your feasibility study—financials, market analysis, technical feasibility, and operational feasibility. Before running their recommendations by you and your stakeholders, they will review and analyze the data for any inconsistencies. This includes ensuring the income statement is in line with your market analysis. Similarly, now that they’ve run a technical feasibility study, are any liabilities too big of a red flag?
Depending on the complexity of your project, there won’t always be a clear answer. A feasibility analysis doesn’t provide a black and white decision for a complex problem. Rather, it helps you come to the table with the right questions—and answers—so you can make the best decision for your project and for your team.
6. Propose a decision
The final step of the feasibility study is an executive summary touching on the main points and proposing a solution.
Depending on the complexity and scope of the project, your internal PMO or external consultant may share the feasibility study with stakeholders or present it to the group in order to field any questions live. Either way, with the study in hand, your team now has the information you need to make an informed decision.
What Is Included in a Feasibility Study Report?
When starting a business, one of the most important steps is to conduct a feasibility study. This study will help determine if your business idea is viable and has the potential to be successful. Several factors need to be considered when conducting a feasibility study, including the marketability of your product or service, the competition, the financial stability of your company, and more. A feasibility study should cover the amount of technology, resources required, and ROI.
The results of your feasibility studies are summarized in a feasibility report, which typically comprises the following sections:
- Executive summary
- Specifications of the item or service
- Considerations for the future of technology
- The marketplace for goods and services
- Approach to marketing
- The financial forecasts
- Recommendations based on research
Suggested Best Practices
While every project has its own goals and needs, the following are best practices for conducting a feasibility study.
- Do a preliminary analysis. This includes getting feedback from relevant stakeholders on the new project. Also, look for other business scenarios.
- To ensure that the data is solid, determine and ask queries about it in the initial phase.
- Take a market survey to identify the market demand and opportunities for the new concept or business.
- Create an organizational, operational, or business plan. This includes identifying how much labor is required, what costs, and how long.
- Make a projected income statement that involves revenue, operating expenses, and profit.
- Create an opening day balance sheet.
- You will need to identify and address any vulnerabilities or obstacles.
- Take an initial decision to go ahead with the plan.
Here are the some suggested components for conducting a feasibility study:
- Executive Summary: Write a narrative describing the project, product, or service.
- Technological considerations: Ask yourself what it will take. Are you able to afford it? How much will it cost?
- Current marketplace: Find out the market for your product, service, or plan in the local and global markets.
- Marketing strategy: Define in the detailed description.
- Required staff: What human resources are needed for this project?
- Timeline and schedule: Use important interim markers to indicate when the project will be completed.
- Project financials. Project financials are the different ways managers can account for money spent and earned on projects. One of the most important aspects of financial management is creating and tracking accurate project financials.