Feasibility study

What is a Feasibility study?

A feasibility study is a verification of a specific business plan. The plan may be focused on various objectives: capital expenditure on new assets, new market entry, new product launch, etc.

Why is a Feasibility study important?

Business plans are typically connected with utilising smaller or larger amounts of financial resources for their actualisation. Each business plan is at the same time connected with risks, such as that its objectives will not be achieved. Therefore, it is extremely important to scrutinise all assumptions that have been used for the business planning, and then to quantify the risks of failure. A feasibility study is required almost in all cases when external sources (credit, venture capital) are going to be used.

What is the subject of a Feasibility study?

A feasibility study is based on the fact, that the relevant prepared business plan includes all assumptions and calculations that substantiate the possible achievement of objectives (return on investment). A feasibility study is then a verification tool of these inputs.

The key assumption is that the feasibility study will accumulate information from various sources so as to eliminate negative influences. From these sources, the most likely data value for calculations is used. The result is an alternative calculation that either confirms the original evaluation of the plan, or provides a different calculation of returns. Also a part of the feasibility study concerns a sensitivity analysis that regulates the impact of a change in key assumptions on the final result.

What is a Feasibility study's deliverable?

The main deliverable is a written report that summarises findings from the verification of all inputs, and an appendix with calculations. Calculations are usually a forecast of financial reports for a defined time period (typically five to ten years), or calculations of the Return on Investment (ROI). The report is usually presented in the following sections (depending on the type of business plan):

- Objectives of the business plan;

- Assessment of the proposed technology (capacity, design, supplier);

- Assessment of proposed deadlines;

- Analysis of one-off costs and expenses (purchase price of the technology, costs of installation operation initiation, supplementary costs);

- Assessment of operating costs (price and availability of raw materials, other materials, energy, services, costs of personnel, maintenance costs, etc.);

- Assumed customers, distribution channels, costs of sales and marketing;

- Environmental impacts;

- Analysis of the relevant market (demand, competition, price);

- Assessment of the location, likelihood of obtaining all approvals from government and local authorities;

- Current position of the company, and the compliance of the plan with the business strategy.

What benefits one can gain from a feasibility study?
A feasibility study significantly reduces the risk of approving a business plan that is based on too optimistic assumptions. If some adjustments to the plan have been made (cancellation of the plan, change of its extent) based on a study, then you can save funds that would have been spent with no return. In the case of utilising external funds, a good feasibility study is a pre-condition for obtaining such funds.

Why engage a consultant?

An external consultant enjoys a great deal of independency in preparing a feasibility study. He has no personal interest in the implementation of the business plan, and he can then work just using his expertise and common sense. He also may have access to a larger number of independent information sources.

My own experience

- Feasibility study of a new hotel;

- Feasibility study of a new petrol station;

- Feasibility study of a new central warehouse for the wholesale of fruit and vegetables;

- Feasibility study of a leasing market entry strategy for a foreign bank;

- Feasibility study of a market entry for an international food company;

- Feasibility study of a branch offices network for an international bank;

- Feasibility study of a leasing market entry for an international office equipment supplier.