The Importance Of A Feasibility Study to an Entrepreneur

The dynamic nature of today’s business environment has led to an increase in the risks and uncertainties that are faced by organizations. The growth in the degree of awareness of the customers has led to a dramatic increase in competition as more and more companies are now trying to cater to the needs of these customers. It has become crucial for businesses to outshine competition in terms of provision of value to its clients. Survival in the marketplace has become difficult, however, entering it is an entire different story. An absence of proper planning and forethought leads to the failure of entrants. Thus, to ensure profitability, it becomes essential to conduct some sort of analysis before plunging into the market. A proper example of this analysis is the feasibility study.

Why you as a business should not ignore the importance of a Feasibility Study

The feasibility study acts as an investigative tool to assess the potential, viability or practicability of a new business. Some important characteristics of Feasibility study:

  • It is an excellent instrument for the prediction of the likelihood of success or failure of a new business venture.
  • It may also be adopted in the case of incorporation of new products or ideas into the business mix.
  • A feasibility study includes all the actions that are needed to be taken to determine whether a business idea is likely to succeed.
  • It is a stepwise process that helps weigh the pros and cons of each step prior to getting into the actual process.
  • It provides results for key decisions that may be, moving forward with the idea, refining it or leaving it altogether.

The business plan is dependent on the feasibility study. A feasibility study also determines alternatives and solutions which may otherwise not have been known. Thus, it becomes critical to conduct this research before the commitment of business resources, time and money to a business idea that may not work as planned as this only leads to further investment for the correction of previous mistakes. The collection of this data helps make informed decisions regarding the selection of the most profitable path. This document scrutinizes all the various factors related to incorporation and the execution of the business.

How a Feasibility Study can ensure your business will be on track

  • A thoroughly executed feasibility study helps the firm in attaining a broad picture as well as a detailed analysis of the profitability of its future business.
  • It can gain knowledge about the project before investing budget, time or other resources into it. Sometimes, the scope of the project may be drastically changed.
  • The feasibility study ensures that all determinations are made prior to jumping into the business and learning about the shortcomings later. Various alternatives of the conduct of business are generated and the most optimum one is adopted.
  • This study provides invaluable detail and a scrutinized analysis of the entire business scenario.
  • It enhances the success rate as numerous parameters are evaluated.
  • It is also an excellent source of provision of information to the future investors of the business. They can receive a complete snapshot of the various factors related to the venture.
  • Feasibility studies are prevalent in countless industries including, but not limited to, the Hotel, Hospitality, Restaurant, Real Estate, Medical, Office, Industrial industry. A thorough guidance is provided to ensure that the business starts off on the right foot.
  • This study helps ensure smooth running of the business and paves way for effective operations.
  • It enables the organization to focus on both short and long term goals. The significance of this document can never be underestimated as the success or failure of the business is dependent on it.

Components of Feasibility Study include (but are not limited to),

Financial Feasibility

The financial attractiveness of a particular business idea is established through a feasibility study. The conduct of any activity is not possible without monetary resources. This includes the estimation of all the costs that will play a vital part from the inception of the project to the operational costs during the later stages of its lifecycle. One of the most important costs is the startup capital. The study involves the determination of the funds required to start a business. Once these are deduced, the potential sources of generating this capital are also listed. Another important figure is the return on investment (ROI). The degree to which an activity yields financial gains is developed. The potential cash flows of the future are calculated. It also brings fourth the payback period, which puts forward the amount of time the investment takes to break-even. All these figures are, thus, summarized into a singular document.

Economic Feasibility

The economic benefits to be reaped by the business are ascertained by a feasibility study. It helps provide the degree to which the economic advantages of the idea are greater than the economic costs. An accurate analysis of the comparison of the all the costs to be incurred and the benefits to be received is conducted. This not only determines the viability of the project, but also directs the business towards saving itself from an inadequate allocation of resources. The credibility of the idea is assessed, and the management achieves a distinct breakdown of all the various costs it will have to incur from the initiation to the execution of the entire project. These costs, when weighed against the benefits that may be generated, result into the overall economic feasibility of the project.

Market and Marketing Feasibility

An essential part of the feasibility study is the market feasibility. All the details of the respective industry are presented in this section. Important details including the size, retail value and trends of the industry are gathered. The particular market is also analyzed along with the future market potential. A detailed evaluation is required to ensure the success of the business. The competitive landscape is also prepared. The firm, thus, adopts the most appropriate strategy of positioning itself relative to the competition.

The description of the product/service is also determined. All the variations are considered and analyzed so the most profitable one may be adopted. A profile of the potential customers is prepared and the size of the market in terms of prospective buyers is also estimated. Through the use of historical data, sales projections may be estimated. Different locations of the target audience are explored and the most beneficial audience and location may be selected. The degree of acceptability of the deliverable exhibited by the proposed target audience may be generated. It ensures that the right product is produced for the right clients. Pricing strategies and decisions are taken. It directs the decision makers to the discovery of the most beneficial opportunities.

Technical feasibility

Another essential is the support system required for smooth operations of the business. Variations in options related to logistics may be discovered. It helps one come across the availability of resources in terms of the required labor, material and relevant technologies. The potential of the technical resources available to the firm is estimated. An assessment of the skills of the technical team is conducted. Any shortcomings and the ways of meeting them are looked into. It also involves the evaluation of essential systems including hardware, software and technological requirements of the overall system.

Organizational and Operational Feasibility

The requirement of the human resource is also scrutinized. The skills required by the professionals and an estimation of the firm’s capacity falls under this category. The required background of the professionals and any shortcoming being faced by the current human resource of the new business or project are analyzed. In case of absence of an effective team, hiring decisions may be made on the basis of the feasibility study. The entire legal and corporate organizational structure is planned accordingly. Similarly, this study also helps ensure that the firm has adequate resources for the running of smooth operations.

Legal Feasibility

Every country has its own respective legal implications. Any legal requirements that may hinder business activity need to be considered. This analysis explores all the legal factors that may conflict with the proposed business. All the relevant laws or protection acts are taken into account. An organization may save considerable time and effort by learning any type of locational constraints its business may face due to legal requirements.

Scheduling Feasibility

The different phases of the lifecycle of the business are planned and taken into account. The essential milestones and the entire schedule for their achievement is outlined. Based on the future projections, the different stages of business activity are estimated. All the essential activities and their respective times of fulfillment are enlisted.

Project durability

A lot of investment and precious resources are taken into a single project. These have to be utilized to their most optimum capacity. A feasibility study develops the entire path that the project may follow. It includes vital information like financial projections. It is only wise to select the business idea or project that will be the most durable on a long term basis and will endure financial risks of the future.


As a result of the examination, the feasibility study identifies all the constraints that may be faced by the business. These may include, but are not limited to, monetary, technical, resource-related, technological, financial, marketing, logistical, legal, environmental constraints. An estimation of these constraints provides a distinct view of all the problem areas where the project may face hindrances in the future and their root causes.

Key decisions

One of the principal functions of the feasibility study is the decision of moving forward with the business. Since all the factors related to the business are taken into account, a clear picture of the different aspects is produced. Owing to the limited nature of resources, it is essential to ensure that they are being utilized in the most appropriate manner. The most advantageous path needs to be taken as important resources are not only saved from being wasted on the wrong projects, but also invested into relatively profitable ones in the future. A firm saves itself from facing losses, as consideration of the new project becomes dependent on how the return is analyzed against the investment. Other than that, a feasibility study also generates concrete reasons for avoidance of the forethought business. The study is an exploratory process, as it helps assess various options and their implications. The go/no-go decision is one of the most vital in business development as decisions cannot be reversed and it is always better to take calculated ones instead of fixing wrong ones in the future.

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