What is a feasibility study?

A project feasibility study is a comprehensive analysis conducted to assess the viability, potential risks, and benefits of a proposed project before proceeding with its implementation. The study helps stakeholders make informed decisions by evaluating various aspects of the project, including technical, financial, economic, environmental, and legal factors.

A Project feasibility study also known as a project feasibility analysis refers to the process of evaluating if the project plan could be victorious. A feasibility study assesses the viability of a project plan and then investigates whether or not the project is ready to be implemented and assures that it will be successful. Business success will be primarily defined by return on investment, meaning that the project will generate enough profit to justify the investment. But many other factors, such as community response and environmental impact, will be described as positive and negative. Although a feasibility study helps the project manager determine the risks and benefits of implementing the plan, there are some steps to consider before moving forward.

A project feasibility study is an evaluation of the feasibility of a plan or project. A feasibility study analyzes the feasibility of the project to determine whether the project or business will be successful. This study also aims to identify problems that may arise and problems that may arise during the implementation of the project. As part of the feasibility study, managers need to determine whether they have the necessary personnel, capital, and technology. Research, like non-profit projects, must also consider the return on investment, whether measured in terms of financial gain or social benefit.

A project feasibility study may include a cash flow analysis that measures cash flow against operating costs. A risk assessment should be completed to determine whether returns are sufficient to offset the potential risk.

Do you need a project feasibility study?

This question may reflect in the minds of many professionals, especially those who are about to embark on new projects. The answer is obviously 'yes' and here's why. Let's take an example of a recent scenario. In the 19th century, the famous company called Nokia was one of the stems in the world of phones. Later Nokia collapsed in the world of smartphone supremacy due to poor technological capacity in front of their competitors like Apple and Samsung smartphones, the failure of Nokia's ignorance about market and consumer demands was the main cause of their downfalls. So without diving into a deep analysis of our scenario, they failed to consider crucial factors such as technology, consumer demands which is market analysis, and also ignorance about the rising competitors. If they were serious and hired a trained or qualified consultant during that period a feasibility study technique could have been applied and found those coming threats before they dived into execution, Nokia should have been saved from the situation.

A project feasibility study is a critical step in the project management process. It helps to evaluate the viability of a project before investing significant time, resources, and capital. It's like a litmus test, revealing potential roadblocks and enabling informed decisions.

The main objective of the feasibility study

Project Feasibility studies is designed to help decision-makers determine whether a plan or investment will be successful. It identifies known costs and expected benefits.In business, prosperity means what you gain rather than what you spend. Success in nonprofit organizations can be measured in their activities achieved which later brings Many sources including grants, donations, and sales. The benefits a project brings to the community it serves will be worth it.

Comprehensive feasibility study

First, it appears at the project's financial feasibility, evaluating the cost-effectiveness of the venture. Then, it assesses the technical feasibility, determining if the important era and resources are available. The feasibility look also considers criminal feasibility, ensuring the project complies with relevant legal guidelines and regulations.

Lastly, it delves into operational feasibility, investigating whether the task can realistically be implemented within the proposed timeline and organizational structure. Let's revisit the Nokia example. Had they performed a radical feasibility look, they would have found out the marketplace wasn't prepared for their commercial enterprise model. They might have determined that the expenses of their era and transport gadgets ought to outweigh their earnings. In essence, they might have prevented a pricey misstep.

Timing to conduct a feasibility study

The project feasibility study is a necessary process for any project to be successful, and it should be managed right after choosing the idea or intentions to set up a project. This part could be held countable in the planning process. This process also goes hand in hand with SWOT analysis and Risk assessment. 

What you need to have on your feasibility study

The project feasibility study document is an extended document that shows the main part of the project plan and the analysis of the selected project. The project feasibility study must include:

i. Summary This section contains a brief statement of the overall viability of the project.

ii. Identification of the product or service to be implemented

iii. Technical analysis embedded in legislation, technology, equipment, and staff to consider

iv. Market Assessment This section includes market analysis and market acquisition strategies

v. The operative evaluation part consists of the technical team that assigned the specified tasks

vi. Project Timeline This section shows when the project starts and ends.

vii. Analysis of the budget proposal based on available resources.

viii. Findings and Recommendations: Divided into technical, commercial, organizational, and financial subgroups.

Steps for conducting a Project Feasibility Study

The process of the project feasibility study can not be conducted by the firm itself but it has to provide full information and insight on the project to the trained and hired individual or a consultant firm for the preliminary feasibility or else if you have a project management specialist in your firm, he may do this to you. the following are the steps it will take you to conduct the feasibility study of a project;

Step 1: Run a preliminary analysis

This is a very important step in the project feasibility study that can ensure that all the necessary people and resources are available to implement the project. This may mean thinking about funding from different sources and other inputs such as volunteer help or premises. The study should include a review of appropriately detailed budgets. In this preliminary analysis, what the project does and achieves must be considered in detail: its outputs and above all its long-term results. The benefits to neighborhoods and their residents are reflected in improved quality of life (employment, better housing, safety, health, etc.) and the evaluation considers whether they are real. But projects also generate outputs, and we need a more understand view of output forecasts than in the past. Another problem is that this is one of the key criteria by which projects are evaluated. A major concern for government, it is also important for local partnerships and local factors that may affect costs may need to be taken into account. The study will need to examine the practical plans for implementing the project and ask whether staffing will be sufficient, whether the work schedule is realistic, and whether the organization delivering the project appears capable of delivering. You can't avoid risk - but you need to make sure you identify the risk (is there a risk, and if so, what is it?), estimate the level of the risk (if there is a risk, is it big?), and evaluate the risk (how important is the risk to the project.) Contingency plans should also be in place to minimize the risk of project failure or large gaps between what was promised and what was delivered. Evaluating future strategies can be particularly difficult given the inevitable uncertainty about how projects will develop. However, it is never too early to start thinking about whether a project should have a fixed lifespan or, if it is to continue beyond the regeneration funding period, what kind of support it will need to do so. It is often considered in conjunction with other funding, but with the increasing emphasis on mainstream services in neighborhood regeneration, evaluations should also consider mainstreaming and implications from the former.

Step 2: Project Feasibility Analysis

Your project must comply with the law, including rules and regulations that apply to all activities and deliverables in the project. Also, consider the legal structure that will be most beneficial to your organization and its investors. When it comes to the liability of a business owner, such as a limited liability company (LLC) or a corporation, all business legal forms have advantages and disadvantages that minimize the liability of all business partners. Therefore, to ensure that your project complies with the laws and regulations of the country in which it operates, the project must comply with the law.

Step 3: Project Market Feasibility Analysis

This is one of the most important parts of a project feasibility study as it examines the marketability of the product or service and convinces the reader that there is a potential market for the product or service. If a significant market for a product or service cannot be created, then there is no project. A market study will usually assess the potential sales of the product, the rate of market absorption and capture, and the timing of the project. The importance of market feasibility is obvious because no investment is worthwhile unless its product can be sold at competitive prices to realize capital and operating costs from sales revenue. It is necessary to follow the correct policy of allocation of resources so that scarce capital resources are used in economically advantageous enterprises.

Step 4: Project Financial Feasibility Analysis

The financial analysis deals in detail with the sources of financing the project both from the point of view of the completion of the project and the point of view of its permanent operation.

The financial evaluation tries to find out whether the proposed project will be financially viable in the sense of being able to carry the burden of servicing the debt and satisfy the investor's expectation of return on capital.

The proposed financing measures will sufficiently cover the capital and operating costs of the project. Current liquidity is proportional to current liabilities. The project will earn a sufficient profit margin to pay interest on long-term debt and debt repayments. The project will earn a reasonable return on the capital provided by its sponsors and the project has an adequate level of safety margin to cope with any adversity that may arise. Since financial measures are largely responsible for this.

The economic costs and benefits of the project are estimated using a cost-benefit analysis, i.e. by evaluating both the implicit and social costs and benefits of the project. For profitable projects, profitability tools such as net present value, internal financial rate of return, payback period, and incremental profit are used to estimate the viability of the project.

Step 5: Project Technical Feasibility Analysis

Project technical feasibility study means the analysis of technical and engineering aspects, which is mainly carried out during the investigation and formulation of a development project. An important aspect of the technical assessment is the required materials and inputs, the detailed specification of their properties, and the setting of their supply program. There is a close connection between the examination of subsistence and feed-in and other features of project conceptualization, especially those related to location, technology, and equipment. Generally, the technical evaluation is carried out by the sponsoring or implementing agency through its available qualified technical staff. However, for large national projects financed mainly by international donors, an impartial technical assessment must be consulted. Technical analyses of the project aim to ensure;

i. To confirm the source of the project proposal, the nature of studies – including feasibility studies carried out before the proposal and the nature of decisions taken by all relevant authorities involved

ii. That a problem or need to be solved by the project was stated

iii. The project was clearly described with the correct technical details of the proposal (such as size, location, timing, and technology)

iv. That the required materials have been correctly determined and their source identified

v. that the costs of the project have been established, the anticipated expected prices of the products, and the payment methods and schedules agreed upon

Overall, this section shows that the proposed project is expected to be free of supply bottlenecks at all stages of implementation and operation if the technological constraints that the project may face in terms of production capacity, market size for the product have been carefully considered. , whether all possible combinations of production factors were considered during the design of the project plant so that the maximum possible benefits from the point of view of production economy are used under the given circumstances, and whether the proposed location of the project is suitable in terms of availability of inputs and delivery of outputs. The viability of a project is highly dependent on its structural design. Checking the technical reliability of the project is therefore a fundamental step in project evaluation.

Step 6: Project Economic Feasibility Analysis

Project Economic analysis attempts to assess the overall impact of a project on improving the economic well-being of a country. In economic analysis, the profitability or effectiveness of a project is assessed from the perspective of the nation as a whole. It includes both direct and indirect costs and benefits in terms of shadow prices or accounting prices. The economic analysis involves all members of society and measures the positive and negative impacts of the project in terms of willingness to pay for units of increased consumption and receive compensation for lost units of consumption. Attempts have been made in this analysis to include social costs and benefits by using shadow prices instead of market prices to reflect the true values ​​of project input and output scarcity.

The purpose of economic analysis of projects is to achieve a better allocation of resources, which will lead to an increase in income for investment or consumption. All resources, inputs, and outputs have opportunity costs, through which the scope and value of project items are estimated. The project should be chosen where the resources will be used most efficiently. Economic values ​​reflect the values ​​that society would be willing to pay for a good or service. Financial values, on the other hand, are the prices people pay. In economic analysis, the main task is to convert financial prices into economic values or to adjust financial prices so that they more closely correspond to economic values. So understanding the difference between what is paid and willingness to pay value is very important.

In cost-benefit analysis, we need to ask the fundamental questions of what costs and benefits should flow directly and indirectly to the target beneficiaries in terms of poverty reduction, increased savings, improved medical care, education, water, and health services.

Step 7: Project Social Feasibility Analysis

By a service sector project we mean a project that does not create a material output, but provides the company with the benefit of a service, i.e. an intangible benefit. Intangible benefits can only be qualified indirectly through the principle of compensation, the potential beneficiary is ready to pay the cost of the project for psychological satisfaction, and in case of postponement of the project, These types of projects only provide service benefits that can hardly be qualified. These benefits can be attributed to either the individual or the community. Projects embody the goals of social welfare and qualitative improvement and do not respond to quantitative conditions. The assessment of such projects is to be done in terms of the cost-effectiveness of the program as well as objectively verified evidence of achievement. The objective is to determine whether the same result can be achieved by adopting alternative technologies or strategies.

The validity of planners' assumptions about social conditions is tested through social analysis. Where necessary, adjustments should be made so that project objectives are expressed in terms that are more meaningful to both project populations and implementing agencies. Social analysis focuses on the four areas listed below:

i. Socio-cultural and demographic characteristics of the project population – its size and social structure, including ethnic, tribal, and class composition

ii. How the project population organized itself to perform productive activities, including household and family structure, labor availability, land ownership, and access to and control over resources.

iii. cultural acceptability of the project; in other words, its ability to adapt and bring about desirable changes in people's behavior and how they perceive their needs

iv. The strategy necessary to elicit commitment from the project population and ensure their continued participation from design to successful implementation, operation and maintenance

distill the key points:

A project feasibility study is an essential tool in assessing the viability of a project. It highlights potential problems, ensures the economy, checks technical and legal feasibility, and assesses operational feasibility. It's like a crystal ball that offers a glimpse into the future of a project and helps steer it toward success or sometimes away from imminent failure.

In conclusion, a project feasibility study is not only nice but a necessity. Ask Nokia. So the next time you're about to start a project, don't forget to stop and ask yourself, Do I need a project feasibility study? The answer will always be "yes".

Author: Donald Masimbi