importance
1. Launching a New Business
Many entrepreneurs look at the launch of a new business as a short-term project that can get them to a sustainable profit level. Business veterans often review two feasibility studies: one to determine the long term viability of the business, and other to understand the resources necessary for a successful launch. During the original “dot com bubble” in the late 1990s, many companies overlooked the importance of feasibility studies, leaping into venture-backed businesses with abandon. Anyone who remembers Pets.com, Kozmo.com, Webvan.com, or hundreds of other high profile failures understands what can happen when companies can’t sustain themselves.
2. Creating a New Product or Service
General Electric has become famous for experimenting with new products and services, some of which might not seem like a perfect fit for a company with roots in engineering. However, a company that understands the importance of feasibility studies can make strategic decisions that reap major dividends. Building a routine process for feasibility studies within an organization helps develop a culture of experimentation without putting the entire company at risk.
3. Changing an Existing Internal Process
Many project managers face the challenges of implementing new internal systems, like customer relationship management software or communications tools. Subjecting new ideas to a feasibility study before contracts are signed can keep a company from investing too heavily in systems or processes that will fail to gain traction or meet customer needs.
4. Deciding on a Partnership or Vendor
Shareholders and employees require assurance that a merger that looks good on paper will actually fly in the real world. Likewise, white papers and glowing customer testimonials from a prospective vendor won’t matter if their product or service doesn’t address critical issues. Feasibility studies become important tools to separate the reality of a deal from the short term gains enjoyed by participants.
advantage
1. Understanding Demand
Feasibility studies always analyze whether a real demand exists for a product or a service. This holds true for internal projects as well as for potential consumer offerings. For example, a project manager tasked with launching a customer relationship management system can examine the real demand for specific features, based on feedback from customers and from staff. The resulting data can shape the priority list, which impacts both the budget and timeline. This way, project managers can avoid spending resources on features or projects with low impact and low demand among end users.
2. Assessing Resources
Another of the advantages of feasibility studies is the opportunity to catalog the current resources available for a project and to estimate the need for additional resources. Feasibility studies that recommend against projects often cite a lack of human resources or financial capital. This kind of result gives a project manager the opportunity to reset expectations based on real budgets and headcount.
3. Marketing Feasibility
Even for products and services with measurable demand, companies must examine their ability to spread the word about a new offering. During a feasibility study, project managers learn whether the market is already over saturated with stronger competitors. Company leaders can also discover any potential legal roadblocks involving trademarks, patents, or other intellectual property rights.
4. Marking a Timeline
One of the biggest advantages of a feasibility study is the validation of a prospective timeline. When moving into a formal project planning phase, a project manager can use data generated by the study to help set milestones and deadlines. A quality feasibility study examines the timetable suggested by project sponsors for potential delays or breakdowns. When project managers use a study as the basis for making timeline decisions, they run the least risk of being overruled by anxious stakeholders.
method
Examine the Market
The first step to an effective feasibility study method involves a critical analysis of the competitive landscape for a product or service. Many first-time entrepreneurs make the mistake of assuming that their product has no competition. In reality, any other way in which a customer allocates money, time, or attention can be viewed as competition. The feasibility study should paint a realistic picture of the likelihood that enough customers will be satisfied to result in a sustainable offering.
Review Technical Requirements
Understanding the needs of the marketplace does not always guarantee the ability to meet customers’ expectations. Including this analysis in the feasibility study method puts the overall requirements for a successful project into the proper context. In many cases, a study can help determine whether the project sponsor will require more resources internally or whether an outside vendor or partnership can handle the tasks more effectively.
Explore the Business Model
Having assessed the current market need and a team’s ability to execute, a feasibility study can look at the long term viability of the overall business model. This feasibility study method relies heavily on tools like scenario planning to ensure long term success. Project managers can discover whether the business model actually offers enough profit potential to make the initiative worthwhile. Likewise, study administrators can examine whether the new product or service under consideration requires such a significant change as to make it untenable within a business.
Look for an Escape Route
“Forever” is a dirty word among many venture capital firms. Investors like to know that they’ll make a profit, and they want to have a strong idea about when they can cash the check. Common feasibility study methods include an analysis of potential exit strategies, especially for investors and other stakeholders that may want to move on. Study leaders can investigate how a project will evolve over multiple iterations, and whether it relies too heavily on key personnel.
steps
Executive Summary
The most important page of the report is often the only page that many stakeholders actually take the time to read. Although it should always be presented on the first page of a report, the executive summary is a digest of the following five feasibility study steps.
Clear Project Description
A recap of the project as it was defined for the study can help stakeholders understand the questions asked and the results generated. Stating the project description in very basic terms removes uncertainty about a project for stakeholders who might otherwise be unfamiliar with the ideas the project represents.
Competitive Landscape
Reviewing the strengths, weaknesses, opportunities, and threats faced by a project helps decision makers focus on the big picture. In some organizations, leaders may not want to approach a new market unless they know they can dominate it. Other companies prefer to focus on profits gained instead of market share. Either way, the challenges faced should be clearly defined, along with the consequences of failure.
Operating Requirements
When following this set of feasibility study steps, authors can use this point in the report to stay clear, focused, and unbiased about a project’s real needs. Project managers that understate the physical and fiscal resources required for a new product or service often end up with failed projects or unfulfilled promises.
Financial Projections
More than ever, Investors and CFOs pore over the financials in a feasibility study to make sure that projects can generate the kind of scalable profits that warrant their approval. Expert project managers emphasize the break-even analysis, a timeline view of the moment a project can pay for itself.
Recommendations & Findings
Summarizing all of the previous feasibility study steps, the recommendations and findings can shape the outcome of a project proposal. Instead of simply stating a “yes” or “no” answer to the question of project approval, this section offers an opportunity to enhance a project by pointing out areas of opportunity
