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Before a project begins, two important documents must be completed—the business case and a feasibility study. The business case provides the justification for the project, and the feasibility study determines if it’s a viable option for the organization.
What is a Project Feasibility Study?
A project feasibility study is an analysis of several components such as market demand, technological considerations, financial projections, and organizational capacity. It gives project managers valuable insights into the project that can help them make better decisions. In addition, a feasibility study provides stakeholders with a clear understanding of the project’s potential risks, benefits, and costs.
What is the Purpose of a Feasibility Study?
The purpose of a feasibility study is to determine if a project is worth pursuing or if it should be modified or scrapped. It makes good business sense for an organization to know the potential for a project’s success before committing resources to it.
It evaluates the project from a technical, operational, and financial perspective. So, this study can be invaluable for identifying risks, potential roadblocks and/or limitations.
It also helps project managers ensure that resources will be used efficiently and increases the likelihood of success. And when stakeholders have a clearer understanding of a project, they’re more likely to give it their support.
7 Reasons Why a Feasibility Study Should be Performed Before Starting a Project.
Conducting a feasibility study before starting a project is critical for many reasons.
- The study helps identify challenges and risks early in the process, which allows for proactive problem solving.
- It determines the viability of the project by focusing on technical, operational, and financial feasibility.
- It helps stakeholders understand the potential impact of the project and helps gain their support.
- Project managers have more information to make better decisions and avoid wasted resources.
- It ensures the project is aligned with the organization’s goals and objectives.
- By discovering potential challenges early in the process, the feasibility report can help minimize the risk of unexpected costs or delays down the road.
- The study functions like a roadmap for the project.
A thorough feasibility study is a multi-faceted tool for project managers. Not only does it help to identify which projects have the most potential and the best way to move forward, but it also provides the type of detailed feasibility analysis that helps win support from stakeholders.
What are the Major Components of a Feasibility Study?
There are nine major components of a project feasibility study including a brief summary of the entire project, recommendations about whether or not to start the project, and everything in between. Only by looking at each of the following segments in-depth can an organization get a clear understanding of their potential risks versus gains.
- Executive Summary. This typically gets written last because it is a summary of all you’ve discovered during the process. It’s first on the list though, because it is the part of the CEO will want to read first. It’s a paragraph or two that provides understanding of the project without having to read the whole report.
- Description of Products and/or Services. This requires a high level of description for the products and/or services being considered as part of the study. It should include the potential benefits to customers and the organization.
- Technology Considerations. This section explores any considerations the organization should make regarding technology. Will new technology need to be developed or contracted? What are the costs?
- Product/Service Marketplace. It’s very important for the feasibility study to address the existing marketplace for the product or service being considered. Describe the target market and why they would choose our offering, potential competitors, and how our products would be distributed.
- Marketing Strategy. This portion of the report outlines the marketing for the product or service including things like differentiation in the market, types of marketing that will be used and who will be targeted.
- Organization and Staffing. If there is a need for additional staffing or reorganization of existing staff to accommodate the project, that will be detailed in this section. This is important because changes like these can result in higher costs and/or a change in processes.
- Schedule. This schedule is intended to give a high level of framework for implementation of the product, but it’s not meant to be the working schedule for the project. While it may contain some targeted milestones, they are added as guideline only. A greater level of detail will come later during project planning if the project is approved.
- Financial Projections. This is another important area of the study—how does this project affect the bottom line? What are the costs versus the expense? What is the projected benefit? There are several ways to present this information including net present value (NPV) and balance sheets. You’ll also want to include the assumptions derived from the cost-benefit analysis.
- Findings and Recommendations. This is where the big question gets answered—should the company go forward with the project or not based on the feasibility study? Why or why not?
How Do You Write a Feasibility Study?
A feasibility study is a formal document which must be presented to stakeholders prior to approving a project. Before you begin work on a feasibility study, you should read through the Business Case document first. It will give you some context for what the organization hopes to achieve with the project.
It’s easier to get started if you use a feasibility study sample to follow. For your convenience, we have prepared a Feasibility Study Template you can download for free. Otherwise, use the following list:
- Executive Summary: This is one or two paragraphs that summarize the most important information in the report. Include key findings and recommendations such as how much the project will cost, how it will benefit the company and how much staffing and time will it take to complete. Anyone desiring more information on a particular section can skip to that topic and read the detailed portion of the report.
- Description of Products and/or Services: Clearly define the proposed product or service. Talk about the important features of the product, its benefits and who the target market is.
- Technology Considerations: This can be a big consideration, as new initiatives often require technology in order to execute them properly. Plenty of detail is needed here. What functionality does the project require? New equipment? New software? Would any of this be better contracted out rather than trying to do it in-house?
- Product/Service Marketplace: Describe the results of your market research. What is the marketplace like for your item? Describe the target audience in detail and why they would choose your product or service over others. Identify the competition and assess the opportunities and the challenges. How will you make your product or service available?
- Marketing Strategy: Explain the marketing plan in this section. What differentiates you from your competitors and how will you capitalize on that? What types of marketing will you use—email campaigns, traditional advertising, or social media? Who will you be targeting? What is the message? How does this plan compare to what your company normally does? Explain why you’ve made these decisions.
- Organization and Staffing: Identify the staffing requirements for the project. Evaluate the availability of in-house resources and personnel. If new staff needs to be added, how many, what positions, and at what cost? If existing staff needs to be reassigned, how will that affect current processes?
- Schedule: Develop a project schedule with a timeline for each phase of the project. This schedule needs to include enough information so that you can properly judge the feasibility of the proposed timelines, but it does not need to include the small details at this point. It is also important to identify the potential impact of any delays or challenges to the schedule.
- Financial Projections: Develop comprehensive financial projections, including revenue and expense projections. You may find it easiest to present this information in a spreadsheet. But include at least one paragraph with your evaluation of the feasibility of project based on the projections.
- Findings and Recommendations: Use the key findings from the study to summarize what you’ve learned about the feasibility of the project. What is the likelihood of success? You could include a list of pros and cons, but this section should be relatively brief. Be sure to provide a clear recommendation on whether or not the project should go forward.
When the study is complete, run it past the stakeholders and the project team. Get their feedback and revise the report as needed. Using the feasibility study format above will ensure that you have completed a thorough feasibility study with valuable insights.