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What is a 'Feasibility Study'

A feasibility study is a type of analysis used in measuring the ability and likelihood to successfully complete a project including all relevant factors. It must account for factors that affect it such as economic, technological, legal and scheduling factors. Project managers use feasibility studies to determine potential positive and negative outcomes of a project before investing a considerable amount of time and money into it. Instead of diving into a project and hoping for the best, a feasibility study acts as a precursor for project managers to investigate the possible negative and positive outcomes of a project before investing too much time and money.

BREAKING DOWN 'Feasibility Study'

For example, a small school looking to expand its campus might perform a feasibility study to determine if it should follow through, taking into account material and labor costs, how disruptive the project would be to the students, the public opinion of the expansion, and laws that might affect the expansion.

A feasibility study tests the viability of an idea, a project or even a new business. The goal of a feasibility study is to emphasize potential problems that could occur if a project is pursued and determine if, after all significant factors are considered, the project should be pursued. Feasibility studies also allow a business to address where and how it will operate, potential obstacles, competition and the funding needed to get the business up and running.

Importance of Feasibility Studies

Feasibility studies allow companies to determine and organize all of the necessary details to make a business work. A feasibility study helps identify logistical problems, and nearly all business-related problems, along with the solutions to alleviate them. Feasibility studies can also lead to the development of marketing strategies that convince investors or a bank that investing in the business is a wise choice.

Components of a Feasibility Study

There are several components of a feasibility study:

Description – a layout of the business, the products and/or services to be offered and how they will be delivered.

Market feasibility – describes the industry, the current and future market potential, competition, sales estimations and prospective buyers.

Technical feasibility – lays out details on how a good or service will be delivered, which includes transportation, business location, technology needed, materials and labor.

Financial feasibility – a projection of the amount of funding or startup capital needed, what sources of capital can and will be used, and what kind of return can be expected on the investment.

Organizational feasibility – a definition of the corporate and legal structure of the business; this may include information about the founders, their professional background and the skills they possess necessary to get the company off the ground and keep it operational.

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