A feasibility study is done by an organization in order to determine if a particular action makes sense from an economic and operational standpoint. Such a study is usually designed to provide an overview of the essential issues related to a course of action being considered. The goal is to test the feasibility of a proposed course of action and to identify any “make or break” issues that would argue against the action being taken or suggest that a successful outcome were unlikely.
Businesses find it helpful to conduct a feasibility study whenever they anticipate making an important strategic decision. For example, a company might perform a feasibility study to evaluate a proposed change in location, the acquisition of another company, a purchase of major equipment or a new computer system, the introduction of a new product or service, or the hiring of additional employees. A feasibility study is advisable as a means of fully studying an action in advance of taking the action. This allows managers a chance to fully assess the impact that any major changes they are consider may have before implementing the change.
As David E. Gumpert, wrote in his book How to Really Create a Successful Business Plan, “Although [an unsuccessful feasibility study] may appear to be a failure, it’s not. The failure would have been if you had invested your own and others’ money and then lost it due to barriers you failed to research in advance.”
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Steps In Conducting A Feasibility Study
The main objective of a feasibility study is to determine whether or not a certain plan of action is likely to produce the anticipated result—that is, whether or not it will work, and whether or not it is worth doing economically.
Although the primary objective of the study is dedicated to showing the outcomes of specific actions, it should begin with an evaluation of the entire operation.
A good feasibility study would review a company’s strengths and weaknesses, its position in the marketplace, and its financial situation. It would also include information on a company’s major competitors, primary customers, and any relevant industry trends. This sort of overview provides small business owners and managers with an objective view of the company’s current situation and opportunities. By providing information on consumer needs and how best to meet them, a feasibility study can also lead to new ideas for strategic changes.
The second part of a good feasibility study should focus on the proposed plan of action and provide a detailed estimate of its costs and benefits. In some cases, a feasibility study may lead management to determine that the company could achieve the same benefits through easier or cheaper means. For example, it may be possible to improve a manual filing system rather than purchase an expensive new computerized database.
If the proposed project is determined to be both feasible and desirable, the information provided in the feasibility study can prove valuable in implementation. It can be used to develop a strategic plan for the project, translating general ideas into measurable goals. The goals can then be broken down further to create a series of concrete steps and outline how the steps can be implemented. Throughout the process, the feasibility study will show the various consequences and impacts associated with the plan of action.
In some cases, a company may wish to hire a qualified consultant to perform a feasibility study. To be able to provide a meaningful analysis of the data, the consultant chosen should have expertise in the industry. It is also important for small businesses to assign an internal person to help gather information for the feasibility study. The small business owner must be sure that those conducting the study have full access to the company and the specific information they need.