How to Conduct a Feasibility Analysis

According to ET Money, most Indians have a medium risk tolerance when investing [1]. On a sliding scale where the lowest score is 51 and the highest is 81, India’s average score was 63, just three points shy of exactly in the middle. This means that Indians are willing to take a risk when the moment is right, but they are prepared to wait for that right moment to happen. 

A feasibility analysis is one way to manage risk and make better investment decisions. This is also known as a feasibility study, and you can use the tool in your finances or when it comes to making big business moves. Learn why a feasibility analysis is important in project planning and how to create one for your next big idea. 

What is a feasibility analysis? 

Imagine a family-owned shop that sells shoes in one storefront. Business is going well, and the owners are making a good profit, so they have an idea. If they use their profits to open a second store in the next town, they could make even more money by selling more shoes. 

It seems like a great idea, but a lot could go wrong. It’s a big risk to invest money into retail space, marketing and advertising, labour costs, and more simply to learn that there isn’t enough market demand for a shoe store in that area. 

A feasibility analysis is a tool the shoe shop could use to determine whether or not a second location has a chance of success before investing the money required to fund the project. By examining the scope of the investment, the financial projections, the market report, and the risks and challenges facing the project, an organisation gains nuanced insight into the likelihood of success. This lowers risk by providing due diligence before beginning a new project. 

Why conduct a feasibility analysis?

At its core, a feasibility analysis asks what is possible. It’s a formal way of reasoning whether or not a particular risk is worth taking. Risk is only risky because it’s an unknown factor: something could go wrong, and you won’t know until you know. A feasibility analysis examines everything you know to predict what you don’t. The more information you have before making a decision, the better decision you can make, lowering the risk of the unknown. 

Although the benefits of conducting a feasibility analysis shouldn’t be understated, they can be labour-intensive projects in their own right. Sometimes, they do not make sense for a project, such as when you’ve run similar projects in the past or if your company has run a similar feasibility study in the last three years. In those instances, running another feasibility analysis may not give you enough insight to justify the resources required to create it. 

Components of a feasibility analysis 

The exact components needed in your feasibility analysis will vary depending on the nature of the project you’re researching. In general, some common parts of a feasibility analysis include: 

• Executive summary: A high-level description of the proposed project

• Technical feasibility: The technology and equipment needed for the project

• Market feasibility: The state of the market and a detailed marketing plan 

• Operational feasibility: A detailing of whether or not the company’s current organisational chart can support the project 

• Financial feasibility: Financial projections for the short and long term of the project

• Legal feasibility: A report of any legal reasons that this project may not succeed and appropriate measures that must be taken for the protection and security of the project

• Schedule feasibility: An analysis of how long the project will take and whether deadlines are reasonable

Feasibility analysis step-by-step 

Conducting a feasibility analysis is a long process, but one with a predictable workflow. Here are the steps to creating your study. 

Step 1: Conduct a preliminary analysis 

You don’t always need a full, formal study to tell that a project isn’t going to work. For example, if a company doesn’t have the money needed to fund the project until it becomes profitable, there may be no way around that, no matter how great the idea is. A preliminary analysis is like a shortened version of the overall process, asking whether the idea can succeed and whether the company has the resources to begin. 

Step 2: Create an income projection

If the project passes the preliminary analysis without any major hurdles, it’s time to examine it further. Financial feasibility involves determining the project's cost and anticipated returns.

A feasibility analysis for a government organisation or non-profit group might be more concerned about the project's impact than its cost. However, the project has to generate income for the business. The financial feasibility analysis is an important step in predicting whether the project will succeed from a business point of view. 

Step 3: Perform market feasibility research 

Market feasibility is tied to financial feasibility because you need to know a project's potential income before projecting its financial returns. Therefore, this step may be included in the financial feasibility component, although it can be its step in other cases. 

Market feasibility asks if there is a need for this project. Will there be people to purchase the product, use the service, or occupy the building? This process step helps you determine your target customers and how you will reach them with marketing efforts. 

Step 4: Develop a business plan 

Do you have the equipment, staff, and technology required to launch or sustain the project? A business plan is the technical feasibility aspect that analyses company resources and project requirements for each step and determines whether project goals are reasonable. If there aren’t enough workers or equipment to make the project successful, it’s better to understand that before investing time and money. 

Step 5: Review findings and make a decision

The last step to conducting a feasibility analysis is to make a decision. After compiling all the information available, the stakeholders will review and determine whether or not the project will go forward. A feasibility analysis isn’t a guarantee of success, but it can be an effective tool to help you predict your chances. 

Getting started 

If you’re still unsure about starting your feasibility analysis, many resources can help you. For example, online templates can help you overcome the challenge of a blank page and start defining your ideas immediately.

You can also learn about the concepts companies use to make good decisions by taking an online course such as Business Intelligence Concepts, Tools, and Applications offered by the University of Colorado on Coursera. This course is part of a sequence leading to a Data Warehouse for Business Intelligence Specialisation.