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Undertaking a Feasibility Study

Contents

1.0 Introduction to this Guide 2.0 Technical Feasibility 2.1 Product/Service 2.2 Technology & Intellectual Property 3.0 Commercial Feasibility 3.1 Target Market 3.2 Competition 3.3 Industry Analysis 3.4 What is Market Research? 3.5 Points to remember when conducting Market Research 4.0 Financial Feasibility 4.1 Pricing and Business Model 4.2 The Business Model 5.0 Organisational Feasibility 5.1 Team 5.2 Organisational Structure 6.0 Outputs of a Business Feasibility 6.1 Feasibility Structure 6.2 Terms of Reference 6.3 The Executive Summary 6.4 SWOT Analysis and Critical Risk Factors 6.5 Recommendations 6.6 Conclusion to the Guide 7.0 Appendix 7.1 Terms of Reference 7.2 Market Research 7.3 Organisational Charts

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manpower. undertaking and documenting of a Feasibility study.1. “Does this idea have the potential to succeed and will it work?” There is no easy answer to this question and in order to find one.dictionary. available technology. By conducting a thorough feasibility study. based on factors like marketplace. and financial resources” A feasibility study needs to provide the business or business promoter with an answer to the fundamental question. A feasibility study will aid the business promoter in formulating a structured approach to weighing up the opportunity at hand while simultaneously acting as a safeguard against wasted investment or resources. the business promoter will be provided with:  Clear supporting evidence for recommendations to assist with decision making  A signpost towards challenges that will need to be addressed  Valuable information about the target market  A definitive answer on whether or not to pursue the business idea in question  Definition taken from www.com Page | 3 . A complete and well executed feasibility study will be a crucial asset in convincing banks and financial institutions as well as yourself.0 Introduction to this Guide Whether you are new to running a business or have been operating an established business for a number of years the importance of ensuring you are pursuing a worthwhile business idea cannot be understated. It is critical that the individual(s) promoting the business dedicate the appropriate time to each stage of the process to ensure that a comprehensive and objective study is conducted. There is a large degree of work involved in the p reparation. the business promoter must undertake pertinent research under the appropriate headings detailed further on in this guide. A feasibility study can be defined as an “analysis or research into the practicality of a proposed plan or method. competition. that your business idea has a genuine possibility of succeeding.

This guide has been created as an outline to undertaking a full feasibility study.0 Introduction to this Guide contd. very different documents. There appears to be a common misconception that a feasibility study and a business plan are one in the same. It is important to realise however that. Concurrently.. The feasibility study must fully address all areas of the business to include Technical Feasibility.1. Technical 2. On completion of your feasibility study the business promoter will have be left with a clear view as to whether or not to proceed with the proposed business concept . This will list activities such as talk to Patent Advisors. This guide has five sections: 1. logical and comprehensive feasibility studies. They are however. undertake secondary research etc. A feasibility study is in fact the stepping stone towards the creation of a business plan and must be conducted prior to the production of a business plan. like businesses. all feasibility studies are different. Each section will secondly identify key issues that should be assessed as each element of the feasibility is undertaken. Organisational 5. Page | 4 . along with their advisors need to do. Commercial 3. Commercial Feasibility and Organisational Feasibility so that a comprehensive overall view of the proposed business idea is constructed.. In writing this guide we have drawn on professional and practical experience in helping businesses produce clear. Financial 4. the promoter will have realised any potential pitfalls which may be associated with the venture. Outputs of a Business Feasibility Within each section the guide addresses briefly what the promoter. Each must be tailored to the needs of the individual business and clearly analyse the business as a whole.

machinery and processes involved in producing the product/service. • Details relating to how the product will be packaged must also be provided in this section. or if there is an option to offer complimentary product lines. This feasibility analysis should cover: • A comprehensive description of the product/service from a technical viewpoint. Page | 5 .g. • Details of the means used to provide the product/service to customers e. This section provides evidence that it is technically possible. • Details of the plant.g. • Information regarding whether the product/service will link to other product/service lines if an existing business. Framework 7. The promoter must also stipulate details of whether the product is manufactured internally or will be manufactured using outsourcing.0 Technical Feasibility The actions to be taken by the business promoter:  Talk to internal Operations and R&D team and/or advisors to develop blueprint for the product or service  Identify external technology partners (possibly via tender) re equipment and components required  Identify enterprise agency financial supports (e. to produce or manufacture the product/service examined in the feasibility. 2. The purpose of the feasibility is not to physically create a new product that is ready for market but to prove that such a product can be created. direct sales • Details of the components to be used in producing the product/service and who will supply them. the promoter must look at the product/service that your business offers/intends to offer customers.2. . New businesses can be founded by individuals in any industry and should have strong technical capabilities. Feasibility or Tax Credits) if applicable. This may consist of providing validated drawings or designs and possibly by producing a working prototype.1 Product/Service Under technical feasibility. Innovation Voucher. physical store. ecommerce website.. given appropriate resources.

this guide will now focus on what needs to be considered under the heading of Commercial Feasibility. There are several Patent Databases available to use. or highly technical products. or intends to secure funding for R & D grants such as innovation vouchers or an Enterprise Ireland R& D growth fund must be provided here. • Details of the technology incorporated into the product/service. This is particularly relevant for software. • Details of any costs incurred to date relating to patents. Now that all technical issues have been discussed. This website is free to use and search. • Any licensing agreements related to the product/service must be explored. copyrights and trademarks held by the business in relation to its product/service • Details referring to the protection of trade secrets should also be referred to here • External partners must also be identified in this section. “Espacenet ” is a worldwide database of published patents and patent applications. The promoter must provide details of the existence of any existing IP agreements or planned agreements along with details of any patent searches undertaken. Other points to be addressed: • Details of any patent advisors to the business. These partners may be brought in to meet any gaps that the business may have in the research and development capability. This area is particularly relevant for businesses specialising in products featuring specialised software • The patents.1 Product/Service Technology & Intellectual Property focuses on whether intellectual property will be created by engaging in this new venture. • If the business has secured. and is administered through the European Patent Office. Page | 6 .2.

In this section.0 Commercial Feasibility The actions to be undertaken by the business promoter:  Talk to potential customers to clearly identify their ‘burning needs’  A broad profile of specific customer segments should be generated to assist in understanding customer needs. All details relating to the business’ potential customers must be addressed. A clear. This section should consider the following: • Specific details of the chosen market that the business intends to operate in • The size of the chosen market • The recent. current and projected conditions of the target market • The reputation of the chosen market (e. tough to crack) • Whether the business intends to operate on a local. The profile would outline sex. Each of these markets should then be ranked in order to determine the most beneficial market(s) to enter into. easily entered. detailed description of the intended market should be supplied. To add new customers.1 Target Market When completing the target market element of the feasibility the promoter must analyse a number of potential markets that they may enter. income level etc  Undertake customer research to confirm that solution meets end user needs  Identify target markets and  Collate industry information including a comprehensive assessment of the competition. national or international scale The first step in the feasibility is to assess if the business has existing customers. Page | 7 . If yes. highly technical. the business promoter should be able to demonstrate that there is a sufficient room in the market to allow the business to generate profits. one needs to define the target market. age.3. 3.g. one has a captive audience and can also add new customers.

psychographic and behavioural)? • What products/services are they already using? • On what factors are buying decisions made? B2B applications have these unique characteristics that set them apart from B2C applications -Different types of purchases and authorizations -Unique contracts.2) • What is our ideal customers sex. income level and interests? • Is there a distinction between our buyer and our end user? What are the target customer segments (geographic.1 Target Market contd. terms. and requirements Fig 1. demographic. age. and conditions for different business customers -Participation in customer's supply chain -Variety of customer sizes.2 It is vital that the promoter(s) take advantage of any secondary research previously compiled that relates to their target market.. The promoter must ask themselves: • Who is our target customer? • Am I operating as a Business to Customer or Business to Business enterprise? (See Figure 1. Page | 8 .3. demands. Secondary research can often provide a solid base on which to formulate a primary research plan.. The promoter should be capable of creating a profile of the organisation’s ideal customer in their head.

This will enable the business promoter to develop an understanding of the target customers needs and expectations and how these needs are being served. By studying how competitors interact with their customers.3) For an excellent video on the Harvard Business Review website see http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Page | 9 .2 Competition It is vital when conducting a feasibility study to perform a detailed analysis of the business that you will be competing against directly.3.3 Industry Analysis The promoter must conduct an in-depth analysis of the industry that they intend on operating in. the promoter can learn a great deal. In order for the business owner to operate their business venture in a particular industry they must have a clear understanding of the forces in play. as well as indirectly. This section should include: • Details of all significant direct competitors • Details of any indirect competitors • Your business’s advantages and disadvantages versus the competition • Barriers to entry for anyone who wishes to enter the market • Your business’s USP (Unique Selling Point) 3. Porters 5 Forces is a useful and effective method of analysing each of these forces with relation to the proposed business venture. (See Fig 1.

The ability to tailor the product if required by customers has to be fully addressed by the Technical Feasibility. needs and attitude towards your business’ product/service. Before this guide moves on to discussing Financial Feasibility. it will take a closer look at the importance of Market Research. the study moves on to address financial feasibility. An honest appraisal of the customer problem may require redesign or tailoring of the product configuration.3 This analysis will have significant influence on business model and route to market decisions which will be discussed in section 4. Market research is carried out by the business promoter before drafting a feasibility study and is an important factor in gauging your customer’s response to your business’ new venture.4 What is Market Research ? Market research can be described as the collecting. Customer research is an important element for any feasibility study. 3.2. reviewing and analysing of important information regarding your customer’s wants. it can be an important and valuable tool for companies to aid them in the decision making process.Fig 1. Page | 10 . If a positive assessment is determined during the Commercial feasibility stage. If market research is conducted effectively using an appropriate method.

The promoter must approach market research in a clearly thought. Tradeshows or networking events are always valuable opportunities to learn this information. 7. not the answers that you want to hear but for real customer feedback. By recording the information you have gathered the promoter is able to document all reactions in detail. This will enable you to extract the necessary information from likely users of your product/service. It does take time. In terms of survey design. 2.5 Points to remember when conducting Market Research Market research is a crucial element of every feasibility study. Page | 11 3. It is common for business promoters undertaking a new venture to approach market research with a certain element of bias. A large amount of resources must be invested in this process. the promoter should always be as involved as possible. These points are as follows: 1. The promoter must dedicate the appropriate time to this process as detailed market research provides the opportunity to learn valuable information from potential customers. Be open about your product and get their feedback on how they feel about your product/service. 6. 4. Talk to a representative sample of potential customers. Construct a potential customer profile and only approach these individuals when conducting a survey. Record the information. Valuable information is kept on file and can be referred to at a later date. logical and structured process. it is vital that you are speaking to the right people. While it is recommended that you should use experts to design and undertake your research. not just your friends or family. It is no secret that undertaking market research relating to a new product/service is a time consuming process. . particularly in meeting customers. Market research needs to well structured. Talk to people at every opportunity. When researching your market it must always be a priority to engage with your potential customers. Listen carefully. Many promoters want there business to succeed and may often give more focus to the positive reactions of customers than the negative. There are a number of key points that every business promoter must be aware of when conducting research into their target market. The business owner must be aware of this factor. This will facilitate the promoter in the collecting of this information. 5.3. The promoter must be aware that it will take time and money to conduct effective market research into their target market.

4.0 Financial Feasibility The actions to be undertaken by the business promoter:  Talk to financial advisor. The key element to the pricing and finance section of the feasibility study is the generation of financial assumptions.  Define the business model 4.  Generate projections across multiple scenarios. The creation of these projections should be a standard process where there should be no mistakes. Scenario planning is an important element to determining the financial feasibility of a business. If the promoter is inexperienced in this area. it is advised that a finance professional is consulted to ensure clarity is achieved.aib. pricing elasticity.1 Pricing and Business Model The financial feasibility is the number crunching and decision making that follows the information flow arising from the market research undertaken during the commercial feasibility stage. The promoter must research both their fixed and variable expenses in order to generate accurate assumptions to support all financial projections that have been prepared. Allied Irish Bank provide a useful online cash flow wizard at www. It is presented firstly as a business model and secondly as a set of standard financial projections. This involves the testing of different assumptions in terms of revenues and customers numbers. Financial assumptions are the backbone to your financials and must be as accurate as possible.  Collate financial information.ie Page | 12 .

4 The input to every business model is its customers. Included in this section should be: • In depth details on how the business expects to generate money (Direct sales. highly capable employees. the price you intend to sell your products at • Your pricing in relation to your competitors Fig 1. the product/service offered by the business must demonstrate a unique capability which the business has to meet a critical need of the market. Following this. The business model focuses on 3 key areas: • Revenue Streams (who pays you) • Route to market (channels of distribution) • Gross Margin This is a central section of the feasibility study for the interested party and must be given the necessary diligence to demonstrate the business’s viability. the business model describes how your business makes money. The route to market. or channel of distribution. The agreed upon pricing model then results in the generation of revenue streams for the business. company structure etc. online sales or retail sales) • The cost of purchasing products. delivers and captures economic value.2 The Business Model The business model can be defined as “The rationale of how an organization creates. innovative new technology specific to the firm. Page | 13 .” In other words. must also feature in a business model. licensing.4. The business’ unique capability may be comprised of valued.

5.3 of the Appendices). Items to be addressed in this section would include: • Details of each department present in the business • Details of each employee in each department • A full company organisation chart Page | 14 . This structure will communicate the flow of authority within the business and can often differ in size. Items to be addressed in this section would include: • The background of the promoters • Key profiles of management/Profiles of management to be recruited • The roles and duties of each member of the management team • Full CV’s of the Senior Management • A brief description of any non executive directors must also be provided • Details of advisors and mentors to be sought by the promoters 5.  Generate a company organisational chart.0 Organisational Feasibility The actions to be undertaken by the business promoter:  Compile up to date CVs of promoters and management team. In order to facilitate this collaboration.5.  Define the duties and responsibilities of each member of the management team.  Define the business’ organisational structure.2 Organisational Structure It is common for all businesses and organisations to have various departments and positions that work together in reaching a common goal. the business promoter must decide upon a suitable organisational structure for the business.1 Team The feasibility study must also assess the management team that will be behind the business venture. Information regarding each key individual involved in the running of the business is dealt focused on to determine if the selected individuals have the skills and qualities required to run the business venture effectively. shape and formation depending on the business in question (See Section 7.

the potential viability of the proposed business idea should be evident. Any conclusions drawn from the study must be clearly laid out along with any recommendations.6. changes or alterations suggested that would improve the chances of the business idea becoming possible.0 Outputs of a Business Feasibility If all sections of the study have been satisfactorily completed with due diligence.1 Page | 15 .1 Feasibility Structure The Feasibility Study you conduct can include the following elements: Terms of Reference Executive Summary Contents Page Product/Service Technology &Intellectual Property Market Environments Target Customers Competition Pricing and Business Model Financials SWOT Analysis & Critical Risk Factors Financials Conclusions & Recommendations Fig 1. 6.

” This is a crucial part of every Feasibility Study whether the study will be undertaken internally by the management team. We have now dealt with what a Feasibility Study is comprised of. Secondary objectives must also be decided upon and generally take the form of 'to assess. this is especially critical if an external marketing company has been commissioned to undertake the study. It is always advised that the business promoter or senior decision maker is centrally involved in the conducting of the feasibility study. and describes the basic information to be included within each section. Definition taken from www.barlowandassociates. the promoter will be provided with clear directions that the study will take throughout the course of the process. the issues that should be addressed in your feasibility study. The promoter is also advised to include objective reviewers at various stages of the study to provide unbiased scrutiny. 6.It is important that certain elements of the feasibility study be undertaken in sequence e. The key element to every feasibility study is the message that is conveyed in the report. Terms of Reference can be defined as “a specific set of ordered instructions that clearly indicate to the project team.com Page | 16 .2 Terms of Reference Terms of Reference are a crucial element of every Feasibility Study. or by an external party. the project team must define and specify the primary objective of the feasibility study. examine or investigate key issues under the four areas of feasibility or. along with the elements to be included and the structure to be followed.g. can be firmer to determine such as ‘to detail or outline'. Technical Feasibility must be conducted before Financial Feasibility. This guide will now explore the Terms of Reference and Executive Summary sections of a Feasibility Study. By defining the guidelines of the Feasibility Study to be undertaken. Through brainstorming. This guide examines each of these areas.

That is to say. Measurable. that each goal must be Specific.1. This would include an outline of any primary and secondary research conducted.Essentially. scope and deliverables to be achieved. Realistic and Timely. The primary objective of the study along with all relevant secondary objectives must be clearly stated by the individual(s) involved in the study along with brief details relating to the research undertaken as part of the study. 6. This section of the Feasibility Study must specify if the proposed business venture is viable under the four key headings of Technical Feasibility. the Terms of Reference specify all aspects of the study such as the objectives. goals. Agreed Upon. Commercial Feasibility and Organisational Feasibility. In order to prove this viability of the proposed business venture the promoter(s) must provide evidence here to support the key recommendations and/or identification of the challenges to be faced if the proposed opportunity is to be pursued. Each of these need to be agreed upon by all members of the project team.3 The Executive Summary The purpose of the executive summary is to provide a concise summary of the study as a whole. To see an example of a Feasibility Study “Terms of Reference” see Appendix 7. Common elements to be included in this section include: • Background of Feasibility • Title and Location • Project Summary -Background -Methodology -Rational -Purpose -Goal(s) -Development Context • Scope -General -Key Consideration -Activities • Cost of Study All goals and objectives detailed in the project terms of reference must be SMART. Page | 17 .

detailing the information and points to be considered under each heading.If a group of potential customers were interviewed or surveyed. opportunities and threats. These may also be presented on graphs or charts. Similarly. Now that the Terms of Reference and Executive Summary sections of a Feasibility Study have been explored. we will now focus on the four key areas of Technical. 6. Along with this analysis the business owner is encouraged to create a list of the risks that the business faces at present as well as in the potential future risks. The executive summary should cover no more than two pages of text. Page | 18 . the results of this research should be demonstrated using visual illustrations such as graphs and charts. • Write a feasibility report to document the key findings of the study.4 SWOT Analysis and Critical Risk Factors In this section. Commercial. Financial and Organisational Feasibility. Actions to be taken by the promoter: • Under take a detailed SWOT analysis. Items to be included here are: • A detailed SWOT analysis of the business • A detailed SWOT analysis of the business’s competitors • A list of critical risk factors that the business venture may face. the promoter should carry out a SWOT analysis of the business to include the business’s strengths. this section should outline the key financial assumptions and projects under numerous “possible scenarios”. It should be set out in paragraphs of approximately equal length which follow the headings of the study and must be written after all other areas of the Feasibility Study have been completed. weaknesses. • Prepare recommendations at the conclusion of the study.

Alternative. Financials: Cash flow projections for the business are inaccurate. Intellectual Property: A patent on the product has not been acquired therefore the product cannot be protected against replication. It may be possible for the promoter to alter some aspects of so that the idea can become viable. The feature must be changed to coincide with customers opinions. Competition: A major competitor has been omitted.6. An alternative member must be identified. The projections need to be reviewed by a professional with a view to providing more realistic figures. The promoter must immediately apply for a patent on their product. it is the promoter’s decision whether or not to go ahead with the business venture. Channel of distribution: The channel of distribution planned for the product/service is not ideal. Branding: The brand does not connect with potential customers or add to the product/services’ credibility. The business model: The current business model is ineffective. Page | 19 . or members. Once the feasibility study has been completed. In this case the promoter must review the branding with a view to getting these messages across. of the management team may not be sufficiently qualified to meet the business’ requirements. Even if the business idea is found to be flawed. this does not necessarily mean that the idea should be completely abandoned. Staff: A member.5 Recommendations Some areas where recommendations may be made would include: Product: A particular feature of the product is not popular among consumers. Conduct an in-depth study of this competitor immediately. A new business model must be adopted for the business. Supplier: The suppliers providing the components are too expensive resulting in a reduction in profits. more cost effective suppliers must sought and approached. The promoter must revise their pricing strategy to correspond with the price that potential customers would be willing to pay. The promoter needs to assess all other possible routes to market and determine which route is most suitable. Price: The price that the product/service is sold at is too expensive/too cheap.

scenarios and calculations a business plan is concerned with tactics. this guide will now revise the list of actions that need to be taken by the business promoter. The key overriding factor concerning both a business plan document and a feasibility study is the ability of an organisation to profitability meet customer needs. Innovation Voucher. Feasibility or Tax Credits) if applicable. Framework 7.6. On the other side of the coin. a business plan is a document that is regularly updated by the promoter to keep track of any changes experienced by the business. A feasibility study is a once off document produced by the promoter (or external party) to assess the viability of a business concept. As a final note.. age.6 Conclusion to the Guide Feasibility studies and business plans are complimentary documents. Page | 20 .g. income level etc  Undertake customer research to confirm that solution meets end user needs  Identify target markets and  Collate industry information including a comprehensive assessment of the competition. Another key difference between the two documents is updating. Commercial:  Talk to potential customers to clearly identify their ‘burning needs’  A broad profile of specific customer segments should be generated to assist in understanding customer needs. The actions are as follows: Technical:  Talk to internal Operations and R&D team and/or advisors to develop blueprint for the product or service  Identify external technology partners (possibly via tender) re equipment and components required  Identify enterprise agency financial supports (e. The profile would outline sex. prior to undertaking the feasibility study. While a feasibility study is focused on analyses. It is normal for a business plan to be prepared following the conducting of a feasibility study. strategies and agreed budgets.

All reasonable care has been taken in the preparation of this brochure. to any person relying on any statement or omission in this brochure. No responsibility or liability is accepted by the authors.  Define the business model Organisational:  Compile up to date CVs of promoters and management team. On behalf of Bridgewater Management. I hope that you have enjoyed reading this “Guide to Undertaking a Feasibility Study” and will find it useful in the conduction of your Feasibility Study. Finally:  Under take a detailed SWOT analysis. or for any loss or damage howsoever occasioned.  Define the duties and responsibilities of each member of the management team.  Generate a company organisational chart.  Generate projections across multiple scenarios.  Prepare recommendations at the conclusion of the study. for any errors.  Define the business’ organisational structure.Financial:  Talk to financial advisor. Page | 21 .  Collate financial information. Bridgewater Management.  Write a feasibility report to document the key findings of the study. or omissions or misstatements it may contain.

7. Page | 22 . These headings are.pdf 7. Primary Research and Secondary Research.1 Terms of Reference: For a sample Terms of Reference please follow this link.0 Appendix 7.adb. http://www.org/Documents/ADBBO/Other_Notices/pak/TOR-L2178-railwayelectrification. Here closed questions are used. The majority of this information is acquired using the format of an open ended discussion so that one idea can quickly lead onto a new idea or suggestion. Primary research is divided under two headings. Collecting quantitative information follows a structured approach and seeks to acquire specific. designed to extract specific information from the individual. All information gathered is original data collected by the business promoter for the first time and comes directly from the source. Primary Research Primary Research consists of research conducted using first hand experience. Qualitative Research and Quantitative Research. Collecting qualitative information is semi-structured to combine a focused agenda with flexibility to identify issues which may be unforeseen. Quantitative Research Quantitative research is a form of primary research that is centred on the collecting of specific and unambiguous information.2 Market Research There are two key categories of market research and these are. measured information. Qualitative Research This type of research pays particular focus to the quality of the information collected.

Types of Secondary Research  Published Reports  Internet  Libraries  Databases  Past Sales Data  Government Statistics Secondary Research – Advantages/Disadvantages Advantages Disadvantages •Information is already collected •Information is easily accessed •Low Cost •Minimal time is wasted •Quality of research may be poor •Research may be bias •Information may be outdated •Research may not exactly fit your need Page | 23 . This type of research uses information already collected to generate a conclusion relative to the task faced by the business promoter. Secondary Research Secondary research differs from primary research in the respect that it focuses on the analysis of previously collected. the easiest method of market research. second hand information compiled by another individual or group.Types of Primary Research  Personal observation of consumers  Personal Interviews/ Telephone Interviews  Surveys  Questionnaires  Focus Groups Primary Research – Advantages/Disadvantages Advantages Specific information is acquired Large degree of control Direct contact with audience Results are kept private Disadvantages Expensive to conduct Time Consuming Information gathered may only be relevant for a short time period. It is the most common form of research employed in the industry today and probably.

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