Feasibility Study

By 
THE INVESTOPEDIA TEAM




Updated August 08, 2021

Reviewed by 
AMY DRURY
Fact checked by 
PATRICE WILLIAMS
Business Essentials

 GUIDE TO MERGERS AND ACQUISITIONS

TABLE OF CONTENTS

 What Is a Feasibility Study?

 Understanding a Feasibility Study
 Benefits of a Feasibility Study
 Tools for Conducting a Study
 Examples of a Feasibility Study
 Feasibility Study FAQs
 The Bottom Line

What Is a Feasibility Study?

A feasibility study is an analysis that considers all of a project's relevant
factors—including economic, technical, legal, and scheduling considerations
—to ascertain the likelihood of completing the project successfully.
Whether a project is feasible or not can depend on several factors, including
the project's cost and return on investment, meaning whether the project
generated enough revenue or sales from consumers.

However, a feasibility study isn't only used for projects looking to measure
and forecast financial gains. In other words, feasible can mean something
different, depending on the industry and the project's goal. For example, a
feasibility study could help determine whether a hospital can generate
enough donations and investment dollars to expand and build a new cancer
center.

Although feasibility studies can help project managers determine the risk and
return of pursuing a plan of action, several steps and best practices should be
considered before moving forward.

KEY TAKEAWAYS

 A feasibility study assesses the practicality of a proposed plan or

project.
 A feasibility study considers many factors, including economic,
technical, legal, and scheduling to determine whether a project can
succeed.
 Whether a project is feasible or not can depend on the project's cost
and return on investment, which might include revenue from
consumers.
 A company may conduct a feasibility study to consider launching a new
business or adopting a new product line.
 It's a good idea to have a contingency plan in case of unforeseeable
circumstances or if the original project is not feasible.
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Feasibility Study

Understanding a Feasibility Study

A feasibility study is an assessment of the practicality of a proposed plan or
project. A feasibility study analyzes the viability of a project to determine
whether the project or venture is likely to succeed. The study is also designed
to identify potential issues and problems that could arise from pursuing the
project.

As part of the feasibility study, project managers must determine whether

they have enough people, financial resources, and the appropriate
technology. The study must also determine the return on investment, whether
it's measured as a financial gain or a benefit to society, as in the case of a
nonprofit.

In some cases, a feasibility study might include a significant change in how a

business operates, such as an acquisition of a competitor. As a result, the
feasibility study might include a cash flow analysis, measuring the level of
cash generated from revenue versus the project's operating costs. A risk
assessment must also be completed to determine whether the return is
enough to offset the level of risk of undergoing the venture.

 
When doing a feasibility study, it’s always good to have a contingency plan
that you also test to make sure it’s a viable alternative in case the first plan
fails.

Benefits of a Feasibility Study

There are several benefits to feasibility studies, including helping project
managers discern the pros and cons of undertaking a project before investing
a significant amount of time and capital into it. Feasibility studies can also
provide a company's management team with crucial information that could
prevent them from entering into a risky business venture.

Feasibility studies also help companies with new business development,

including determining how it will operate, potential obstacles, competition,
market analysis, and the amount and source of financing needed to grow the
business. Feasibility studies aim for marketing strategies that could help
convince investors and banks that investing in a particular project or business
is a wise choice.

Tools for Conducting a Feasibility Study

Suggested Best Practices

Although each project can have unique goals and needs, below are some
best practices for conducting a feasibility study:

 Conduct a preliminary analysis, which involves getting feedback about

the new concept from the appropriate stakeholders; consider other
business scenarios and ideas
 Analyze and ask questions about the data obtained in the early phase
of the study to make sure that it's solid
 Conduct a market survey or market research to identify the market
demand and opportunity for pursuing the project or business
 Write an organizational, operational, or business plan, including
identifying the amount of labor needed, at what cost, and for how long
  Prepare a projected income statement, which includes revenue,
operating costs, and profit
 Prepare an opening day balance sheet
 Identify obstacles and any potential vulnerabilities, as well as how to
deal with them
 Make an initial "go" or "no-go" decision about moving ahead with the
plan

Suggested Components

Once the initial due diligence has been completed, listed below are several of
the components that are typically found in a feasibility study:

 Executive summary: Formulate a narrative describing details of the

project, product, service, plan, or business.
 Technological considerations: Ask what will it take. Do you have it?
If not, can you get it? What will it cost?
 Existing marketplace: Examine the local and broader markets for the
product, service, plan, or business.
 Marketing strategy: Describe it in detail.
 Required staffing (including an organizational chart): What are
the human capital needs for this project?
 Schedule and timeline: Include significant interim markers for the
project's completion date.
 Project financials.
 Findings and recommendations: Break down into subsets of
technology, marketing, organization, and financials.

 
It's important that a project being considered should be able to generate a
return that justifies the risk involved in taking on the project.

Examples of a Feasibility Study

Below are two examples of a feasibility study. The first one involves the
expansion plans for a university. The second example is a real-world example
conducted by the Washington State Department of Transportation and had
private contributions from Microsoft Inc.

Upgrading a University's Science Building

School officials at a local university were concerned that the science building
—built in the 1970s—was outdated. Considering the technological and
scientific advances of the last 20 years, school officials wanted to explore the
cost and benefits of upgrading and expanding the building. As a result, a
feasibility study was conducted.

In the preliminary analysis, school officials explored several options, weighing

the benefits and costs of expanding and updating the science building. Some
school officials had concerns about the project, such as the cost and public
opinion. The new science building would be much larger, and in the past, the
community board had rejected similar proposals. The feasibility study would
need to address these concerns and any potential legal or zoning code
issues.

The feasibility study explored the technological needs of the new science
facility, the benefits to the students, and the long-term viability of the college.
A modernized science facility would expand the school's scientific research
capabilities, improve its curriculum, and attract new students.

The financial projections showed the cost and scope of the project and how
the school planned to raise the needed funds, which included issuing
a bond to investors and tapping into the school's endowment. The projections
also showed how the expanded facility would allow more students to be
enrolled in the science programs, increasing revenue from tuition and fees.

The feasibility study demonstrated that the project was viable, paving the way
to enacting the modernization and expansion plans of the science building.
Without conducting a feasibility study, the school administrators would never
have known whether its expansion plans were viable.

High-Speed Rail Project

The Washington State Department of Transportation decided to conduct a

feasibility study to construct a high-speed rail that would connect Vancouver,
British Colombia, Seattle, Washington, and Portland, Oregon. The goal was
to create an environmentally responsible transportation system to enhance
the competitiveness and future prosperity of the Pacific Northwest. 1

The preliminary analysis outlined a governance framework for future

decision-making. The study involved researching the most effective
governance framework by interviewing experts and stakeholders, reviewing
governance structures, and learning from existing high-speed rail projects in
North America. As a result, governing and coordinating entities were
developed to oversee and follow the project if approved by the state
legislature.

A strategic engagement plan involved an equitable approach with the

public, elected officials, federal agencies, business leaders, advocacy groups,
and indigenous communities. The engagement plan was designed to be
flexible, considering the size and scope of the project and how many cities
and towns would be involved. A team of the executive committee members
was formed and met to discuss strategies, lessons learned from previous
projects and met with experts to create an outreach framework.

The financial component of the feasibility study outlined the strategy for
securing the project's funding, which explored obtaining funds from federal,
state, and private investments. The project's cost was estimated to be
between $24 billion to $42 billion. The revenue generated from the high-
speed rail system was estimated to be between $160 million and $250
million.

The report bifurcated the money sources between funding and financing.
Funding referred to grants, appropriations from the local or state government,
and revenue. Financing referred to bonds issued by the government, loans
from financial institutions, and equity investments, which are essentially loans
against future revenue that needs to be paid back with interest.

The sources for the capital needed were to vary as the project moved
forward. In the early stages, most of the funding would come from the
government, and as the project developed, funding would come from private
contributions and financing measures. Private contributors included Microsoft
Inc., donating more than $570,000 to the project. 2

The benefits outlined in the feasibility report show that the region would
experience enhanced interconnectivity, allowing for better management of the
population and spur economic growth by $355 billion throughout the region.
The new transportation system would provide people with access to better
jobs, affordable housing, and increase collaboration throughout the
community. The high-speed rail system would also relieve congested areas
from automobile traffic.1

The timeline for the study began in 2016 when an agreement was reached
with British Columbia to work together on a new technology corridor that
included high-speed rail transportation. The feasibility report was submitted to
the Washington State land Legislature in December 2020. As of 2021, the
project has yet to begin construction. 1

Feasibility Study FAQs

What Is the Purpose of a Feasibility Study?

A feasibility study is designed to answer whether or not a proposed project or

idea should go forward by determining whether the project or plan is practical
and doable. A feasibility study can identify the strengths and weaknesses of
the proposed plan.
What Is Included in a Feasibility Study?

Overall, a feasibility study should include the level of resources and

technology needed and the return on investment from the project.

What Is a Feasibility Study Example?

As an example, let's say that a major hospital in the city is looking to expand
its campus by adding a building. The project managers and hospital
administrators carry out a feasibility study to determine the project's cost,
including labor and materials for the building's construction.

The study included an analysis of the potential need, the expected number of
patients, projected revenues, and operating costs, such as staff, doctors, and
nurses. The project managers explored how to finance the project through a
combination of financing from local financial institutions and donations from
wealthy investors.

The potential risk to the project was considered along with public opinion and
interest by the community. The return on investment was calculated and was
determined that the forecasted revenue exceeded the expected costs,
leading the hospital administrators to approve the project.

How Do You Write a Feasibility Study?

When writing a feasibility study, the report should include a preliminary

analysis of the project, expected revenues, a market survey, a description of
the product or service, marketing strategy, technology, and resources
needed. The report should also include the organizational layout of the
project, a timeline, and forecasts for the financial results.

What Are the Four Types of Feasibility?

The four types of feasibility include:

Technical: Technology, hardware, and labor needed