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BUSINESS ESSENTIALS
Feasibility Study
By
THE INVESTOPEDIA TEAM
Updated August 08, 2021
Reviewed by
AMY DRURY
Fact checked by
PATRICE WILLIAMS
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.
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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.
Feasibility Study
Feasibility Study
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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.
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Important: 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.
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:
Tip: 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.
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.
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 Ad
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]
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.
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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.
Financial: The return on investment and the amount of funds needed to pay for
the project, including the sources of capital, such as a financial institution or
investors
Market: an analysis for the market for the product or service, the industry,
competition, consumer demand, sales forecasts, and growth projections