A Simple Guide For Preparing A Feasibility Study 

by odeexpress(m): 6:09pm On Nov 02, 2014
Introduction

This is a simple guide I have prepared for aspiring entrepreneurs and entrepreneurship students. After readin
write up, you should be able to recognize why and when to develop a feasibility study, know how to identify
business feasibility study and explain the major sections of a classic feasibility study. This article will also enab
the reader to focus feasibility study sections to meet specific needs, know the major pitfalls when writing
feasibility studies and learn how to present a feasibility study to others.

As an entrepreneur, after identifying a business idea/opportunity, introducing/development of a new produc

next phase in the development of an idea/product is to conduct a feasibility study to ascertain the viability o
business (venture) and obtaining useful information to plan and make decision on whether to go-on or not.
feasibility study is conducted during the deliberation phase of the business idea prior to commencement of
formal Business Plan. That is, a feasibility study of a business is done on an ex ante (before the business or ve
comes into existence) basis. At the end of the feasibility study a feasibility report is written which provide a b
for taking investment decisions and could also be used in securing finance for the business, product/services

What is a Feasibility Study?

A feasibility study is an analysis of the viability of an idea through a disciplined and documented process of
thinking through the idea from its logical beginning to its logical end. Thompson (2005) defines a Business
Feasibility Study as a ‘controlled process for identifying problems and opportunities, determining objectives,
describing situations, defining successful outcomes and assessing the range of costs and benefits associated
several alternatives for solving a problem’. Literally, a feasibility study is a fact-finding stage on whether som
ideas will work or not, if there exists a sizeable market for the proposed product/service, and what will be the
investment requirement and where to get the funding from. It also finds out whether the necessary technica
know-how to convert the idea into a tangible product may be available the likely damage caused by the
business/product to the environment, if the cost to restore the environmental damage is within acceptable li
and so on.

Overton (2007:7) notes that the aim of a feasibility study is ‘to analyse the viability of a proposed project, pro
or service’. A feasibility study helps an entrepreneur answer the question, “Should I proceed with the propos
business idea? Is it a workable business venture?” Usually, a feasibility study should be conducted to determ
the practicability of an idea before proceeding with the development of the idea into a business. If it is prope
done, it will serve as a master plan for the establishment or development of the business, product/services.

Why feasibility study?

The following are the objectives of a feasibility study:

• To find out if a business idea can be transformed into a viable business venture:
…is it possible?
…is it justified?
• To suggest possible alternative solutions.
• To provide management with enough information to know:
Whether the venture is possible
Whether the final product will benefit its intended users
What the alternatives are (so that a selection can be made in subsequent phases)
Whether there is a preferred alternative#
• To minimize the chances of embarking on an unprofitable business venture.
• To reduce losses.
• To be used to raise capital (source for funds) from financial institutions.

A feasibility study is a management-oriented activity. After conducting a feasibility study, an entrepreneur m

go/no-go decision. It is an analytical tool that includes recommendations and limitations, which are utilized t
assist the decision makers when determining if a business concept is viable (Hoagland and Williamson, 2000
Feasibility studies are useful either when starting a new venture or when identifying a new opportunity for an
existing business, such as a new product or service.

When to develop a feasibility study:

• When developing a new idea, product or service
• During Expansion
• When embarking on a new venture or project

Feasibility vs. Viability

The following words are very important if one is to fully understand the meaning and purpose of a feasibility
study. They are possibility, probability, practicability, capability and achievability. We ask the following questi
the process of carrying out a feasibility study.
• Is this business possible?
• Is this business practicable?
• What is the probability of success in the near future?
• Do I have the capability to carry and sustain the business through the business life cycle?
• Will I achieve my goals and objectives in the long run?
• Do I have the needed resources and support to start the business?

These questions above need to be answered clearly before the business start-up. There is nothing to fear, if
have gathered enough materials and information needed to help you decide whether to go on or stay back.
this stage you will need certain entrepreneurial qualities and courage to believe in your dream.

Business Viability
A business viability study is a subset of the feasibility study. It concerns the concept of risk in business and th
survival of the business in the face of uncommon and unfavourable business environment. For example,
establishing a brewery in Kano or Sokoto might be feasible, but is it viable? Will the religious environment pe
it to function effectively? Similarly, establishing a fish pond in Makurdi may be feasible but may not be viable
when you consider the weather, location and other factors.

The difference between a feasibility study and a viability study is that the feasibility studies confirm that the
business is practicable while viability determines whether the business can stand any form of challenges and
in the near future.
The purposes of feasibility study are to assess the practicability of the business, seek financial support from
investors or banks, research on other sensitive areas of the business and to gather enough information as to
others succeed and why others fail.
Types of feasibility

There are various classification of feasibility studies. The following four types have been identified for the pu
of this article:
• Operational Feasibility {Will it work?}
• Technical Feasibility {Can it be built?}
• Economic Feasibility {Will it make economic sense if it works?, Will it generate profits?}
• Schedule: Constraints on the project schedule and whether they could be reasonably met.

PIECES Framework
The PIECES framework developed by Castro and Mylopoulos (2002) can help in identifying problems to be so
and their urgency when developing a feasibility study:
P Performance: Does current mode of operation provide adequate throughput and response time?
I Information: Does current mode provide end users and managers with timely, pertinent, accurate and usefu
formatted information?
E Economy: Does current mode of operation provide cost-effective information services to the business? Cou
there be a reduction in costs and/or an increase in benefits?
C Control: Does current mode of operation offer effective controls to protect against fraud and to guarantee
accuracy and security of data and information?
E Efficiency: Does current mode of operation make maximum use of available resources, including people, tim
and flow of forms…
S Services: Does current mode of operation provide reliable service? Is it flexible and expandable?

Major Sections of a Classic Feasibility Study

Although, there is no generally accepted format for presenting feasibility studies, a good feasibility study sho
contain the following major sections: market analysis, technical analysis, financial analysis, economic analysis
ecological analysis, legal and administrative analysis.

Market Analysis- a market is a medium of exchange of goods and services between buyers and sellers. The
objective of a market analysis in a feasibility study is to examine the characteristics of the product in detail an
specify the requirements that must be met if it is to be acceptable. These include: prices, market size, market
segmentation and problem analysis of the sellers as well as total demand, degree of competition, estimation
quantity and quality to be supplied, availability, distribution and sales for profit.

It also involves knowing who your customers are and to achieve this you need information on: consumption
past and present supply position, production possibilities and constraints, imports and export, competition, c
structure, elasticity of demand, consumer behaviour (intention, motivations, attitudes, preferences and
requirements), distribution channels and marketing policies in use, administrative, technical and legal constra
impinging on the marketing of the product.

Technical analysis: This section is on whether a product can be designed and manufactured at a reasonable
and in a particular location. It also determines if the required facilities and technologies are available. It must
begin with the end product and the quality of raw materials, suppliers, equipment (capacity and production
volume), processes, labour required factory location and layout, land and building, and waste disposal.
The issues involved here are classified into inputs, through-puts and outputs:
Input analysis-is mainly concerned with the identification, quantification and evaluation of business/products
inputs, that is machinery, equipments and materials. Ways to ensure that the right kind and quality of inputs
would be available at the right time and cost throughout the life of the business/product/project.

Throughput analysis- refers to the production/operations that would perform on the inputs to add value. T
stages of production (manufacturing process) , where to locate your facility, the sequence, layout, quality con
measures and so on.

Output analysis- this involves product description ( in terms of physical features-colour, weight, length, brea
height), chemical material properties, as well as the standard to be complied with such as SON, NAFDAC, NE
and so on.

Financial analysis- This section is aimed at assessing the business/product from the economic point of view
whether the proposed business/product/services will be financially viable to meet the burden of servicing de
and satisfy the return expectations of those who provide the capital. This is made possible by using the
information gathered from the marketing and technical studies to estimate the total cost of the project, cash
and the projected balance sheet. These estimates serve as a basis for assessing the business/product/service
order to know if it will be profitable and capable of making a good return on investment and services.

The financial analysis takes a look at total investment cost (which include preliminary expenses, capital invest
and working capital), means of financing, projected profitability (profit and loss accounts, sales revenue less
labour), estimating the sales revenues, production volume, direct labour and material costs, overhead estima
depreciation, break-even quantity, cash flow projections (taking into account interest, dividend and loan
repayment as well as planned expansion), projected financial (profit and loss account and balance sheet ) po

Economic analysis- This involves the study of cost and benefits of the business/product/service. What an
entrepreneur is concerned with whether the capital cost as well as the cost of the product is justifiable as we
price at which the product will sale at the market place.
At this stage the economic and commercial feasibility need to be conducted. Economic feasibility helps one
know the unit cost of the product and commercial feasibility informs whether enough units would sell.

Ecological analysis- This involves the study of the environmental implication (such as pollution) of the busin
product/services. This stage look at what is the likely damage caused by the business/product/service to the
environment, and what is the cost of restoration measures required to ensure that the damage to the
environment is contained within acceptable limits.

Legal and administrative analysis- This refers to the choice of the form of business organisation, registratio
clearance and approval from diverse authorities.
The forms of business organisation are sole proprietorship (where the owners handle all responsibilities,
production and marketing, personnel and finances), partnership, company (which will be private limited com
with minimum of 2 to 50 members, and public limited company- with a minimum of 7 members and no limi
operative ( enterprise owned and controlled by people working in it). The registration and clearance need to
taken from the corporate affairs commission (CAC), NAFDAC, Nigerian stock exchange (NSE) and SON.

[b]Features of a feasibility Study

[/b]When a feasibility study has been carried out, a feasibility report will be drawn and it contains clear suppo
evidence for its recommendations. A good feasibility report must be able to highlight the following:

1. Title Page
2. Table of Contents
3. Executive Summary (summary of all the key sections of the feasibility study, it is written last after the conte
section of feasibility study is completed but is read first and should not be more than one page )
4. Introduction (Justification, Study objective, Scope of study)
5. Product/Service Description (Describe your product/service here)
6. The Promoter (Name, Address, Telephone number/Email address, Qualifications, Work history and backgro
in brief, Status of promoter – whether company, or individual, etc..
7. Market Assessment (In this section you provide an assessment of the market demand for your product or
service. The analysis reveals who will buy, how much of your product and what they are willing to pay for it).
Questions to answer in the market assessment
• What is the size of the market?
• What is the sales volume?
• What is the production volume?
• Who is buying the product or service i.e. who is your target market?
• How many customers are there? Who are they?
• Where are they currently buying the product or service?
• Are the customers satisfied?
• How is your market segmented currently?
• What are the major trends affecting your market? etc
8. Competitor Analysis
• Who are your major competitors?
• What are the major strengths of each?
• What are the major weaknesses of each?
• What are their production capabilities?
• Are you familiar with the following factors concerning your competitors:
9. Marketing Strategy (Depending on the outcome of the feasibility study your business plan will include a
detailed marketing strategy. For the feasibility study a brief outline of your strategy will suffice).
• How will the market be accessed? What distribution methods will you use?
• What is the competitive advantage of your product or the benefits of your product in relation to the
competition?
• What will attract customers to your product?
• How is your product differentiated from the competition?
• What pricing methods will you probably use?
• What promotional methods will you use (i.e tradeshows, advertising, etc.)?
• Outline any commitments you have received from customers already.
• Outline export potential if any.

1. Technical or Production Analysis (This portion should be based on verifiable data and contain sufficient
information and analysis so that a determination may be made on the technical feasibility of achieving the le
of income or production that are projected in the financial statement)
2. Prototype or sample product (If you need to develop a sample product or prototype as part of the feasibil
description should be given here.)
3. Management Capability (Describe the requirements for the management positions and responsibilities for
personnel. Describe the skills/expertise you will need to bring to the business. Describe existing capabilities w
the business (related to qualifications and experience of promoter).
4. Financial Analysis (Include preliminary financial projections (with a clear understanding of assumptions) an
estimation of all variable and fixed (overhead) costs will be necessary to estimate the profitability of the prop
venture.
5. Required Financing (Required funding to enter this market and feasibility of raising capital (if necessary).
6. Economic Impact (Show the potential economic impact of the proposed venture e.g. job creation, salaries
employees, sourcing local suppliers, etc.
7. Conclusions and Recommendations (A suggestion as to the feasibility of the project.)
8. Appendices (Include any supporting documentation including references here.)

The pitfalls of writing feasibility studies

Incomplete understanding of the financial implications of the business involved,
1. Not sticking to the plan,
2. Over anticipating the market
3. Falsification of information
4. Non-management support
5. Non anticipation of changing environment
6. Lack of viability

On a final note, if you cannot prepare a feasibility study on your own, just like you can hire a Doctor, a Lawye
Engineer and an Architect to assist you handle a particular situation; you can also hire a professional to help
preparing a feasibility study. Whether you do it yourself or hire someone to do it, always know that it is very
important and a necessary ingredient for any successful idea, concept or venture to thrive.

References
1. Castro, J. and Mylopoulos, J. (2002), Information Systems Analysis and Design: The Feasibility
Study. http://www.cs.toronto.edu/~jm/340S/02/PDF2/Feasibility.pdf Accessed on 15th July, 2013.
2. Hoagland, H. and Williamson, L. (2000). Feasibility Studies, Kentucky, University of Kentucky.
3. Overton, R. (2007). Feasibility Studies Made Simple, Martin Books, Australia.
4. Thompson, A. (2005) ‘Entrepreneurship and Business Innovation: The Art of Successful Business Start-ups a
Business Planning’, Perth, Best Entrepreneur.