Feasibility study | Feasibility reports and their types their importance and how to prepare them

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Feasibility study | Feasibility reports and their types their importance and how to prepare them

Before launching a new product, starting a business, conducting fundraising activities for a non-profit organization, or even doing an import, there are some professional strategies you can use to ensure success, and one of them includes preparing feasibility reports. Conducting a feasibility study, or an economic feasibility analysis is an important step in assessing the costs, benefits, risks, and benefits of a new project. Feasibility studies help companies plan operations, identify opportunities and challenges, and attract investors.

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A feasibility study is not necessarily difficult or expensive, but it should be comprehensive, taking into account all potential challenges and problems. In this article, we define the meaning of feasibility studies, their types, and provide you with the steps you need to learn how to prepare them by yourself.

What is feasibility study ?

A feasibility study is an analysis that takes into account all factors relevant to the project, including economic, technical, legal, and scheduling considerations – to ensure that the project can be completed successfully. Whether or not a project is feasible can depend on several factors, including the project’s cost and return on investment, i.e. whether the project can generate sufficient revenue or sales from consumers.

However, a feasibility study is not only used for projects looking to measure and predict financial gains. But ‘potential’ can mean something different, depending on the industry and the goal of the project. For example, a feasibility study can help determine whether or not a hospital can generate enough donations and investment to expand and build, say, a new cancer center.

Types of feasibility study

It is clear from the previous definition that there are many types of feasibility studies. It can be divided as follows:

Feasibility Reports

A feasibility study is a type of cost-benefit analysis of the project that is examined, which determines whether it can be carried out. This term means the assessment and analysis of the project’s potential to support decision-making by objectively and rationally identifying the strengths, weaknesses, opportunities, and risks associated with it, the resources that will be required to implement the project, and assessing its chances of success. It consists of market analysis, economic analysis, technical and strategic analysis.

Technical Feasibility Study

It is to determine if your organization has sufficient technical resources and experience to meet the requirements of the project.

Legal Feasibility Study

Your project must meet legal requirements. This includes the laws and regulations that apply to all activities and deliverables within the scope of your project.

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Operational feasibility study

Operational feasibility indicates how well your project aligns with your organization’s capacity planning, resources, strategic objectives, and business objectives.

Time feasibility study

Estimating the time it will take to implement the project and setting deadlines. Then think about how your project timeline fits in with your existing processes, such as demand planning, production schedules, and many more.

In this article, we will focus on the economic feasibility study as one of the most important and influential types of a feasibility study for decision-making.

Why are Feasibility Reports important?

There are many benefits to feasibility studies, including helping project managers discern the pros and cons of implementing a project before investing a significant amount of time and capital into it.

Feasibility studies can also provide a company’s management team with important information that may prevent them from entering into a risky business venture.

A feasibility study helps companies develop new business, including determining how they operate, potential obstacles, competition, market analysis, and the amount and source of financing needed to grow the business. A feasibility study aims to identify marketing strategies that can help convince investors and banks that investing in a particular project or business is a wise choice.

Feasibility studies are important because they encourage professionals to think about all the factors that go into a project or starting a business. These areas include for example background, project summary, operations description, market research, and financial documentation.

Furthermore, well-written feasibility reports can help management leaders obtain the approval they need to complete the project, by analyzing each of these areas and preparing the action plan. This enables professionals to have the best chance of creating successful projects that benefit the company or society as a whole.

5 Steps to Prepare Feasibility Reports

Although feasibility reports can assist project managers in identifying risks, several steps and best practices must be considered before proceeding with their preparation.

The economic feasibility reports survey the economic climate, develop a work plan and estimate the costs and revenues of the planned operations, through the following steps:

Select your target market

It is essential to define and describe the target market for your intended project or business. Do this by describing how your intended customer base will benefit from your product or service.

If your planned activity serves a business customer base, identify the industry in which your target customers operate, and who are the main competitors in the market. Describe the demographics – characteristics of a population – and the shopping behavior of your target customers.

Watch your competition

Evaluate the competition in your target market. Identify the main competitor companies and their products, services, and market shares for the intended activity. Doing so will force you to think about how to differentiate your products or services from those of your competitors.

Follow this step by developing and describing the overall plan for your organization or activity, including production requirements, facilities, sales, and marketing strategy.

Anticipate your revenue

Project your business revenue, based on an assumed share of your target market. You can provide revenue forecasts for one year or more. Some analysts suggest providing a three-year revenue forecast.

Assuming you are a new entrant in the market, you should maintain a conservative outlook, estimating only a small share of the market (usually around 5% to 10%). Using your estimated market share and selling price, estimate your total revenue, and break it down monthly, quarterly, and annually.

Define fixed and variable costs

Estimate the costs of your activity and work in that market, taking into account fixed and variable costs. Fixed costs are those that remain constant over the period of time in which you expect revenue, for example (rent, interest on loans, and administrative expenses). Fixed costs are calculated as a fixed amount, as they are not affected by the level of sales or services provided.

Variable costs are those that change in response to sales levels, for example (material costs, labor costs, marketing, and distribution costs). Variable costs are affected by the change in sales or services provided, meaning that if sales or services increase, variable costs increase, and vice versa if sales or services decrease, variable costs decrease.

Balance between costs and revenues

Conclude your feasibility analysis by balancing the costs and revenues of your planned activity or organization, using the expected revenues and costs as a guide.

Finally, include in your economic feasibility analysis any non-economic factors that could affect the success of your business and activity, such as environmental impacts and political considerations such as government regulations.

Feasibility study | Feasibility reports and their types their importance and how to prepare them

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