Do I need a feasibility study?

Do I need a feasibility study?

A feasibility study or a feasibility plan, is an assessment into the viability of an idea. In business, we use feasibility studies to decide whether to proceed with a proposed venture. They are used by all types of businesses.

Feasibility plans get used as a way to account for and mitigate some of the risks associated with starting a new business or project. The larger and more expensive the proposed business investment, the more a business owner will want to assess as many facets of the market as possible to decrease their risk before they start.

Feasibility plans can be expensive. The more complicated a project, the more expensive a feasibility plan is. A feasibility plan will not just assess the market potential for a product, but will also assess things like location, the capacity of your team, and skills needed to enter into a business.

Feasibility Plans are traditionally divided into five sections each of which assess the capacity of a particular project:

Technical feasibility: technological capacity both of existing technology and of the organization
Legal/Regulatory feasibility: the legal or regulatory frameworks which surround a particular issue and which may affect the ability of a company to enter a market or deliver a service
Market Feasibility: Is there a market for the product? What is the estimated market size and profile of the consumer
Operational/Schedule feasibility: what operational requirements are there? Is the schedule feasible? Will your team be able to complete it given the requirements, what additional resources are required?
Financial feasibility: given the market size, technical and operational requirements does the project make monetary sense?
By answering these questions in an indepth analysis you can begin to develop a response to the question, is this a feasible business idea?

So who buys feasibility studies? Anyone from large real estate developers, to product developers, to mom and pop shops, who need to assess, if there is market for their product or service.

How much should a feasibility study cost? The question depends upon the value of the business idea. The larger the business, the more likelihood that something can go wrong, and the bigger the risks, thus the more likely you will want to do a feasibility or even pre-feasibility study. What it comes down to is the bigger the project, the bigger the feasibility study. A factory will require far more details than a new piece of software. Generally, expect to pay upwards of $5,000 per study, with the average being somewhere in the $7,500-$10,000 range for most small products and services. Larger real estate developments and resource based projects, require environmentals and testing, and can easily fetch over $100,000.

If you think this is expensive, the question becomes, what does it cost to make a bad or uninformed business decision? This is the reason feasibility studies and plans still play a very important role in business decision making, and why your lender or investor may want one.