Feasibility study

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For other uses, see Feasibility study (disambiguation).

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Feasibility study is an assessment of the practicality of a proposed project.

Overview

A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats present in the environment, the resources required to carry through, and ultimately the prospects for success.[1][2] In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained.[3]

A well-designed feasibility study should provide a historical background of the business or project, a description of the product or service, accounting statements, details of the operations and management, marketing research and policies, financial data, legal requirements and tax obligations.[1] Generally, feasibility studies precede technical development and project implementation.

A feasibility study evaluates the project's potential for success; therefore, perceived objectivity is an important factor in the credibility of the study for potential investors and lending institutions.[citation needed][4][5] It must therefore be conducted with an objective, unbiased approach to provide information upon which decisions can be based.[citation needed]

Common factors

The acronym TELOS refers to the five areas of feasibility - Technical, Economic, Legal, Operational, and Scheduling.

Technical feasibility

This assessment is based on an outline design of system requirements, to determine whether the company has the technical expertise to handle completion of the project. When writing a feasibility report, the following should be taken to consideration:

  • A brief description of the business to assess more possible factors which could affect the study
  • The part of the business being examined
  • The human and economic factor
  • The possible solutions to the problem

At this level, the concern is whether the proposal is both technically and legally feasible (assuming moderate cost).[citation needed]

The technical feasibility assessment is focused on gaining an understanding of the present technical resources of the organization and their applicability to the expected needs of the proposed system. It is an evaluation of the hardware and software and how it meets the need of the proposed system[6]

Economic feasibility

The purpose of the economic feasibility assessment is to determine the positive economic benefits to the organization that the proposed system will provide. It includes quantification and identification of all the benefits expected. This assessment typically involves a cost/ benefits analysis.

Legal feasibility

Determines whether the proposed system conflicts with legal requirements, e.g. a data processing system must comply with the local data protection regulations.

Operational feasibility

Operational feasibility is a measure of how well a proposed system solves the problems, and takes advantage of the opportunities identified during scope definition and how it satisfies the requirements identified in the requirements analysis phase of system development.[7]

The operational feasibility assessment focuses on the degree to which the proposed development projects fits in with the existing business environment and objectives with regard to development schedule, delivery date, corporate culture, and existing business processes.

To ensure success, desired operational outcomes must be imparted during design and development. These include such design-dependent parameters such as reliability, maintainability, supportability, usability, producibility, disposability, sustainability, affordability and others. These parameters are required to be considered at the early stages of design if desired operational behaviors are to be realized. A system design and development requires appropriate and timely application of engineering and management efforts to meet the previously mentioned parameters. A system may serve its intended purpose most effectively when its technical and operating characteristics are engineered into the design. Therefore, operational feasibility is a critical aspect of systems engineering that needs to be an integral part of the early design phases.[8]

Schedule feasibility

A project will fail if it takes too long to be completed before it is useful. Typically this means estimating how long the system will take to develop, and if it can be completed in a given time period using some methods like payback period. Schedule feasibility is a measure of how reasonable the project timetable is. Given our technical expertise, are the project deadlines reasonable? Some projects are initiated with specific deadlines. It is necessary to determine whether the deadlines are mandatory or desirable.

Other feasibility factors

Market and real estate feasibility

Market feasibility studies typically involve testing geographic locations for a real estate development project, and usually involve parcels of real estate land. Developers often conduct market studies to determine the best location within a jurisdiction, and to test alternative land uses for given parcels. Jurisdictions often require developers to complete feasibility studies before they will approve a permit application for retail, commercial, industrial, manufacturing, housing, office or mixed-use project. Market Feasibility takes into account the importance of the business in the selected area.

Resource feasibility

This involves questions such as how much time is available to build the new system, when it can be built, whether it interferes with normal business operations, type and amount of resources required, dependencies, and developmental procedures with company revenue prospectus.

Financial feasibility

In case of a new project, financial viability can be judged on the following parameters:

  • Total estimated cost of the project
  • Financing of the project in terms of its capital structure, debt to equity ratio and promoter's share of total cost
  • Existing investment by the promoter in any other business
  • Projected cash flow and profitability

The financial viability of a project should provide the following information:[9]

  • Full details of the assets to be financed and how liquid those assets are.
  • Rate of conversion to cash-liquidity (i.e. how easily can the various assets be converted to cash?).
  • Project's funding potential and repayment terms.
  • Sensitivity in the repayments capability to the following factors:
    • Time delays.
    • Mild slowing of sales.
    • Acute reduction/slowing of sales.
    • Small increase in cost.
    • Large increase in cost.
    • Adverse economic conditions.

In 1983 the first generation of the Computer Model for Feasibility Analysis and Reporting (COMFAR), a computation tool for financial analysis of investments, was released. Since then, this UNIDO software has been developed further, to also support the economic appraisal of projects. The Computer Model for Feasibility Analysis and Reporting (COMFAR III Expert) is intended as an aid in the analysis of investment projects. The main module of the program accepts financial and economic data, produces financial and economic statements and graphical displays and calculates measures of performance. Supplementary modules assist in the analytical process. Cost-benefit and value-added methods of economic analysis developed by UNIDO are included in the program and the methods of major international development institutions are accommodated. The program is applicable for the analysis of investment in new projects and expansion or rehabilitation of existing enterprises as, e.g., in the case of reprivatisation projects. For joint ventures, the financial perspective of each partner or class of shareholder can be developed. Analysis can be performed under a variety of assumptions concerning inflation, currency revaluation and price escalations.[10]

Market research study

This is one of the most important sections of the feasibility study as it examines the marketability of the product or services and convinces readers that there is a potential market for the product or services.[citation needed] If a significant market for the product or services cannot be established, then there is no project.

Typically, market studies will assess the potential sales of the product, absorption and market capture rates and the project's timing.[citation needed]

The feasibility study outputs the feasibility study report, a report detailing the evaluation criteria, the study findings, and the recommendations.[11]

See also

References

  1. ↑ 1.0 1.1 Justis, R. T. & Kreigsmann, B. (1979). The feasibility study as a tool for venture analysis. Business Journal of Small Business Management 17 (1) 35-42.
  2. ↑ Georgakellos, D. A. & Marcis, A. M. (2009). Application of the semantic learning approach in the feasibility studies preparation training process. Information Systems Management 26 (3) 231-240.
  3. ↑ Young, G. I. M. (1970). Feasibility studies. Appraisal Journal 38 (3) 376-383.
  4. ↑ Feasibility studies as a tool for successful co-operative business enterprises Lua error in package.lua at line 80: module 'strict' not found.
  5. ↑ Feasibility Study and Lua error in package.lua at line 80: module 'strict' not found.
  6. ↑ O'Brien, J. A., & Marakas, G. M. (2011). Developing Business/IT Solutions. In Management Information Systems (pp. 488-489). New York, NY: McGraw-Hill/Irwin.
  7. ↑ Bentley, L & Whitten, J (2007). System Analysis & Design for the Global Enterprise. 7th ed. (p. 417).
  8. ↑ Benjamin S. Blanchard & Wolt Fabrycky (2010). Systems Engineering & Analysis . 5th ed. (p. 361).
  9. ↑ [1]
  10. ↑ COMFAR III Expert Reference Manual United Nations Industrial Development Organisation.
  11. ↑ Lua error in package.lua at line 80: module 'strict' not found.

Further reading

External links

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