Feasibility study: how and why

by Ouijdane El Arabi (A graduate of the national school of management and trade Oujda Morocco, a current student in EMUNI University Slovenia in Euro-mediterranean entrepreneurship diploma (EMED). Worked previously in several non profit organizations but also interned in many businesses.)

What is a Feasibility Study?

 

feasibility study

The feasibility study is a concept that gets mixed quite often with the concept of business plan. The feasibility study however it is not a business plan, regardless of the fact that much of the informations are in the business plan do exist in the feasibility study. The feasibility study tends to answer a single major question: Is it a viable idea to proceed with?

In other words, the feasibility study is intended to answer if the business idea makes sense and profitable (narrow the alternatives and provide the focus to highlight the opportunities that might be hiding or not showing to the entrepreneur), Cash flow, profit with  reasonable risk, long term viability and long term business goals.

On the other hand, the business plan is a detail plan of how to achieve success, goals, targets,….

The feasibility study’s process goes through determining 3 major analysis:

  • Market analysis : Composed by :
    • Demand: on this level we need to answer the following questions: Does the demand exists? If Yes, how much is its level? How much of the product the customer will purchase and how often?
    • Target market: at this level we need to have an accurate targeting of customers in addition to defining elements related to them (where do they live, their revenues…)
    • Competition: how many competitors do we have? What they do well? and what are their weaknesses? And how our business and product(s) will be different than them     ?
    • Market channels and outlets: What channels are we going to use? Ex: Retail, grocer market direct sales (knock on the customer’s door for example) … Do they require specific distribution?
  • Production analysis : We need to determine:
    • Facilities and equipment: What are the required equipments? Where to retain them? Can we repair them? if not how close is a reliable technician?
    • Labor and management: by identifying the number of employees, knowledge and skills they need to have, and our ability to train them. On the other hand, determine the skills needed in our side to manage and weaknesses that can happen to us as well.
    • Inputs all material: From where to have them? Is our schedule aligning with the schedule of obtaining the inputs?
  • Financial analysis : It has 4 main levels to precisely plan as well, we can present:
    • Startup costs: costs required for land, facilities, machines, licenses and all elements to start the venture. We need to determine also how our venture will be financed.
    • Operating costs: Gathers the fixed and variable costs to run and produce and how they change over time,
    • Financing: how to finance the venture: it is about knowing the requirements to fiancé the venture.
    • Revenue and profitability: It is essentially the price, profit and results.

Key advices for creating a good feasibility study:

Elaborating a feasibility study is not always a piece of cake, however every entrepreneur is capable of doing it by using one or many of these tools:

  • For the Market analysis:
    • Data collection: First and secondary data using observation, surveys, focus groups, interviews.
    • PESTLE, SWOT, Porter’s five forces, Blue Ocean Strategy Analysis ( you can find more about in this site )…
  • For the production and financial analysis:
    • Distinguish between the operating and investment activities (define long term and short term assets)
    • Define the risks and uncertainties to try to manage them ahead.
    • Best case, worst case and “most likely” scenarios.
    • Proceed with the cost/benefit analysis (define the break even point in units and in timing)
  • General directives:
    • Call for the help and assistance of the specialists in each field but also business angels that can offer moral support as well as the financial one.
    • Engage the whole team in elaborating the feasibility study.
    • Being open to changing some aspects of the business to have the best results on the longer term.
    • Be flexible.
    • Don’t be afraid to let go an idea if it is not fruitful for you as an entrepreneur!