Faculty of Management Studies and Commerce

Department of Financial Management

BBAF 4133 : Project Management
Handout – 05

Issued Date: - 15/11/2022 Mrs. Jeyan Suganya Dimon Ford

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PROJECT FEASIBILITY STUDY

Learning Outcomes

After completing this topic you will be able to,

• Describe the meaning of a feasibility study report
• Explain objectives and importance of feasibility study report
• Identify factors to be considered when preparing the reports
• Find out the way to prepare the report and steps should be adopted when preparing reports

INTRODUCTION

Feasibility Report is a detailed study that examines the profitability, feasibility and effectiveness
of a proposed investment opportunity. A business feasibility study can be defined 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 with several
alternatives for solving a problem.

WHAT IS A FEASIBILITY STUDY?

A feasibility study is essentially a process for determining the viability of a proposed initiative or
service and proving a framework and direction for its development and delivery. The feasibility
study is conducted during the Initiation phase of the business development cycle prior to
commencement of a formal Business Plan. It is a process for making sound decisions and setting
direction.
There is no universal format for a feasibility study. Feasibility studies can be adapted and shaped
to meet the specific needs of any given situation. Eg: The local authority is to carry out a feasibility
study into expanding the old stadium.

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Thorough feasibility analysis provides a lot of information necessary for the business plan. For
example, a good market analysis is necessary in order to determine the project’s feasibility. This
information provides the basis for the market section of the business plan.

WHAT IS A FEASIBILITY STUDY REPORT (FSR)?

In simple terms, it’s just a document that aims to identify, explore, and evaluate a project’s
solutions to save time and money.

“A Feasibility Study Report (FSR) is a formally documented output of feasibility study that
summarizes results of the analysis and evaluations conducted to review the proposed solution and
investigate project alternatives for the purpose of identifying if the project is really feasible, cost-
effective and profitable”. It describes and supports the most feasible solution applicable to the
project. A feasibility study report gives a brief description of the project and some background
information. In practice, it signifies that the sponsor can proceed with deciding on project
investment and make necessary assignments to the project manager.

REASONS TO CARRY OUT FEASIBILITY STUDY

Conducting a feasibility study is a good business practice. If you examine successful businesses,
you will find that they did not go into a new business venture without first thoroughly examining
all of the issues and assessing the probability of business success. Below are other reasons to
conduct a feasibility study.

▪ Gives focus to the project and outline alternatives.

▪ Narrows business alternatives
▪ Identifies new opportunities through the investigative process
▪ Enhances the probability of success by addressing and mitigating factors early on that could
affect the project
▪ Provides quality information for decision making
▪ Provides documentation that the business venture was thoroughly investigated
▪ Helps in securing funding from lending institutions and other monetary sources
▪ Helps to attract equity investment

The feasibility study is a critical step in the business assessment process. If properly conducted, it
may be the best investment you ever made.

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THE USES OF FEASIBILITY REPORT

The Feasibility Report can be used by the entrepreneur in the following areas:

▪ To meet the stipulated requirements of financial institutions. For instance, banks and other
financial institutions giving loans to start a business executives demands for a Feasibility
Report of the proposed investment.
▪ To provide the basic information for effective decision making with respect to the proposed
investment. By showing the market potentialities, technical and financial implications of
the proposed opportunities, the feasibility report enable the entrepreneur to accept or reject
the project.
▪ To assist the entrepreneur in developing future plans for the organization.
▪ To serve as the basic for measuring the performance of the proposed business.

It is estimated that only one in fifty business ideas are actually commercially viable. Therefore, a
Business Feasibility Study is an effective way to safeguard against wastage of further investment
or resources. If a project is seen to be feasible from the results of the study, the next logical step
is to proceed with the full Business Plan. A thorough viability analysis provides an abundance of
information that is also necessary for the Business Plan. For example, a good market analysis is
necessary in order to determine the business concept’s feasibility.

Feasibility study should contain clear supporting evidence for its recommendations.
Recommendation will be reliant on a mix of numerical data with qualitative, experience-based
documentation. A Business Feasibility Study is heavily dependent on the market research and
analysis.

The Business Feasibility Study findings will be assessed by potential investors and stakeholders
regarding their credibility and depth of argument. The Business Feasibility Study places the
findings of the Dimensions of Business Viability Model assessment into a formal business report.
It also aligns the findings with functional processes of an enterprise which an audience can easily
understand. For the purposes of understanding the structure of Business feasibility Study the
following represents the framework of the Dimensions of Business Viability.

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1. Market Viability
2. Technical Viability
3. Business Model Viability
4. Management Model Viability
5. Economic and Financial Viability
6. Exit Strategy Viability

FEASIBILITY STUDY REPORTING

The process to write the report is called feasibility study reporting. Often it is a responsibility of
the project manager to control such a process. The reporting process allows the senior management
to get the necessary information required for making key decisions on budgeting and investment
planning. A well-written feasibility study report template lets develop solutions for:

• Project Analysis because an example of FSR helps link project efficiency to budgeted costs.
• Risk Mitigation because it helps with contingency planning and risk treatment strategy
development.
• Staff Training because the report can be used by senior management to identify staffing
needs as well as acquire and train necessary specialists.

A well-designed feasibility study should provide a historical background of the business or project,
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. Generally, feasibility studies precede technical development
and project implementation.

The primary objectives of this report are to inform about the following matters.

1. What the proposed system will achieve.

2. Who will be involved in operating the proposed system in the organization.
3. The benefits that system will give.
4. The organizational changes need for its successful implementation.
5. The estimated cost of the system.

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STEPS TO WRITING A FEASIBILITY STUDY REPORT (FSR) EXAMPLE

1. Write Project Description

At this step, you need to collect background information on your project to write the description.
For example, your company needs to increase online sales and promote your products/services on
the Web. Then in the first part of your feasibility study report, you could write:

“This project is website development to promote the products/services in Internet and increase
online sales through encouraging customers to visit the website and make online bargains.”

2. Describe Possible Solutions

In order to take this step to write a feasibility study report template, you’ll need to perform an
alternatives analysis and make a description of possible solutions for your project. For example, in
your FSR template your e-commerce project might have the following solutions description:

“This project can be undertaken by the implementation of the two possible solutions: 1) Online
Shop; 2) Corporate Website. Each of the solutions is carefully analyzed, and necessary information
required for making the final decision is available for the management team.”

3. List Evaluation Criteria

Now it’s time to set and define evaluation criteria for possible solutions. This step of feasibility
study report writing requires you to investigate the solutions and put them against a set of
evaluation criteria. For example, you could add the following criteria to your report:

“The possible solutions of this project are evaluated and compared by the following criteria: 1)
Concept Spec.; 2) Content Audit; 3) Technical Design Spec.; 4) Launch Schedule & Time-frames.”

4. Propose the Most Feasible Solution

Once the criteria are used to evaluate the solutions, your next step for writing a feasibility study
report is to determine the most economically reasonable and technically feasible solution which
lets the company 1) keep to optimal use of project resources and 2) gain the best possible benefit.
For example, your report might include:

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“After the evaluation of the possible solutions, the most feasible solution for this project is
identified and selected, so the project turns to be cost-effective, vital and practical.”

5. Write Conclusion

The final step of the feasibility study reporting process requires you to make a conclusion by
summarizing the project’s aim and stating the most feasible solution. For example, the conclusion
of your FSR might be:

“This project’s purpose is to develop a sophisticated and original design of the website that will
contribute to online sales increasing, attract the target customer’s attention, and be cost-effective.
The most feasible solution for the project has been chosen and approved and now is ready for
further elaboration.”

FIVE COMMON FACTORS IN FEASIBILITY STUDY

When writing the reports five common factors should be considered. TELOS provides five
common factors as follows:

Technology and system feasibility

The assessment is based on an outline design in terms of Input, Processes, Output, Fields,
Programs, and Procedures. This can be quantified in terms of volumes of data, trends, frequency
of updating, etc. in order to estimate whether the new system will perform adequately or not.
Technological feasibility is carried out to determine whether the company has the capability, in
terms of software, hardware, personnel and expertise, to handle the completion of the project.

Economic feasibility

Economic analysis is the most frequently used method for evaluating the effectiveness of a new
system. More commonly known as cost/benefit analysis, the procedure is to determine the benefits
and savings that are expected from a candidate system and compare them with costs. If benefits
outweigh costs, then the decision is made to design and implement the system.

Cost-based study: It is important to identify cost and benefit factors. This is an analysis of the costs
to be incurred in the system and the benefits derivable out of the system.

Time-based study: This is an analysis of the time required to achieve a return on investments. The
future value of a project is also a factor.

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Legal feasibility

It determines whether the proposed system conflicts with legal requirements, e.g. a data processing
system must comply with the local Data Protection Acts.

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.

Schedule feasibility

A project will fail if it takes too long to be completed. 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.

WHEN NOT TO CONDUCT A FEASIBILITY STUDY

Under most circumstances, a feasibility study is a key step. But not always. When don’t you need
to bother with a feasibility study?

• You already know you’re going to move forward with the project, no matter what the
feasibility study says. This happens surprisingly often, because the emotional lure of a new
undertaking, new market, or new technology may outweigh the reality that the project may
fail miserably.
• When you already know the project is feasible because it’s so small, or is so similar to other
projects you’ve undertaken, that you already have the resources, skills, and information you
need at your fingertips.
• You already know that the project is NOT feasible, because it requires an infrastructure,
budget, or other resource that is not available to you at the moment.
• You have a general idea (expand into a larger storefront and hire more staff, for example)
but you don’t yet have enough details (location, costs, staffing needs, etc.) to consider the
feasibility of the project.
• You could determine the feasibility of the project by making a few phone calls to determine
whether the costs, timeline, or resources required are outside your organizational scope.

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• You don’t have the personnel or money to undertake an effective feasibility study. In most
cases, it’s best to hire an outside study consultant (who is not already emotionally attached
to the project concept), and such consultants don’t usually come cheap.

You don’t have the time to undertake a feasibility before the project launches. As you can
probably see from this list, a feasibility study is really only useful if it is thorough, timely, and
unbiased. If you really can’t conduct a study with these qualities, there’s no point in wasting
time or money on a second rate study that is likely to simply tell you what you want to hear.

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