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What is the use of feasibility study?
What is the 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 may be successfully completed.
Where project managers use feasibility studies to distinguish the pros and cons of project implementation before they invest a lot of time and money in it, feasibility studies can also provide management of the company with important information that can prevent the company from entering blindly into risky business.
Uses of feasibility study
- Uses of feasibility study at the project scope
The uses of feasibility study to defining the scope of the project that is used to define the business problem and the opportunity to address it utilizing good decision making techniques, as it is also necessary to identify the parts of the business that are directly or indirectly affected by the decision made, including project participants and the end-user areas affected by the project.
A lot of projects in the corporate world started without a well-defined project scope, and as a result, they produced either too much or too little of what was really needed.
- Uses of feasibility study to determine the requirements
uses of feasibility study to identify how the requirements are determined depends on the project’s concern, for example, how the requirements are determined for a product is fundamentally different from the requirements for the information system.
Where it should be reviewed that all the previous elements are then collected in a feasibility study and an official review with all the parties concerned. The review serves two purposes, proving the accuracy of the feasibility study and deciding on the project; either approving it, rejecting it or requesting its review before making a final decision.
If approved, it is very important for all parties to sign the document expressing their consent and commitment to it; it may appear to be a small gesture, but signatures carry a lot of weight later as the project progresses.
If the feasibility study is rejected, the reasons for its refusal should be explained and attached to the document.
- Uses of feasibility study to determine method of solution
uses of feasibility study represents the recommended solution approach or course of action to meet the requirements, and here, various alternatives are considered with an explanation of why the preferred solution is chosen, and at this stage also, the use of existing structures and commercial alternatives (such as “build-to-purchase” decisions) is considered.
- Uses of feasibility study at the evaluation level
The evaluation examines the cost-effectiveness of the chosen approach, and this begins with an analysis of the estimated total cost of the project, in addition to the recommended solution, where other alternatives are estimated in order to provide an economic comparison.
For development projects, the estimate of labor expenses and indirect costs is combined with a project timeline showing the project path, start and end dates.
How to make a feasibility study?
The development of the plan is one of the most important pillars that any business depend on as a previous stage to start any business or project, including small and large enterprises, entrepreneurial and investment projects, in addition to projects with financial return and non-profit projects, although the development of the plan is what usually starts before starting any work, there is a previous step in what is known as a feasibility study.
Concept of feasibility study
There are many definitions that illustrate the concept of feasibility study, the most important of which are:
- It is “an analysis or evaluation through which it is possible to determine whether the planned project is possible in all respects and within its estimated costs, in addition to determining whether the project is profitable in the future, its impact on society, and its ability to achieve its objectives, and assess the costs and expected returns from it”
- “It is the process by which information about the proposed project is collected and analyzed in order to know how to implement and minimize the risks to ensure the profits of the project, and therefore to know whether this project is a feasible project or not feasible project”.
Preparing feasibility study
When preparing feasibility study, and to ensure a successful feasibility study, we must divide the study into several sections to cover all aspects of the study, and get all the data and information that will help judging whether the project is a feasible project or not a feasible project when preparing feasibility study, here are the steps to preparing feasibility study to assess whether a certain project is a feasible project or not a feasible project:
The first part in preparing feasibility study is the technical study. The technical study help judging on the technical feasibility of the project and is based on judging the technical resources available to the project.
The technical study assesses whether the resources fit the production capacity, determining the size of production, machinery and equipment (the most suitable machinery and equipment for the project). The technical study also determines the labor required for management.
The technical study determines whether the technical team is able to turn ideas into a feasible project. The technical study also involves assessing the logistical or geographical requirements of the project, and your method of operations management. Technical study is also based on the analysis of an important element, the product.
As part of preparing feasibility study, and once the technical study of the feasibility study is completed and the project idea is technically feasible project, it will now start the financial study. Financial study is sometimes referred to as economic feasibility. Financial study is the evaluation of all what will be spent on the project, and economic feasibility is the assessment of the material return from the project. However, many believe that financial study and economic study are the same.
Financial study helps the project owner when judging on the costs and benefits associated with the project before allocating the financial resources of the project, and this financial study enhances the credibility of the project for you, since financial study is related to providing figures on the founding costs, assets management sales, operating costs, and matters related to access to investment or financing. Some of the questions related to the financial study part should be asked:
- How much money do I need to start?
- Will the project require external funding?
- What pricing structure will I use?
- What are the potential sales volumes of the product or service?
- How long can the project stand if the sale does not occur?
- How long will you need to break even between selling and profit?
- How much is the return on investment?
Financial study usually involves conducting financial analysis using financial ratios, financial ratios analysis provides an initial perception of the financial situation of the project. Financial ratios can help judging whether the project can be considered a feasible project or not a feasible project. There are many types of financial ratios that can be used in a feasibility study. You should be aware of the different types of financial ratios, and what financial ratios stand for. And what indications financial ratios provide. Financial ratios also help you assess different aspects within the project including profitability, liquidity, etc. You should pay close attention to financial ratios while conducting a feasibility study.
Another important part when preparing feasibility study is the marketing study. In a marketing study, you will need to find an answer to these two key questions: Does anyone in the market need this product or service? Is there a similar product / service on the market now that would prevent the success of the project? Marketing study is based on testing and analyzing the target market.
- When conducting a marketing study as part of preparing feasibility study as part of the components of feasibility study, you should ask what market segments do you target through your product or service?
- When conducting a marketing study, you should ask why would people buy this product / service?
- When conducting a marketing study as part of preparing feasibility study as part of the components of feasibility study, you should ask who are your target customers and how many approximate in the market and their purchasing power?
- When conducting a marketing study as part of preparing feasibility study as part of the components of feasibility study, you should ask what are the buying patterns for these customers? In order to enable fair judging on the marketing feasibility.
- When conducting a marketing study as part of preparing feasibility study components of feasibility study, you should ask how will you sell your product or service and where?
- When conducting a marketing study as part of preparing feasibility study, you should ask who are your competitors, what are their strengths and weaknesses?
The components of the feasibility study presented above are just to illustrate the components of feasibility study that are used in judging the feasibility of the project. The components of feasibility study may differ from one project to another; however, the components of feasibility study evolve around similar concepts. Thus, when writing a feasibility study you should focus on writing it using the components of feasibility study mentioned above to enable fair judging on the project.
What are the components of a feasibility study?
The development of the plan is one of the most important pillars that any business depend on as a previous stage to start any business or project, including small and large enterprises, entrepreneurial and investment projects, in addition to projects with financial return and non-profit projects, although the development of the plan is what usually starts before starting any work, there is a previous step in what is known as a feasibility study.
What is the feasibility study?
A feasibility study is a detailed analysis used to determine the validity of an idea for implementation within the estimated cost limits, and it also serves as an analytical tool to measure the possibility of successfully completing the project and reaching the desired feasibility in the light of a set of assumptions, and that the feasibility study takes into account the relevant factors that may affect on the progress of work such as economic, technological, and legal factors, therefore investors and project managers undertake feasibility studies to determine all possible positive and negative results of the project before starting to pump money and invest a large amount of time and effort.
Determine the feasibility of the idea in question:
All commercial projects do not enjoy the same degree of success. Some ideas are more suitable to be applied under specific conditions and an estimated budget than others. Therefore, a feasibility study helps entrepreneurs in revealing the susceptibility of the ideas under study to application, so with a feasibility study you will not discover that after investing huge money that the business idea is not thriving, with a feasibility study this scene will not be repeated.
Determine your potential customer base:
A feasibility study helps to define the target customer base for a particular service or product, who is the target group? Defining geographical borders, what are their needs, desires, aspirations and tastes? What is their purchasing behavior? Is this purchasing behavior affected by a particular variable, or is it running at the same pace throughout the year? What are the demographics of existing, existing products similar to the idea of the project in question? What are the strengths and weaknesses of the target audience in the current products or services?
Calculating costs and revenues to identify whether the project is feasible or not feasible:
A good feasibility study would help the business owner to predict the amount of money required to start operating and the cash flow for the project income, it is important to have a good evaluation of the financial conditions required in the business, as it would give the project owner an estimate to start the business, and also that type works From financial studies on determining all fixed and variable costs, and then estimating revenue in the light of sales, based on the market share that was identified in the previous steps, and after examining all costs and revenues through which profit and return on investment can be reached T, and does this yield justification for the start of the legislator and guarantor of the continuation of the market and promising development and the development of the project.
Identify the risks and obstacles:
There is hardly any commercial project that only comes with risks, which is why it is important to assess the risks involved in the idea under study, and a good feasibility study reveals potential problems that might occur if the project was implemented, and to show these risks in the face Identify, and determine at what stage those obstacles will begin to emerge, work on how to reduce these risks, and prepare the best scenarios to overcome those risks.
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