What are Feasibility Studies?
Feasibility studies are required to analyze the possibility of success of any given project. Potential businesses conduct feasibility studies to ascertain the likelihood of their success. According to a 2013 report in the Vanguard Newspaper in Nigeria, 80% of new companies in the country fail in the first five years of existence. This failure is due to a lack of experience and wrong business practices. Failure to conduct a feasibility study before venturing into a business enterprise is detrimental to the business owners.
The Importance of Feasibility Studies
Successful companies conduct feasibility studies to determine the viability of a new venture before commencing. Feasibility studies assess if a business idea is pragmatic and questions the suitability of a business model. Feasibility studies are of different types, including technical feasibility, economic feasibility, legal feasibility, operational feasibility, and scheduling feasibility. The technical feasibility study is the one that examines the quantity of the technical resources needed to start a business that is readily available to the company.
Before commencing operations, companies must examine if they have the required resources and skilled workforce to execute the business. Accordingly, a company must assess if it has the needed capital, software programs, and other hardware resources and gadgets essential for fulfilling its operational tasks and responsibilities.
The economic feasibility study analyses the economic resources available to the firm to decide whether it can meet its set goals and targets. Also, the economic feasibility study evaluates the financial returns to determine if it is worthy of action. Before a company decides to start operations, it should review the projected return on investment to determine if it is worthwhile. Accordingly, if the economic benefits of starting a company are not commensurate, the business is not feasible.
The legal feasibility study reviews and analyses how well a business idea complies with stipulated regulations and laws of the host country. Different countries have policies, rules, and policies overseeing several economic sectors. Before starting a business, it is imperative to review appropriate business laws to ensure there are no conflicts with a new business concept. This activity could include a review of data privacy laws and social media laws.
Operational feasibility analyses the execution of business processes and operations. It evaluates the capacity to fulfill the business objectives without needless challenges. The scheduling feasibility study checks the duration to achieve a business goal. It measures the timeline of business goals and dictates the feasibility of achieving set goals within a given timeframe.
The advantage of feasibility studies is that they assist business owners in determining the pros and cons of a business before committing capital to it. If a venture is not feasible, resources are saved and not wasted. Most micro-business owners may commence operations without conducting any studies due to capital intensive nature of robust feasibility studies. Such small-scale companies may view the uncertainty as part and parcel of the business risk. Such issues are avoidable if business financiers demand that reputable firms conduct the required studies before investing.