Term
Feasibility study
An assessment of whether a project makes technical, financial and operational sense before you invest.
Updated
What it means
A feasibility study answers whether a plan can be done - technically, operationally, legally and economically. It is neither a business plan nor a pitch: a recommendation not to proceed is a legitimate outcome.
Five areas are usually examined: the need and the market, the technical solution, staffing and operations, the legal conditions, and a financial model tested for sensitivity to the key assumptions.
A study also differs from a business plan in timing. A business plan assumes the project will go ahead and describes how; a study decides whether it should at all. It is therefore done earlier, works with less precise figures and puts more weight on the risks that would stop the project than on a detailed account of how it will run.
How it works in practice
It is done before a major investment or before drafting an RFP - an in-house system, a new site, entering another market. The study costs a fraction of the project, and that is what it should be compared against.
The financial part produces a budget and a break-even calculation under optimistic, realistic and pessimistic scenarios. Risks are collected into a risk matrix with mitigations.
When applying for an investment loan or EU funds, the bank or funding body often asks for the study as an attachment. Its financial model must build on the company’s real figures from the financial statements and current books, so we prepare them for the study in the structure the assessor will use to compare them.
What to watch out for
A study with a predetermined conclusion is just expensive agreement. It is useful when it states the conditions under which the plan fails and a measurable criterion for stopping the project.
A frequent weakness is a financial model that leaves out taxes and contributions. It counts revenue and costs but forgets the VAT on the investment that has to be pre-financed, contributions on new salaries or corporate income tax. A project that works on paper then hits a cash shortage in its first year that the study never revealed.
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