FEASIBILITY STUDIES

Category: Other Services
Written by Rivary Finan Hernawan on 22/06/2022
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

Feasibility Study (FS) is an analytical technique used to assess the quality of a project’s factors. In the world of project management, this is a very important measuring tool. This study is required by each team to assess the feasibility of the project as well as their human resources and logistics requirements. Furthermore, it can also analyze the return on investment that will be achieved by the company or the organizers.

WHAT IS FEASIBILITY STUDY?

One of the definitions in the Ministerial Regulation (“Permen”) of Bappenas Number 1 of 2009 concerning Procedures for Planning, Submission, and Assessment of Activities Financed with Domestic Loans states that Feasibility Study is the result of research made by experts from the Ministry/Institution/Regional Government/BUMN, as well as experts contracted by the relevant State Ministry/Institution/Regional Government/BUMN, which provides a thorough illustration of whether an activity is appropriate or not based on aspects deemed necessary, as a basis for decision making in doing the project.

Feasibility Study is usually done early in the project stage and is one part of the main design stage during the planning period. For large companies, Feasibility Study is performed to objectively reveal the strengths and weaknesses of the proposed project. The results of the analysis can help project managers to identify and assess the opportunities and threats that could exist in the environment, the resources needed, and the prospects for success. Therefore, the main factors in the analysis process include Economic, Technical, Legal, and Operational.

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WHY DO YOU NEED FEASIBILITY STUDY?

Businesses conduct Feasibility Study because they need to know who will buy their goods. After all, new product failure rates usually range from 70% to 80%. Therefore, corporations conduct a new product feasibility study to demonstrate demand for the new product and to make data-driven suggestions for the following steps in the market entry process. Companies frequently set aside funds in their budgets for new product development research to ensure that they will obtain the best potential return on their investment.
An in-depth business feasibility study can even help you carry out critical elements of a business because this study provides an overview of the business situation that a company will face later. For well-known companies, a feasibility study is usually used to evaluate and test the weaknesses and strengths of a project plan in actuality.

Every project is built differently, depending on the scale, sector, and other factors. However, the followings are some of the outputs usually achieved after doing feasibility study:

  • Feedback of the new projects;
  • Robustness check of the project’s data;
  • Market survey and research;
  • Structured business plan summary; and
  • Projected income statement.

THE IMPORTANCE OF FEASIBILITY STUDY

Feasibility Study is important for companies. It helps them to thoroughly understand all aspects of a project, concept, or plan. So as not to see every problem that can be implemented while carrying out the project.

The value of a feasibility study in project management is determined by businesses’ desire to get the project right before investing resources in the form of time and money. A feasibility study uncovers new ideas that alter the project’s plan and scope completely. This method allows clients to plan ahead of time rather than jumping in and afterward regretting a project that doesn’t work. A feasibility study is beneficial since it provides consumers with a clear picture of the project they have chosen.

The following are some of the most important advantages of doing a feasibility report in project management:

  • Opening new possibilities for the project’s design;
  • Providing useful feedback on present and future decisions;
  • Increasing the project’s success rate;
  • Summary of the project’s worth to the decision-makers;
  • Determining the project's financial viability; and
  • Recognizing how items and services were introduced to the market.

TYPES OF FEASIBILITY STUDY

  1. Technical Study:

    The first type of feasibility study is technical study. It helps the company to determine whether its technical resources are up to capacity and whether the technical team can turn ideas into good working systems. This technical feasibility test also involves evaluating the hardware, software, and other technical requirements proposed during the planning stage.

  2. Economic Study:

    Economic feasibility study usually involves researching the costs and benefits of the project to help the organization determine the viability of the project before financial resources are allocated. It also serves as an independent project appraisal technique and can increase project credibility. The results of the analysis will help decision-makers to determine the positive economic benefits for the organization that will be acquired after the project is over.

  3. Legal Study:

    The next type of feasibility study that companies can perform is legal feasibility. This type of analysis is used to investigate whether any aspect of the project conflicts with legal requirements (such as zoning laws and data protection laws). Let's say a company wants to build a new office building in a certain location. This feasibility study can reveal whether the location the company chooses is suitable or not for their type of business.

  4. Operational Study:

    The last type of feasibility study that is often used in large projects is operational feasibility. This assessment technique involves a study to analyze and determine whether the needs of the organization can be met by implementing the project. This operational feasibility study can also check whether the project plan meets the requirements that need to be identified in the business development analysis phase.

ASPECTS OF FEASIBILITY STUDY

Several basic aspects need to be researched when conducting a business feasibility study, such as management aspect, financial aspect, legal aspect, economic and cultural aspects, market and marketing aspects, and technical and operating aspects. The detailed explanation is as follows:

  1. Management Aspect:

    This aspect is a very important aspect to study because it relates to business and its operations. The scope of this aspect is the widest of other aspects, such as being connected to finance and company resources.

  2. Financial Aspect:

    Capital is one of the keys to starting a business or venture. The capital planning process must be carried out from the start if you want to do business planning. At least aspects that need to be taken into account are the estimated value of the project (business or business), projected cash flow and profitability, other business investments by investors, and the financial viability of the project.

  3. Legal Aspect:

    Business legality in the eyes of the law is one of the factors that is analyzed in a business feasibility study. The aim is to examine the level of accuracy, correctness, authenticity, and perfection of the business document. The scope of legality can be in the form of a location permit, Taxpayer Identification Number (NPWP), Company Registration Certificate, Trading Business License (SIUP), company establishment deed from a notary, Business Place Permit, and Partner Certificate from the local government.

  4. Economic and Cultural Aspects:

  5. This aspect is important to study because it is related to the impact on the environment in which the business is located. From the economic side, the analysis can be in the form of impact on the level of income per capita in the area where the company is founded and operates. From a cultural perspective, the analysis can be in the form of how the company influences the customs in the surrounding area. This factor is heavily connected with the company’s corporate social responsibility (CSR).

  6. Market and Marketing Aspect:

  7. Analysis of market and marketing aspects can help to address concerns about market opportunities for the company's production. This information is very important and useful for companies so that in the future they can be more flexible to develop the products offered. Some of the information analyzed includes market potential, people's purchasing power, segmentation, number of consumers, and the situation of market competition.

  8. Technical and Operational Aspect:

  9. This aspect is connected with the technical and operational characteristics of a company. The information analyzed in this aspect generally includes company layout, company location, product description, and production capabilities.

The possibility to see the broad scope of a project makes Feasibility Study important for business owners. This study can act as a pointer for companies if the business they run is still competitive in the market or not.

WHEN DO YOU NEED FEASIBILITY STUDY?

A Feasibility Study is needed when a company wants to initiate a project and needs insights into the project’s prospects (especially if the project is new). The optimal time for the company to conduct a feasibility study is in the early stages of the project, especially during the planning design stage. This way, a company can have a good grasp of the project before committing any resources to them.

A Feasibility study is generally conducted at the beginning of the project initiation. The main purpose of a business feasibility study is to assess the business project opportunities, and whether the project is worth continuing or not. If the project is indeed worth continuing, then the steps that need to be made to avoid the risk of loss can be planned in advance.

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HOW CAN WE HELP

To summarize, Feasibility Study is about finding and explaining the importance of the project and finding out its usefulness for those who wants to realize the idea of ​​a project and its expected output. The report is handed over to the project owner to study the project further and get acquainted with all its aspects.

Hiring a third-party market research agency for Feasibility Study has several advantages. One of them is an opportunity to view the project from the outer perspective. This lowers bias when designing the study, interpreting the findings, and making suggestions for the project. As such, it is highly recommended to hire a third-party market research firm to conduct a feasibility study of new projects.

With our expertise, we will guide you in conducting a feasibility study for your projects. We will help you examine every possible improvement and brainstorm solutions if you have problems in the planning of your projects. Feel free to contact us if you require.

REFERENCES

FAQs

While both are usually carried out in the early stage of a project, there is a core difference between the two. Concept Planning generates the project’s concept, while Feasibility Study assesses the concept’s viability. To ensure impartial judgment and transparent processes, the two processes are usually carried out separately by independent parties.

While it is usually varies depending on the project’s aims and demands, the following practices are commonly found in a feasibility study:

  • Preliminary analysis, which includes gathering feedback from relevant stakeholders on the new projects;
  • Data verification, to ensure that the project is reliable.
  • Market study or market research, to determine the market demand and opportunity for developing the project or business.
  • Analysis of the project’s labor requirement.
  • Projection of the project’s profit.
  • Identification of potential hurdles and vulnerabilities, as well as how to address them.
  • Making a preliminary “do” or “don’t” decision regarding the strategy.

Some of the components that are often found in a feasibility study report are, but are not limited to:

  1. Summary of the report (Containing a short narrative that describes the project, product, service, plan, or business in detail);
  2. Technical considerations (Containing the technological requirements and constraints of the projects);
  3. Currently existing markets (Listing the product and services that are already present in local and global markets);
  4. Detail of the project’s marketing approach;
  5. Staffing requirements (Can be done with an organizational chart);
  6. Timeline and schedule;
  7. Funding of the project; and
  8. Conclusions and suggestions.

Thank you for sharing

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