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DEFINITION OF A
FEASIBILITY STUDY
“Man Never Plans to Fail, He Only Fails to Plan.”
DEFINITION OF A FEASIBILITY STUDY

THIS CHAPTER CLARIFIES what a
feasibility study is by :
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Providing an extensive definition,
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Explaining why studies are conducted,
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Outlining their limitations.
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DEFINITION OF A FEASIBILITY STUDY
Definition: Feasibility Study
 A feasibility study is a controlled process
for identifying problems, opportunities;
determining objectives, describing current
situations and successful outcomes, and
assessing the range of costs and benefits
associated with several alternatives for
solving a problem .In other words, it is the
initial justification needed to determine or
discover if a project is “ do-able”.

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DEFINITION OF A FEASIBILITY STUDY
A Feasibility study is an analytical tool
used during a business development
process to show how a business would
operate under a set of assumptions.
 These assumptions often include such
factors as the technology used (the
facilities, equipment, production process,
etc.),financing, (capital needs, volume,
cost of goods, wages, etc.), marketing
(prices, competition, etc.), and so on.

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WHAT IS FEASIBILITY STUDY
The study is usually the first time in a
project development process that many
key pieces and information about the
project are assembled into one overall
analysis.
 The study must show how well all of these
pieces fit and perform together. The result
will be an overall assessment of whether
the proposed business concept is
technically and economically feasible.

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WHAT IS FEASIBILITY STUDY
The feasibility study evaluates the
project’s potential for success. The
perceived objectivity of the evaluation is
an important factor in the credibility placed
on the study by potential members,
lenders, and other interested parties.
 Also, the creation of the study requires a
strong background both in the financial
and technical aspects of the project. For
these reasons, outside consultants
conduct most studies.

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WHAT IS FEASIBILITY STUDY

A FEASIBILITY STUDY by a recognized
independent consultant may be required
by the Agency for start-up businesses or
existing businesses when the project will
significantly affect the borrower’s financial
operations.
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Types of feasibility studies
An acceptable feasibility study should include,
but not be limited to five types of feasibility:
1.
2.
3.
4.
5.
- Economical feasibility studies
- Marketing feasibility studies
- Technical feasibility studies
- Financial feasibility studies
- Legal feasibility studies
WHAT IS FEASIBILITY STUDY
(a) Economic feasibility. Information related to
the project site; availability of trained labor;
utilities; rail, air, and road service to the site; and
the overall economic impact of the project.
Economic analysis is the most frequently used
method for evaluating the effectiveness of a new
system .
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WHAT IS FEASIBILITY STUDY
Economic feasibility.
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. An
entrepreneur must accurately weigh the cost
versus benefits before taking an action.
(a)
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WHAT IS FEASIBILITY STUDY
(b) Market feasibility.
Information on the following aspects :
- Nature and extent of market.
- Market area, and market segment.
- Marketing plans for sale of projected output.
- Extent of competition.
- Commitments from customers or brokers.
- the sales organization and management.
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WHAT IS FEASIBILITY STUDY
(c) Technical feasibility.
 Facility needs.
 Estimate the size and type of production
facilities.
 Investigate the need for related buildings,
equipment, rolling-stock, etc.
 reports shall address the suitability of the
selected site for the intended use including an
environmental impact analysis (EIA).
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WHAT IS FEASIBILITY STUDY
(c) Technical feasibility.
 Investigate and compare technology
providers.
 Determine reliability and competitiveness of
technology (proven or unproven, state-of-theart, etc.).
 Identify limitations or constraints of the
technology.
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WHAT IS FEASIBILITY STUDY
(c) Technical feasibility.
Investigate access to:
1. raw materials
2. transportation
3. labor
4. production inputs (electricity, natural gas,
water, etc.)
5. Investigate potential emissions problems.
6. Analyze other environmental impacts.
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WHAT IS FEASIBILITY STUDY
(c) Technical feasibility.
 The report shall contain sufficient information
and analysis so that a determination may be
made on the technical feasibility of achieving
the levels of production that are projected in
the financial statements.
 The report shall also identify and estimate
project operating and development
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WHAT IS FEASIBILITY STUDY
(d) Financial feasibility.
 Assess the “seed capital” needs of the
business project during the investigation
process and start-up.
 Estimate capital requirements for facilities,
equipment and inventories.
 Estimate working capital needs.
 Estimate start-up capital needs until revenues
are realized at full capacity.
 Estimate contingency capital needs due to
construction delays, technology malfunction,
market access delays, etc.
 Estimate other capital needs.
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WHAT IS FEASIBILITY STUDY
(d) Financial feasibility.
 Estimate the expected revenue, costs, profit
margin and expected net profit.
 Estimate the sales or usage needed to breakeven.
 Estimate the returns under various production,
price and sales levels. This may involve
identifying “best case”, “typical”, and “worst
case” scenarios.
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WHAT IS FEASIBILITY STUDY
(d) Financial feasibility.
 Assess the reliability of the underlying
assumptions of the analysis (prices,market
access, market penetration, etc.)
 Benchmark against industry averages and/or
competitors (cost, margin, profits, ROI, etc.).
 Calculate expected cash flows during the
start-up period and when the business
reaches capacity.
 Prepare pro forma income statement, balance
sheet, and other statements of when the
business is fully operating.
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WHAT IS FEASIBILITY STUDY
(d) Financial feasibility.
An opinion on the reliability of the financial
projections and the ability of the business to
achieve the projected income and cash flow.
An assessment of the cost accounting system,
the availability of short-term credit for seasonal
business, and the adequacy of raw materials
and supplies.
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WHAT IS FEASIBILITY STUDY
(e) Legal feasibility
 Legal Study, includes (Registrations ,
Contracts, Agreements, …etc)
 Identify the proposed legal structure of the
business.
 Outline the staffing and governance structure
of the business along with lines of authority
and decision making structure.
 Identify any potential joint venture partners,
alliances or other important stakeholders.
 Determines whether the proposed system
conflicts with legal requirements.
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Feasibility Study Objectives
1. The feasibility study is so important , It should
provide a clear understanding of project risk
to help members decide whether to invest in
the proposed business.
2. Assists decision makers whenever they need
to consider alternative development
opportunities.
3. Permit planners to outline their ideas on
paper before implementing them.
4. Presents and clarifies the risks and returns
associated with the project.
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Feasibility Study Objectives
5. Evaluation of whether to start a new
business, by either new groups or
established businesses, is the most common,
but not the only usage.
6. Help groups decide to expand existing
services, build or remodel facilities, change
methods of operation, add new products, or
even merge with another business.
7. Answers the basic questions: is it realistic to
address the problem or the opportunity under
consideration?
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Feasibility Study Limitations
Although a feasibility study is a useful tool for
project deliberation, it has limitations.
 A feasibility study is not an academic or
research paper, but is a pragmatic information
and data analysis document. It is confidential
to the group for which it is conducted, and is
not for public dissemination.
 The study is also not a business plan, which is
developed later in the project development
process and functions.
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Feasibility Study Limitations

A feasibility study will not determine if the
project will be initiated, since that depends on
the potential members, who will invest in and
become the owners of the business.

However, the information, data, and facts
offered in a study, given realistic assumptions,
provide the basis for a decision. Potential
members must decide if the benefits justify the
risks involved in their continuing the project
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Feasibility studies failure
Many factors may be involved and probably will
play a hand.
Many new projects which have passed
countless feasibility studies have been sunk by
unexpected events such as :
 fire,
 changes in legislation,
 an inability recruit and/or keep suitable staff,
Feasibility studies failure

the failure of a major customer, seasonal
demands, health scares,

product recalls due to poor quality,

withdrawal of financial support, weather,

new technology and poor management to list.
Key factors of feasibility studies
A key factors in any feasibility study must be
ensuring that you are dealing with following
factors:
1- With correct facts,
2- Correct assumptions and
3- Up to date financial data.
Many projects fail because assumptions were
based on incorrect facts.
Review questions
Multiple Choice Questions
1- _________ is concerning with the cost/
benefit analysis.
A- Marketing feasibility
B- Economic feasibility
C- Financial feasibility
D- all of these
Answer: B
Review questions
Multiple Choice Questions
2- _________ is concerning with the
environmental impact analysis (EIA).
A- Marketing feasibility
B- Economic feasibility
C- Technical feasibility
D- Legal feasibility
Answer: C
Review questions
Multiple Choice Questions
3- _________ is one of the key factors in any
feasibility study.
A- Correct assumption
B- Capacity
C- Challenge
D- None of these
Answer: A
Review questions
Brief explain Questions
1- Define the meaning of feasibility study?
2- Briefly explain cost /benefit analysis of the
economic feasibility study?
3- State the Key factors of any feasibility studies?
4- State three objectives of Feasibility Study ?
5- Explain the concept of Feasibility studies
failure?