If you have a business idea that you would like to carry out, but first you want to know if it really is a good idea that could become a success, you should make a feasibility study that helps you know if it will work or not,and thus make the right decision.
What is a feasibility study and why is it so important to get a project up and running?
A feasibility study is a mechanism that allows you to know objectively if a business idea is feasible or not,through the analysis of demand, the management model and financial and economic feasibility, as well as what is the best way to carry it out.
It consists of a very useful document for new entrepreneurs,through which you can know the strengths, weaknesses, the market situation and the behavior of consumers, as well as the product or service you have in mind.
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How to do a feasibility study?
First of all, you have to know the structure that a feasibility study that is effective must have:
- Scope of the project: there should be a section in which the limits of the study are defined, in order to avoid deviating from the main objective.
- Situation analysis: the weaknesses and strengths of the project must be identified.
- Definition of requirements: collect the needs of each of the departments that will be involved in the project.
- Determination of the approach: here the priorities of the project are established, the use of alternative structures is questioned, and solutions are proposed to possible problems that may arise.
- Project feasibility assessment: the cost-effectiveness of the approach is examined. Here it is important to make a summary of the costs, as well as an estimate of both the benefits and the return on investment.
- Review of the project feasibility study: finally, the precision and rigour of the study must be justified in order to finally take a final decision on the project.
Steps to do a feasibility study
To make a feasibility study you have to start with a preliminary analysis,pre-selecting the proposed action. This serves to examine whether the investment in time and money of the feasibility assessment is worthwhile, and should be carried out as follows:
- First you have to outline the idea or planned action,or what is the same, analyze what you are looking for and how to achieve it.
- The next thing is to examine the market space and commercial viability,to be clear about the type of customer you will need to attract.
- Thirdly, we must examine the unique characteristics of the idea,to define whether they are a strength or a weakness.
- Finally, it must be determined whether there are insurmountable risks to the action.
Outline the scope of the project and perform the analysis
Once the preliminary analysis has been made, the scope of the project must now be outlined, defining the study area to check its feasibility:
- The scope has to be detailed, outlining the objectives of the study clearly. Ideally, you should design an action plan for each section that is part of the project.
- You have to study the parts of the business that might be influenced by the proposed action or idea, even if you are proposing something that does not affect the entire business.
- Try to understand the participants and end users of the proposed idea or action.
- You will also need to analyze the current situation, before implementing the idea or action. It can be done after analyzing the weaknesses and strengths of the project, to study the possible savings and benefits.
Examine market conditions
Another important point is to examine market conditions,paying particular attention to four specific points that allow the market to be analysed in terms of viability.
- Be clear about the target audience.
- Study the different buying habits of the target audience.
- Understand sales prospects and market participation.
- Outline product knowledge for the use of your product or service.
- Understand the revenue projection to implement the proposed idea or action.
- Determine the type of marketing needed to promote the product or service, as well as for potential customers to understand.
Understand the financial costs
Another of the most important points is to calculate the financial costs related to the project,since based on them will depend on its viability. Therefore, it is necessary to examine any action that is going to be carried out, to be aware of the impact that it will have on the income and profits of the project.
To know the financial costs you must consider the following aspects:
- Resources needed to implement the idea, and the source of these resources: internal or external funding.
- Realistic benefits.
- Schedule of balance of the proposal.
- Financial risks.
- Financial cost in case of failure.
- Be as realistic as possible with the figures, since the probability of using estimates in the above calculations is very high.
Review and analysis of data
To finish the feasibility study, you should carefully review all the points discussed and examine them over time. If necessary, it is worth taking a step back and reflecting on the investigation before you make a mistake.
The feasibility study is the best ally to know in the most objective way if your project idea is viable or not, and thus know if making the investment is a good option or if on the contrary, you need to look for other alternatives.