Money is a huge consideration in the business world. Bad capital investments have the power to bury successful enterprises to the ground. On the other hand, money spent well can help an endangered company in making a comeback. Simply put, businesses need to identify projects that warrant capital investment, and the ones that don’t. To remedy this predicament, the business world contains a well-defined construct called a feasibility study. This tool is used by companies across the globe to assess the risks associated with spending money on a proposed project. Various metrics are involved in the conduction of this study. Moreover, feasibility studies also vary in types. For instance, the study governing the economic feasibility of a project will not be the same as a study governing its technical feasibility. When companies take a generalized approach to determining the feasibility of a project, many details go unnoticed. Thus, it is important to niche-down while conducting a research-based analysis of the feasibility of an idea.
Are feasibility studies always worth the investment?
For starters, let’s ascertain the fact that conducting a feasibility study in itself is a capital-intensive task. A ton of resources is required for analyzing the probability of the success or failure of a business idea. Thus, it is obvious that not all feasibility studies are worth spending time and resources on. However, given the utility that feasibility analysis serves, it is impossible to discount it altogether. The point is that there is a fine line that separates a good business feasibility study from a wasteful exercise. Here’s a brief description of the scenarios in which a feasibility study is rendered useless:-
- An impulsive initiative: The decision to conduct or not to conduct a feasibility study also requires a great deal of thought. After all, these examinations do not happen without the deployment of a gargantuan amount of resources. The bottom line is that a feasibility study is not required for all business conditions. For example, if a company is pondering upon the decision to install a new coffee machine, a feasibility study is pointless in that context. Assessing the feasibility of a business idea that only requires a measly capital investment does sound come across as a sound decision. However, some business avenues require a thorough evaluation of their probability of success or failure. In such cases, feasibility studies are not a choice, but a necessity. The point here is that a bad feasibility study example is one where stakeholders dive head-first into conducting them. A precautionary discussion involving all relevant parties can help in the elimination of the problem.
- Going overboard: Feasibility studies are undoubtedly important for the smooth sailing of a business enterprise. However, the scale at which these studies are conducted needs to be matched with the scale of the project into consideration. Furthermore, hiring the most expensive consulting firm isn’t always the best choice. Sometimes, a budding consulting firm can garner you more value than one that cannot give your project the attention it needs. Big consulting firms often land their contracts by leveraging the reputation of their senior-level executives. However, when it comes down to the actual work, your feasibility study might as well be in the hands of freshers or consultants who don’t specialize in the niche of your requirement. The takeaway here is that going overboard with a feasibility study can sometimes be counter-intuitive. We don’t mean to disregard the reputation that leading consulting firms have. The intent of this paragraph is merely to exercise a disclaimer that the shiniest object in the room isn’t always the most desirable.
- Poorly Defining the Project Scope: A bad feasibility study example is one where the scope of the project in consideration is murky at best. Furthermore, it isn’t enough to properly gauge the scope of the project. It is also important to zero-down on the type of feasibility study that will be most suitable for the business idea at hand. For instance, a company that already has a solid reputation in the market doesn’t have much use for a market feasibility study. However, a technical feasibility study can help the same corporation in maintaining its scot-free image. Moreover, it is important to clearly define the factors of research in any kind of feasibility analysis. You can’t simply decide to conduct an economic feasibility study and fail to determine the areas of research. You need to elucidate your examination factors and turn them into a clearly-defined roadmap. For instance, you need to decide whether you’re going to focus more on internal factors like the company’s budget considerations, operational costs, and workforce engagement or external factors like break-even timelines, sectoral growth, and market demands. Some feasibility studies that fail on delivering on their promise do not consider the project parameters while devising research methodologies.
- Finishing the study either too quickly or too late: A feasibility study is a complex mechanism that involves taking a statistical approach to completing its objective. Thus, the determination of adequate data from an aptly-defined sample space takes time. Analytical errors arising out of a hastily conducted business feasibility study can have major consequences in the long term. For instance, if two or more of the metrics that the study deals with are interlinked, making errors in one domain can create a ripple effect that spreads to the other areas of the study. Therefore, even a seemingly minor error can contaminate the entirety of the study. To remedy this predicament, feasibility studies need to be assigned appropriate timelines. On the contrary, spending too much time determining the feasibility of a project can eliminate a company’s resources to a fatal extent.
In a nutshell, a feasibility study that doesn’t make the above-mentioned fallacies can save companies a ton of money. At the end of the day, it is not the concept of a feasibility analysis that is problematic. Problems arise when the execution of this concept is not properly administered.