Conducting a feasibility study for a new project is very important, without assessment and analysis you can’t predict the success factor of a particular project. This is the foremost step of project initiating planning.
Without tools and resources, you must face the difficulty in conducting this study. According to PM this analysis conduct after business case study. So make sure about the fundamental To-Do-List of the project management life cycle.
Related Template: Feasibility Study Template
Step of Conducting Feasibility Study Analysis
Follow these steps regarding the assessment of the feasibility study. Templates of project management are available – provide you complete structure (Blank) of documentation.
- Preface – Conducting analysis to identify factors involved in a business case and what aspects need to be determined to evaluate its feasibility
- Project preparation of income statement: How it’s going to generate money and from where revenue will come?
- Market analysis or perform market research to check: Is there any demand or market for the product? Are customers willing to use or buy this service or product?
- Operations – Plans – Business organization purpose to define structure, resources and staffing requirements
- Opening day balance sheet and Prepare to expenses in the project, revenue and ROI.
- Analyze & recheck all data collected in the above steps
- Make a go/no-go decision based on feasibility
Following are the common types of feasibility analysis and assessments conducted in any feasibility study
- Economic or Financial Analysis
- Technical Analysis
- Market Analysis
- Operation Analysis
- Organizational Analysis
Cost-Benefit FeasibilityAnalysis (CBA):
A systemic approach and analysis are, which is adopted to figure out all pluses and minuses of various directions of a business case or project. It evaluates all the costs required for implementation and operations against the benefits business will get after success.
It helps in the decision-making process by making projections of return on investment (ROI), internal rate of return (IRR), net present value (NPV) and a payback period of a business model.
Following are the simple steps to the process of conducting cost-benefit analysis;
- Project scope, goals and objectives
- Note alternative projects
- List of Stakeholders
- Decide which metrics to use
- Find out the outcome of costs and benefits
- Use a common currency for all costs and benefits
- Figure out the discount rate
- Calculate the net present value
- Conduct sensitivity analysis
- Make Decisions
Return on Investment Feasibility Analysis (ROI):
Used to measure investments’ profitability is in terms of the return from an investment. A simply a ratio of net return is from an investment to the full investment costs.
It is a key factor taken into considering by investors before investing in any business or project. Better the ROI means the business will generate more profit against the same investment done into any other project of less ROI percentage. Below is the formula for calculating ROI of any business model,
Following are the points to understand regarding ROI calculation,
- It is easier to understand when expressed in percentage instead of a ratio.
- The ROI calculation uses net return instead of net profit or gain. Because the return of an investment can be positive or negative means a profit or loss.
- To compute accurate ROI, make sure to consider all returns and all costs while doing the calculation.
Net Present Value Feasibility Analysis (NPV):
The same amount of money has different values in the present and future due to inflation that’s why it is important to evaluate the present value of cash flows to decide about the success of any business case or project.
- NPV = TVECF – TVIC
- TVECF = Today’s value of expected cash flows
- TVIC = Today’s value of invested cash
It is an important analysis for investors to see the value of profit or ROI business going to pay over a while. A positive value indicates that project profit earned by the business is more than anticipated costs both in the present value of the currency.
Feasibility Payback Feasibility Analysis:
It is the period required for an investment to break even. It shows the time required for accrued benefits to overtake continuous and accrued costs. It doesn’t consider the time value of money.
Feasibility payback analysis is important for cash-poor companies and investors as it shows when they will get back their invested money. It can be calculated by dividing total investment or costs by annual total returns or benefits, resulting in a payback period in years.