What Is a Feasibility Study?

• A feasibility study is a detailed analysis that considers all of the critical

aspects of a proposed project in order to determine the likelihood of it
succeeding.

• Success in business may be defined primarily by return on investment,

meaning that the project will generate enough profit to justify the
investment. However, many other important factors may be identified
on the plus or minus side, such as community reaction and

environmental impact.
• It can help project managers determine the risk and return of pursuing a
plan of action

• A company may conduct a feasibility study when it's considering launching

a new business, adding a new product line, or acquiring a rival.

• A feasibility study assesses the potential for success of the proposed plan
or project by defining its expected costs and projected benefits in detail.

• It's a good idea to have a contingency plan on hand in case the original
project is found to be infeasible.
• A feasibility study is an assessment of the practicality of a proposed
plan or project. A feasibility study analyzes the viability of a project to
determine whether the project or venture is likely to succeed.

• The study is also designed to identify potential issues and problems

that could arise while pursuing the project.

• As part of the feasibility study, project managers must determine

whether they have enough of the right people, financial resources,
and technology.
• The study must also determine the return on investment, whether
this is measured as a financial gain or a benefit to society, as in the
case of a nonprofit project.

• The feasibility study might include a cash flow analysis, measuring the
level of cash generated from revenue versus the project's operating
costs. A risk assessment must also be completed to determine
whether the return is enough to offset the risk of undergoing the
venture.
 Benefits of a Feasibility Study

• There are several benefits to feasibility studies, including helping project managers
determine the pros and cons of undertaking a project before investing a significant
amount of time and capital into it.

• Feasibility studies can also provide a company's management team with crucial
information that could prevent them from entering into a risky business venture.

• Such studies help companies determine how they will grow. They will know more about
how they will operate, what the potential obstacles are, who the competition is, and
what the market is.

• Feasibility studies also help convince investors and bankers that investing in a particular
project or business is a wise choice.
 Components
A feasibility study include the following:
•Executive summary: Formulate a narrative describing details of the project,
product, service, plan, or business.
•Technological considerations: Ask what will it take. Do you have it? If not, can you
get it? What will it cost?
•Existing marketplace: Examine the local and broader markets for the product,
service, plan, or business.
•Marketing strategy: Describe it in detail.
•Required staffing: What are the human capital needs for this project? Draw up an
organizational chart.
•Schedule and timeline: Include significant interim markers for the project's
completion date.
•Project financials.
•Findings and recommendations: Break down into subsets of technology,
marketing, organization, and financials.
 What Are the 4 Types of Feasibility?

• The study considers the feasibility of four aspects of a project:

• Technical: A list of the hardware and software needed, and the skilled
labor required to make them work.

• Financial: An estimate of the cost of the overall project and its expected
return.

• Market: An analysis of the market for the product or service, the industry,
competition, consumer demand, sales forecasts, and growth projections

• Organizational: An outline of the business structure and the management

team that will be needed.
 Assessing the Feasibility of a New Venture

Product development process

A firm can obtain new products in two ways. One is through acquisition
buying a whole company, a patent, or a license to produce someone else’s
product.
The other is through new product development
By new products, we mean original products, product improvements, products
modifications or new brands that the firm develops through its own R&D
endeavors.
Three most common reasons why entrepreneurs buy an existing business
instead of over creating a new one:
 Cont……………

1.Buying an existing business reduces the uncertainties involved

in launching and entirely new venture.

2. The buyers of an existing business typically acquires their

personnel, inventories physical facilities, established banking
connections and ongoing relationship with trade suppliers

3. Ongoing business may become available at what seems to be

a low price.
Why do so many new products fail? Cont…………….
Although an idea may be good, the market size may have been over-
estimated; or
perhaps the actual product was not designed as well as it should have been. Or

maybe, it was incorrectly positioned in the market, priced too high, or

advertised poorly.
Sometimes, the costs of product development are higher than expected, and,

sometimes competitors fight back harder than expected.

The process of new product development: Cont…………
1. Idea Generation:

New product development starts with idea generation-the systematic search for new
product ideas. A company ought to generate as many ideas as possible in order to find a
few good ones.

There are different methods of generating idea:

a) focus group method : have 8 – 14 members,

Focal person leads a group of people through an open, in – depth discussion Each of the
members will be stimulated by comments, ideas that come from other group’s member
help other members to creatively conceptualize and develop a new product idea.
b) Brain storming method : the well known and most widely used technique for
both creative problem solving and idea generation. have 8 – 14 members. starts
with problem statement.
Rules to be followed
 no criticism
 freewheeling/non interventionist is encouraged
 quality of idea is desired
 combination and improvements of idea are encouraged
c) Problem inventory/analysis method : customers list the problem of the
specific product and discuss on the problems.
d) Reverse brainstorming method: it is similar to brainstorming, except the
criticism is allowed. The gist of the technique is to go for spinning out fault by
asking questions.
2. Ideas Screening:

The first idea-reducing stage is idea screening. Idea screening helps spot
good ideas and drop poor ones as soon as possible.

Product development costs rise greatly in later stages. As a result, so the

company wants to go ahead only with the product ideas that will turn into
profitable products.

3. Concept Development and Testing:

An attractive idea must be developed into a product concept. It is important

to distinguish between a product idea, a product concept and a product image.
 Cont…………….

 A product idea is an idea for a possible product that the company can see
itself offering to the market. A product concept is a detailed version of the idea
stated in meaningful consumer terms. And a product image is the way
consumers perceive an actual or potential product.
Concept testing calls for testing new product concepts with groups of target
consumers. The concepts may be presented to consumers symbolically or
physically.

4. Marketing Strategy Development:

The marketing strategy statement consists of three parts.
Cont……………….

a. the target market; this includes

 the planned product positioning,
 the sales,
 market share and profit goals for the first few years.
b. the product’s planned price,
 distribution, and
 marketing budget for the first year.
c. The planned long-run sales,
 profit goal and
 marketing mix strategy.
5. Business Analysis:
At this stage of Business analysis a basic assessment of;

 a product’s compatibility in the market place

 potential profitability.

 Both size of the market and competing products are often studied at this point.

 The most important questions relate to market demand is: How will the
product affect the firm’s sales, costs, and profits?
 Cont…………….

 To estimate sales, the company might look at:

 the sales history of similar products and

 conduct surveys of market opinion.
 It can then estimate the minimum and maximum sales to assess the
risk.
The company then uses the sales and costs figures to analyze the
new product’s financial attractiveness.
 Cont……

6. Product Development:
If a product survives the first five steps, it is developed into a
prototype that should reveal its intangible attributes as perceived by
the consumer.
Developing a successful prototype can take days, weeks, months,
or even years. Often, products undergo rigorous tests to make sure
that they perform safely and effectively, or that consumers will find
value in them.
 Cont………………
7. Test Marketing:
Test marketing is a trial mini-launch of a product in limited areas that
represent the potential market.
Testing new products can be expensive, but it is necessary to avoid
product disasters.
8. Commercialization:
Commercialization is the full introduction of a complete marketing
strategy and the launch of the product for commercial success.
 During commercialization, the firm gears up for full-scale production,
distribution and promotion.
4.3. Product protection

Operating without having the necessary license is considered to be illegal

operation. Thus to operate in lawful manner, business owners and
entrepreneurs need to register their identification in business, trademarks,
trade secrets, as well as their patent rights to protect from infringements.

4.3.1. Patents

Patents: -

An entrepreneur who invents a new thing or improves an existing invention

needs to get legal protection for the invention through a patent right.
 Cont…………………….

A patent is a contract between an inventor and the government in

which the government, in exchange for disclosure of the invention,
grants the inventor exclusive right to enjoy the benefits resulting from
the possession of the patent.
Here it is assumed that the disclosure of the invention will encourage
creativity.
Basically there are two common types of patents the difference of
which the entrepreneur needs to understand and explained as follows;
 Cont………………..

a) Utility Patent: - This kind of patent protects any new invention or

functional improvements on existing inventions. It grants the
owner of the invention by anyone else. It reflects protection of
new, useful and unobvious processes
b) b) Design patents: - The other kind of patent is design patent that
protects the appearance of an object and course new, original,
ornamental, and unobvious designs for articles of manufacture.
Like utility patents, design patents provide the inventor with the
exclusive right to make, use and/or sell an item having the
ornamental appearance protected by the patent.
 Cont…………..

This kind of patent is appropriate when the basic product already exists
in the market place and is not being improved in function but only in the
style.
These patents are particularly important to companies such as shoe
producers and product package design firms that need to protect their
ornamental designs .

Note that some ideas may require multiple patents, including both utility
and design patent, or even multiple patents
 Trade Marks: - A trade mark may be a word, symbol, design or some combination
of such or it could be a slogan or even a particular sound which identifies the
sources or sponsorship of certain goods/service. Therefore, for the owner business
man he/she needs to register such identifications because of the following benefits
from registered trademarks.

• Registered trade mark provides notice to everyone that you have exclusive rights to
use of the mark throughout the territorial limits of the country.

• It also provides right to deposit registration with customs to prevent import of goods
with similar trademarks.
Copyrights: - A copy right, which is a burning issue in Ethiopia
these days, protects the original works of authorship. However,
the protection in copy right, does not protect the idea itself, and
therefore, it allows anyone to use the idea in a different manner.
Among the things that need to be protected through copy right
are music, books, software, scripts, articles, poems, sculptures,
models, maps and blue prints, songs and data.
Trade secrets: - A trade secret can be a process, a method, a device, a
technique, a formula or a pattern for a machine, pricing information,
customer and supplier list, a method of bookkeeping or other non-
public information that is used in one’s business, and which gives an
opportunity to obtain an advantage over competitors who do not know
or use it.

A trade secret need not be new, novel, or unique. The idea need not be
complicated too. It may be simple and still quality as a secret, provided
that it is not common knowledge and, thus, with in the public domain.
Trade secrets are not protected by intellectual property law in same way
of the trademarks or patents are protection for trade secrets is done by
non-disclosure.
That is, trade secrets remain valid as long as if:

 No one else has discovered the information independently;

The information has not been made public (by employees or published
literature) or
Not discovered by working backward from the original product/process
(reverse engineering)
• Note that trade secret protection can potentially last longer
than that of patents and copy rights.

• Usually companies often use non –disclosure agreement to

keep their trade secrets safe. Non-disclosure agreement
employees or business associates to whom the trade secrete
will be revealed sign not to disclose the secret to a third
party without the consent of the owner.
 Feasibility study examples

• A University Science Building expansion

• Officials at a university were concerned that the science building—

built in the 1970s—was outdated. Considering the technological and
scientific advances of the last 20 years, they wanted to explore the
cost and benefits of upgrading and expanding the building. A
feasibility study was conducted.
• In the preliminary analysis, school officials explored several options,
weighing the benefits and costs of expanding and updating the
science building.

• Some school officials had concerns about the project, including the
cost and possible community opposition. The new science building
would be much larger, and the community board had earlier rejected
similar proposals. The feasibility study would need to address these
concerns and any potential legal or zoning issues.
• The feasibility study also explored the technological needs of the new
science facility, the benefits to the students, and the long-term
viability of the college. A modernized science facility would expand
the school's scientific research capabilities, improve its curriculum,
and attract new students.

• Financial projections showed the cost and scope of the project and
how the school planned to raise the needed funds, which included
issuing a bond to investors and tapping into the school's endowment.
• The projections also showed how the expanded facility would allow
more students to be enrolled in the science programs, increasing
revenue from tuition and fees.

• The feasibility study demonstrated that the project was viable, paving
the way to enacting the modernization and expansion plans of the
science building.

• Without conducting a feasibility study, the school administrators

would never have known whether its expansion plans were viable.
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