A feasibility study is a preliminary study undertaken before the real work of a project starts to ascertain the likelihood of the project's success. It is an analysis of possible solutions to a problem and a recommendation on the best solution to use. It involves evaluating how the solution will fit into the corporation. It, for example, can decide whether an order processing be carried out by a new system more efficiently than the previous one.
A feasibility study is defined as an evaluation or analysis of the potential impact of a proposed project or program. A feasibility study is conducted to assist decision-makers in determining whether or not to implement a particular project or program. The feasibility study is based on extensive research on both the current practices and the proposed project/program and its impact on the selected organization operation. The feasibility study will contain extensive data related to financial and operational impact and will include advantages and disadvantages of both the current situation and the proposed plan.
Why Prepare Feasibility Studies?
Developing any new business venture is difficult. Taking a project from the initial idea through the operational stage is a complex and time-consuming effort. Most ideas, whether from a cooperative or invest or owned business, do not develop into business operations. If these ideas make it to the operational stage, most fail within the first 6 months. Before the potential members invest in a proposed business project, they must determine if it can be economically viable and then decide if investment advantages outweigh the risks involved.
Many cooperative business projects are quite expensive to conduct. The projects involve operations that differ from those of the members’ individual business. Often, cooperative businesses’ operations involve risks with which the members are unfamiliar. The study allows groups to preview potential project outcomes and to decide if they should continue. Although the costs of conducting a study may seem high, they are relatively minor when compared with the total project cost. The small initial expenditure on a feasibility study can help to protect larger capital investments later.
Feasibility studies are useful and valid for many kinds of projects. Evaluations of a new business venture both from new groups and established businesses, are the most common, but not the only usage. Studies can help groups decide to expand existing services, build or remodel facilities, change methods of operation, add new products, or even merge with another business. A feasibility study assists decision makers whenever they need to consider alternative development opportunities.
Feasibility studies permit planners to outline their ideas on paper before implementing them. This can reveal errors in project design before their implementation negatively affects the project. Applying the lessons gained from a feasibility study can significantly lower the project costs. The study presents the risks and returns associated with the project so the prospective members can evaluate them. There is no "magic number" or correct rate of return a project needs to obtain before a group decides to proceed.
The acceptable level of return and appropriate risk rate will vary for individual members depending on their personal situation.
Cooperatives serve the needs and enhance the economic returns of their members, and not outside investors, so the appropriate economic rate of return for a cooperative project may be lower than those required by projects of investor-owned firms. Potential members should evaluate the returns of a cooperative project to see how it would affect the returns of all of their business operations.
The proposed project usually requires both risk capital from members and debt capital from banks and other financiers to become operational. Lenders typically require an objective evaluation of a project prior to investing. A feasibility study conducted by someone without a vested interest in the project outcome can provide this assessment.
What Is a Feasibility Study?
This analytical tool used during the project planning process shows how a business would operate under a set of assumptions — the technology used (the facilities, equipment, production process, etc.) and the financial aspects (capital needs, volume, cost of goods, wages etc.). The study is the first time in a project development process that the pieces are assembled to see if they perform together to create a technical and economically feasible concept. The study also shows the sensitivity of the business to changes in these basic assumptions.
Feasibility studies contain standard technical and financial components, as discussed in more detail later in this report. The exact appearance of each study varies. This depends on the industry studied, the critical factors for that project, the methods chosen to conduct the study, and the budget. Emphasis can be placed on various sections of an individual feasibility study depending upon the needs of the group for whom the study was prepared. Most studies have multiple potential uses, so they must be designed to serve everyone’s needs.
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 investors and financiers. 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.
Feasibility studies for a cooperative are similar to those for other businesses, with one exception. Cooperative members use it to be successful in enhancing their personal businesses, so a study conducted for a cooperative must address how the project will impact members as individuals in addition to how it will affect the cooperative as a whole.
The feasibility study is conducted to assist the decision-makers in making the decision that will be in the best interest of the school food service operation. The extensive research, conducted in a non-biased manner, will provide data upon which to base a decision.
A feasibility study could be used to test a new working system, which could be used because:
The current system may no longer suit its purpose,