Feasibility analysis: the key factors

Broadly speaking, we can define a feasibility study as a decision support tool, based on a series of empirical baseline data, when we want to launch a new project or investment. Feasibility studies can be carried out with internal resources or with the support of a specialised entity, but in both cases, the involvement of the different areas of the company is crucial.

The reasons that lead us to carry out a feasibility study or analysis are of a different nature, ranging from an analysis of technological solutions to the launch of a new product. Regardless of its origin, a feasibility study is a learning exercise for the company.

In any feasibility study it is necessary to establish a good starting point where the objective and framework of application of the feasibility analysis of the project is clearly defined, identifying the limitations, restrictions and hypotheses to be considered within it. In addition, it is convenient to take into account some factors, such as:

• Current status of the technologies to be compared.
• Scalability of the project and operation.
• Technical and financial viability indicators.
• Differentiating aspects and technological recommendations.
• Potential market, competitors, legislation, necessary resources, opportunity cost.

The collection of information is key

Implementing a good working methodology is a key aspect of a feasibility study. Although there is no standard methodology as such, in general, the following phases should always be kept in mind:

• definition of the object of the feasibility study
• collection of information
• definition of indicators or metrics
• analysis of information and extraction of conclusions and/or recommendations
• action plan.

The collection of information plays a fundamental role in a feasibility study. If we understand it as a tool to help decision making, for a feasibility study to be reliable, the information used must come from different sources (specialized journals, databases, sector forums, thematic fairs, etc.), complemented with information obtained from suppliers, customers and professional contacts.

An objective process through indicators

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Develop a good methodology, in turn, involves the definition of indicators or appropriate metrics to help us make all decisions in an objective manner and minimize the uncertainty of the analysis. Thus, these metrics allow us to conduct the study must be conducted objectively to fulfill its purpose.

For example, if we are doing a feasibility analysis of a new product with a great uncertainty in the acceptance by the user, the metrics that must be influenced are those related to its commercial viability, emphasizing the potential demand and cost.

However, if we are studying the feasibility of our project or technology against others present in the market, some interesting indicators may be the cost of investment in equipment (known as CAPEX or Capital Expenditure) along with the costs associated with its maintenance and operation (OPEX or Operational Expenditure).

Feasibility study: yes or no?

Feasibility study YES, when from the beginning the objective of the study has been clearly defined and what is expected to be obtained from it.

Feasibility study NO, if the areas of the organization directly related to the project are not involved in the study and a good work methodology is not established.