planned course of action, taking a fresh look at the assumptions behind it, the risks it faces and its chances of success.
Feasibility studies were invented to avoid bad investment decisions, prevent businesses from targeting non-existent markets and to flag risks and pitfalls in even the most well thought-out investment or strategic plans.
Here we outline 10 of the most common
feasibility study mistakes made by entrepreneurs, business owners and corporate executives.
Just Do It:
The first decision; whether or not to conduct a feasibility study, is often made without a great deal of thought. This in itself is a huge mistake.
Generally the larger the upfront investment, the more complex the project, or the greater the potential consequences of failure, the more
important it is to do a feasibility study.
A small startup that requires minimal capital is one thing, but any venture that involves large investments, multiple stakeholders or a long term
commitment - requires feasibility study.
A feasibility study should be always completed before launching any major new project, investment or venture. It serves a critical function in independently evaluating a plan or
planned course of action, taking a fresh look at the assumptions behind it, the risks it faces and its chances of success.
equires a feasibility study.
Not doing one in those circumstances could be considered malpractice.
A feasibility study is critical when:
Embarking on a major new business
investment.
Investing in a new market or product segment.
Changing strategic or market focus of an existing business.
Opening a new facility, chain of offices or stores.
Moving from small/start-up phase to
expansion with VC or other investment
Any greenfield development that does not duplicate existing business functions.
Investing significant part of personal wealth in own business.
Investing in new technology or operating approaches.
Expanding into an unfamiliar market or
territory (overseas).
Entering an already crowded or highly
competitive market segment.
When in doubt, the safest course of action is to do the feasibility study.
The cost of not doing a feasibility study and failing is far, far higher than
the cost of doing the study and deciding not to move forward with a project.
(Don’t) Do It Yourself
Bias is a funny thing. Designers, engineers,
inventors, and CEOs get attached to their own
ideas. They discount problems, wish away
concerns, and believe in themselves. This is only
natural. But it is also why outside investors,
bankers, and others insist on getting an
independent assessment. When the designer and
the investor are one and the same person, the
tendency is to try to cut costs by doing their
own feasibility study. Often the result is
completely useless.
Don’t do it yourself; hire an independent
professional to do the feasibility study.
Project Definition
A feasibility study is only useful if it gives
definitive answers to specific questions. “Can we
build a resort here?” may be an interesting
question, but it is NOT specific enough to justify
investing in a feasibility study. Whereas, “Can we
build a 30,000 – 50,000 square foot, eco-friendly
resort for wealthy couples between the ages of
25 and 50?” is much closer. Before you do the
feasibility study, make sure you narrow it down
to a reasonable level of detail.
Typically a brief business or project plan is
sufficient, but a one sentence description is not.
Scope
A proper feasibility study should be limited in
scope. Is this a purely technical or engineering
feasibility study, or an economic or market
feasibility study? Are legal and operational issues
considered? What about schedules, resources,
cultural factors, and financing? A technical or
engineering study focuses on the technical
issues and requires specialized technical
knowledge such as: Does the land have
sufficient drainage? Is the soil suitable for a 30
story building? Are the data center cooling
systems large enough to handle peak load during
a Presidential election?
A market or economic study is a different beast.
Here the focus is much wider, and broad
experience and sound methodology are much
more important than technical expertise.
A market or economic study asks the following
types of questions:
What market segments are appropriate, and
how are these defined?
How large are these market segments, in
terms of numbers of people and potential
revenue per person?
Who and where are your competitors? What
are their strengths and weaknesses? How can
you differentiate yourself to exploit these
weaknesses?
What regulatory, environmental, social,
political, or other trends are there and how
will these affect your project in the short and
long term?
What is the core revenue model for this
business, and what additional revenue streams
are possible?
Is the primary market large enough to make
this a profitable venture? What about
secondary and tertiary markets?
If technical issues are a major factor in the
project, then by all means include them, but it is
usually a mistake to limit the feasibility study to
purely technical issues. Very few restaurants fail
due to faulty engineering; they fail because they
did not understand (or pay attention to) their
customers.
Too Fast
One reason for doing a feasibility study is to get
an expert opinion on whether or not it makes
sense to move forward with a project. The idea
is to reduce risk and identify potential problems,
threats (and opportunities) that may only become
clear after deeper research and analysis. The
project cannot start until the feasibility study is
completed. So time is a factor. But if the
feasibility study is done too quickly, the odds of
missing, or underestimating, one or more
important factors is high. Yet many clients want
to rush through the feasibility process so they
can get on with their project. This usually leads
to failure.
Don’t rush!
Wrong Team
Any professional study is only as good as the
team that does the work. Yet there is a tendency
to try to find consultants who specialize in just
one area, for example, restaurants, medical
devices, social media, etc. This might seem to
be the safest choice, but it can be overly
restrictive and lead to highly formulaic
outcomes. Selecting a consultant that
specializes in only one area (for example nursing
homes) can be particularly problematic if the
project crosses traditional specialization
boundaries. Another error is to hire an
engineering consultant to do the market and
economic analysis. A better approach is to hire a
team with a mix of the required skills — from
economic and market analysis to engineering and
sustainability.
Bigger Is Not Always Better
Many companies hire the largest consulting firm
with the highest price structure, just to get brand
recognition. Large firms will often market the
skills of senior people in the organization, but
once they land the contract they delegate the
work to junior personnel. Make sure you know
how much time each member of a proposed
consulting team will actually spend on your
feasibility study, and ensure that the senior
consultants and experts will be spending
adequate time on your project. The quality of the
research and analysis is what matters. So
choose a consultant who can deliver a rigorous
analysis that leaves you safe in the knowledge
that you know whether the investment or project
is viable or not.
It is not the badge on a car that matters but
what is under the hood.
The Price is Right?
The price of a market feasibility study depends
on variety of factors, such as regulations (highly
regulated or unregulated), competition (high or
low), market trends (positive or negative),
project scope (narrow or broad), or politics (a
new school is usually a highly charged political
issue, whereas a new computer technology might
be politically neutral). A few examples illustrate
the range of possibilities: feasibility study pricing
for a $5 million national technology roll-out might
range from $15,000 to $30,000; feasibility study
pricing for a $20 million school might range from
$30,000 to $60,000; feasibility study pricing for a
$500 million real estate development project
might range from $35,000 to $70,000. Note that
these are “typical” numbers; actual prices could
be above or below these ranges.
Since projects vary widely in complexity and
scope, it is a good idea to get a few cost
estimates and proposals, but be wary of going
for the lowest cost. It often means the lowest
quality. You should balance getting a competitive
price with sourcing consultants that have the full
range of skills needed to really test the
feasibility of your project.
Green Light / Red Light
Many projects are assessed to be feasible; in
other words the study gives a green light. But
even when this is the case, risk factors, areas
that need more thinking through by the client,
and new options that can improve the project,
should be presented to the client. This
strengthens the project and improves the
chances of its long term success even when the
feasibility study gets the green light. In other
words, the project is feasible, but “Here is a list
of factors you need to watch out for”, or “The
following needs to be addressed first”.
Sometimes we conclude a project is just not
feasible. There are too many obstacles or the
risks are too high, so we recommend a “No Go”.
Sometimes we come to this conclusion fairly
early in the process. Once we have made a
decision that a project isn’t feasible, we
immediately tell the client. If this happens early
in the project, the client can save 50% or more
on the feasibility study. While this situation is
rare, it does happen often enough to mention.
Before deciding on a consultant, ask them if they
have an “out clause”. If they say no, consider
looking elsewhere.
Yes Men
Finally, don’t make the mistake of hiring a firm
that tells you what you want to hear from the
beginning. A negative finding often uncovers
other possible directions that could potentially be
much more profitable or successful.
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