Project Feasibility Study


Posted on 17th August, by JimYoung in Blog. Comments Off on Project Feasibility Study

The purpose of a feasibility study is to enable us to objectively decide whether or not to proceed with a proposed project. As the name implies, it is an analysis of the viability of an idea. The feasibility study focuses on helping answer the essential question of “should we proceed with the proposed project proposition?” All activities of the study should be directed toward helping answer this question.  A feasibility study is not a project plan. The separate roles of the feasibility study and the project plan are sometimes misunderstood. The feasibility study provides an investigating function. It addresses the question of “Is this a viable venture?” The project plan provides a planning function and outlines the actions needed to take the proposal from “idea” to “reality.” However, a larger feasibility study may be undertaken as a separate project.1111111

Project managers may not necessarily be involved in preparing project feasibility studies, but their practical input is helpful.  Usually the preparation of a feasibility study is the job of a business analyst who completes the study on behalf of a sponsor.  If the project is assessed as feasible, the next step is to prepare a project charter.  Some reasons for undertaking a feasibility study are:

  1. It gives focus to the proposed project, identifies and clarifies stakeholders’ expectations, and allows for the development of alternative options before determining the best solution.
  2. It only commits a relatively small amount of money to understanding the project and its chances of success, before committing larger sums of money associated with project development and execution.
  3. It enables us to identify significant risks (threats and opportunities) should the project proceed or identify reasons not to proceed.
  4. We can test the solution against the purpose(s) for undertaking the project.
  5. t’s when most value can be added, where ideas can be considered and tested in a safe environment. But once the project moves into its development and execution phases, opportunities for adding value decrease quickly as the focus shifts towards ensuring the project is delivered as planned:22222
  6. It tests the sponsor’s level of commitment and enthusiasm to see the project through, when the feasibility study conclusions and recommendations are presented.
  7. It allows us the opportunity to revisit the project definition statement and make amendments to this document to help ensure a feasible project proposition that will attract funding.

Sometimes we may find ourselves under pressure to skip the feasibility step.  While a feasibility study is always needed, some reasons we may encounter for not doing one include:

  1. We know it’s feasible.  An existing business is already doing it.
  2. Why do another feasibility study when one was done just a few years ago?
  3. Feasibility studies are just a way for consultants to make money.
  4. The analysis has already been done by the contractor who will do the job.
  5. It will add at least 1-3 % to the project cost.

The reality is that a feasibility study is a critical step in the assessment process. If properly conducted, it may be the best investment you ever made.  The process and format for a project feasibility study may vary, but a entirely fictitious example is shown here:

1. Executive Summary

The executive summary provides an overview of the content contained in the feasibility study document.  Many people write this section after the rest of the document is completed.  This section is important in that it provides a high level summary of the detail contained within the rest of the document.

Alan’s Best Chocolates (ABC) is a leader in the sales of chocolates and confections throughout the country.  ABC’s products are sold from 10 stores and maintain a reputation for superior taste and quality.  While ABC’s sales have grown over the past 5 years, the rate of growth has slowed significantly.  One key factor for this slowing growth rate is the shift in the marketplace to purchasing chocolates and confections online.  While ABC maintains a web site, it is not capable of hosting an e-commerce platform for online sales.  ABC’s sales occur only in its brick and mortar facilities and the company is losing potential customers to competitors who provide online sales.  The chocolate and confections marketplace is healthy and shows a continued growth trajectory over the next five to ten years.  ABC is in a position to capitalise on this online marketplace by leveraging existing technologies, industry best practices, and an aggressive marketing and sales campaign to ramp up the company’s growth projections for the foreseeable future. 

2. Description of Products and Services

This section provides a high level description of the products and/or services which are being considered as part of the feasibility study.  The purpose of this section is to provide detailed descriptions of exactly what the organisation is considering so this information can be applied to the following sections of the document.  This description captures the most important aspects of the products and/or services that the organisation is considering as well as how it may benefit customers and the organisation.

ABC is considering a move to create and provide an online platform from which to sell its existing product line.  Until now ABC has only sold its products from its chain of brick and mortar facilities and has been limited to sales within the geographical regions where its stores reside.  By doing so, ABC has not been able to capitalise on the growing trend of online sales within the chocolate and confections marketplace.  By offering its products through an online platform, ABC can market its products to an entirely new market, increase revenue and growth projections, and allow customers to purchase our products from the convenience of their own homes.

There are no proposed changes to ABC’s current product offerings as a result of this study.  Online sales will include only current products and any changes to this product line must be considered outside of the purpose of this document.

3. Technology Considerations

This section should explain any considerations the organisation must make with regards to technology.  Many new initiatives rely on technology to manage or monitor various business functions.  New technology may be developed internally or contracted through a service provider and always result in costs that must be weighed in determining the path forward.

Upgraded technological capability will be required for ABC to move toward offering an online marketplace from which customers may purchase our products.  Customers demand a simple and easy way by which to conduct online transactions and it is imperative that all transactions are conducted in a secure manner.  While ABC maintains a web site with product lists and descriptions, it does not currently allow for purchasing to be done online.  This functionality must be integrated with our current web site to allow for secure purchases to be made.  Additionally, new online marketing functionality must be considered in order to target existing and potential customers through methods such as e-mailing lists, promotional advertisements, and loyalty discounts. 

While ABC maintains a very small information technology (IT) group, the expertise does not currently exist internally to design, build, and implement the sort of online platform required for this effort.  Therefore, the recommendation is to contract this work out to an internet marketplace provider who can work with ABC to meet its needs within the determined timeframe and budget.  It should be noted that while ABC does not have this expertise internally, the technology exists and is in use throughout the marketplace, which lowers the risk of this concept considerably. 

ABC currently maintains a high-speed internet connection, web server, and the latest software.  With the addition of an e-commerce portal it is expected that there will be an overall cost increase of 5-10% for web server operations and maintenance costs.

4. Product/Service Marketplace

This section describes the existing marketplace for the products and/or services the organisation is considering.  It may describe what the target market consists of for these products or services, who the competitors are, how products will be distributed, and why customers might choose to buy our products/services.  Most marketplaces are dynamic environments in which things change constantly.  To enter a new marketplace blindly will usually result in an organisation not fully understanding its role and not maximising resulting benefits.

The online marketplace for chocolates and confections has been thriving for many years.  In FY20xx online chocolate sales accounted for approximately $20 million or 20% of total chocolate sales.  While chocolates and confections are available in almost every store, our primary marketplace consists of specialty chocolates and confections.  All of ABC’s current major competitors already have an established online presence of at least 3-5 years.  The top 3 competitors are currently: Smith’s Chocolates, Worldwide Candy, and Chocolate International.  The large majority of ABC’s customer base is returning customers and referrals from existing customers.  By providing a more convenient means of purchasing our products online it is expected that we will retain these customers while conducting an online marketing campaign for new customers as well. 

ABC will distribute online purchases via direct shipping from the nearest store location.  This will allow ABC to provide timely shipping and eliminate the need for a central warehouse or facility from which to store and ship its products.  Such a facility would require a significant capital investment as well as increased operation and maintenance costs.  However, based on anticipated growth projections, ABC must ensure that all store locations maintain adequate inventories on hand to satisfy customer demand.

5. Marketing Strategy

This section provides a high level description of how the organisation will market its product or service.  Some topics, which should be included are: how does an organisation differentiate itself from its competitors; types of marketing the organisation will utilize; and who the organisation will target.  Marketing efforts must be focused on the right target groups in order to yield the greatest return on investment.

In order to be successful, ABC must differentiate itself from competitors in order to appeal to customers in the online marketplace.  To do this, ABC will utilise its practice of personalising its product packaging, which it currently offers in-store customers.  Current competitors do not currently provide any personalisation of packaging.  Customers will have the ability to personalise messages on or inside of product packaging, request specific color-based themes, or tailor packaging for special occasions or events.

ABC will implement a customer e-mailing list in order to send product promotions, sales advertisements, and other special offerings to customers who register.  Additionally, ABC will offer referral incentives to customers who refer our products to friends and family in order to provide additional incentives.  ABC will also maintain a customer database in order to determine its target customer groups and geographical regions.  ABC will research marketing intelligence providers to determine the benefits and costs of purchasing customer information for bulk email campaigns as well.  Another important consideration of ABC’s online marketing strategy is cost.  Electronic marketing communication costs are very small in comparison to direct mail marketing, which ABC currently utilises.  However, we expect the additional revenue from online sales to greatly outweigh these additional electronic marketing costs.

It is important to note that ABC’s current marketing and sales staff will require training in online marketing and sales practices.  This training will need to be contracted to a training provider as part of our startup costs and schedule.

6. Organisation and Staffing

With many new products or services there may be a need for additional staffing or for an organization to restructure in order to accommodate the change.  These are important considerations as they may result in increased costs or require an organization to change its practices and processes.

The ABC online sales campaign is not anticipated to significantly affect the organizational structure of the company.  There are, however, several staffing additions required to successfully implement the online sales campaign.  All of these positions will work within existing departments and report to department managers.

Staffing Position 1: Online Sales Manager – this full time position will lead sales staff in identifying sales opportunities and converting these opportunities to actual sales.  This person will report to ABC’s Director of Sales and will work in ABC headquarters.

Staffing Position 2: Online Marketing Manager – this full time position will lead marketing staff in identifying target customer groups/markets and conducting online advertising/marketing efforts to maximize traffic to ABCs online marketplace.  This person will report to ABC’s Director of Marketing and will work in ABC headquarters.

7. Schedule

This section is intended to provide a high level framework for implementation of the product or service being considered.  This section is not intended to include a detailed schedule since this would be developed during project planning should this initiative be approved.  This section may include some targeted milestones and timeframes for completion as a guideline only.

The ABC online sales campaign is expected to take six months from project approval to launch of the e-commerce platform.  Many of the foundations for this platform, such as high-speed internet and web server capability, are already available.  The following is a high level schedule of some significant milestones for this initiative:

    • – January 1, 20xx: Initiate Project
    • – February 1, 20 xx: Project kickoff meeting
    • – March 1, 20 xx: Complete online sales site design
    • – April 1, 20 xx: Complete testing of online sales site
    • – June 1, 20 xx: Complete beta testing trials of online sales site
    • – July 2, 20 xx: Go live with site launch

Upon approval of this project, a detailed schedule will be created by the assigned project manager to include all tasks and deliverables.

8. Financial Projections

This section provides a description of the financial projections the new initiative is expected to yield versus additional costs.  Financial projections are one key aspect of new project selection criteria.  There are many ways to present these projections.  Net Present Value (NPV) and cost-benefit analysis are two examples of how financial projections may be undertaken.  This section should also provide the assumptions on which the financial projections are based.

The financial projections for the addition of an online sales platform for ABC are highlighted in the table below.  These figures account for projected online sales, additional staffing requirements, shipping, material, and insurance costs, contract support for IT and training needs, and web server and hosting costs.  

The assumptions for these projections are as follows:

    • – In store sales projections remain unchanged
    • – All milestones are performed in accordance with the schedule
    • – All transactions are closed yearly with no carry-over to subsequent years
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9. Findings and Recommendations

This section should summarise the findings of the feasibility study and explain why this course of action is or is not recommended.  This section may include a description of pros and cons for the initiative being considered.  This section should be brief since most of the detail is included elsewhere in the document.  Additionally, it should capture the likelihood of success for the business idea being studied.

Based on the information presented in this feasibility study, it is recommended that ABC approves the online sales initiative and begins project initiation.  The findings of this feasibility study show that this initiative will be highly beneficial to the organization and has a high probability of success.  Key findings are as follows:

Technology: 

    • – Will utilise existing technology which lowers project risk
    • – Ecommerce infrastructure will be contracted out to vendor which allows ABC to share risk
    • – Once in place this technology is simple to operate and maintain for a relatively low cost

Marketing:

    • – This initiative will allow ABC to reach large number of target groups electronically at a low cost
    • – ABC can expand customer base beyond geographic areas where stores are currently located
    • – The marketplace for online chocolate and confection sales is in a steady state of growth
    • – ABC is able to differentiate itself from its competitors and will utilize incentive programs to target new consumers

Organisational:

    • – Minimal increases to staffing are required with no changes to organizational structure
    • – No new facilities or capital investments are required 

Financial:

    • – Break-even point occurs early in the second year of operation
    • – Five year projections show online sales accounting for 25% of total sales
    • – ABC will be in position to capture greater market share by maintaining both an in-store and online presence

And finally a word of caution – 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 proposition.  The idea is to reduce risk and identify potential problems, threats (and opportunities) that may only become clear after careful 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 some clients and project sponsors may want to rush through the feasibility process so they can get on with their project. This usually leads to failure. 
They may also use a consultant who simply tells them what they want to hear, who produces a very optimistical value proposition (ie, benefits – costs) based on spurious assumptions and predictions.





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