MODULE FOUR : FEASIBILITY ANALYSIS

Objective: At the end of this lesson students should be able to:

 Define the concept of feasiblity study

 State the different types of feasiblity study
 Examine the importance of feasiblity study
 Examine the steps involved in the feasiblity process
 Examine investment risk

4.1 Definition of feasiblity study

Feasibility study is an analysis used to measure the ability and likelihood to complete an
investment successfully including all relevant factors. In other words, a feasibility study is a
comprehensive study that evaluates or examines the investment potential for success. Feasibility
analysis is the process of determining whether a business idea is viable. It is the preliminary
evaluation of a business idea,conducted for the purpose of determining whether the idea is worth
pursuing. Feasibility study is a critical tool for assessing the viability of a project or business idea
before committing significant resources. It helps decision-makers determine whether the project
is worth pursuing, identify potential risks and challenges, and develop strategies to overcome
them. The analysis aims to determine whether a project is technically, economically, socially,
and operationally feasible. The study is conducted before the project’s or business
implementation, and it is used to provide decision-makers with the information needed to
determine whether to proceed with the project.

4.2 Types of Feasibility Studies: Organizations can conduct several types of feasibility studies,
depending on the nature of the project or business idea. These include:

[Link] Feasibility Study: This assessment focuses on the technical resources available to
the organisation. It helps the organisation to determine whether the organization resources meet
capacity and whether the technical team is capable of converting idea into working system. A
technical feasibility study primarily focuses on evaluating the investment technical requirements,
including the hardware, software, infrastructure, and other technological resources necessary for
its successful implementation. The technical feasibility study analyzes the technological aspects
of the Venture to determine whether it is feasible to achieve objectives within the technical
constraints, such as the available technology, expertise, and resources. Some of the key
components of a technical feasibility study include:

 Technical Requirements: This component outlines the technical requirements necessary

for the successful implementation of the project or venture. It includes information such
 as hardware specifications, software requirements, network and communication
infrastructure, and other technical requirements the project will need.
 Resource Assessment: This component evaluates the technical resources required for the
venture, including personnel, equipment, and software tools. It also assesses the
availability of these resources and the potential costs associated with acquiring and
maintaining them.
 Technology Assessment: This component assesses the available technology in the
market and its suitability for the project. The study considers whether the technology can
support the venture requirements and is compatible with the existing infrastructure.
 Risk Assessment: This component identifies potential risks and challenges that could
arise during the project’s implementation. The study assesses the impact of these risks on
the project’s success and identifies strategies to mitigate or eliminate them.

2. Economic Feasibility Study: This assessment typically involves a cost benefit analysis of the
business, helping the organization to determine the cost and benefit associated with the business
before financial resources are allocated. An economic feasibility study is an assessment of the
financial viability of a proposed business venture. It aims to determine a business potential
economic benefits and costs and its financial sustainability over time. The economic feasibility
study involves analyzing the economic factors of a venture, including financial requirements,
expected revenues, expenses, and potential profitability. There are several components of an
economic feasibility study that are critical to its success:

 Financial Requirements: It involves identifying the capital required to launch the

business, the cost of the resources and raw materials needed, and the anticipated
operating expenses.
 Revenue Projections: These involve estimating the expected revenue generated from the
business, including sales revenue and any other sources of income.
 Cost Analysis: It involves assessing the costs associated with implementing the business,
including the costs of equipment, labor, and any other expenses.
 Profitability Analysis: It involves calculating the potential profitability of the business,
including assessing the net present value (NPV), internal rate of return (IRR), payback
period, and other key financial metrics.
 Risk Analysis: It involves identifying and assessing the potential risks associated with
the venture, including market and economic risks, operational risks, and financial risks.

3. Operational Feasibility Study: An operational feasibility study assesses whether a proposed

venture or system can be effectively implemented and integrated into an organization’s
operations. This type of feasibility study evaluates the feasibility of the venture or plan in terms
of the organization’s capabilities, resources, and operational procedures. It also examines the
venture potential impact on the organization’s workflow and processes. The following are key
components of an operational feasibility study:

 Operational Requirements: These involve defining the specific operational

requirements the venture or system must meet, such as the desired outcomes, the target
user groups, and the necessary features and functions.
 Organizational Compatibility: It involves assessing the venture or system’s
compatibility with the organization’s existing culture, processes, and workflows.
 Training and Support: It involves identifying the training and support needs of the
organization’s personnel to use and maintain the venture or system effectively.
 Implementation Plan: It involves developing a comprehensive plan for the venture or
system’s implementation, including timelines, milestones, and contingency plans.

4. Market Feasibility Study: A market feasibility study is an analysis conducted to assess the
viability of a new product, service, or business idea in a specific market. The study aims to
identify potential customers, their needs, preferences, market trends, competition, and regulatory
issues. The study results help determine the market potential for a new product or servaice and
whether it is economically feasible to launch. The following are key components of a market
feasibility study:

 Market Size and Potential: It involves determining the size of the target market and the
potential demand for the product or service in that market. This analysis helps to identify
the level of competition and market saturation.
 Target Market Analysis involves identifying the target market and analyzing its
characteristics, demographics, and preferences. This helps to determine whether there is a
need or demand for the product or service in the target market.
 Competitive Analysis: It involves analyzing the competition in the target market,
including their market share, strengths, weaknesses, and strategies. This helps to identify
potential threats and opportunities for the new product or service.
 Pricing Strategy: It involves determining the appropriate pricing strategy for the new
product or service based on market demand, competition, and costs

5. Legal and Regulatory Feasibility Study: A legal and regulatory feasibility study assesses
whether a proposed business venture complies with the legal and regulatory requirements of the
government, industry, and other relevant organizations. This study is vital because non-
compliance with laws and regulations can lead to legal and financial consequences, such as fines,
lawsuits, and reputation damage. The legal and regulatory feasibility study typically includes a
review of federal, state, and local laws, regulations, and permits that apply to the proposed
business venture. It also reviews industry-specific regulations and standards and applicable
international laws. For example, a company that wants to open a new manufacturing facility in a
particular city must conduct a legal and regulatory feasibility study to ensure they comply with
all zoning laws, environmental regulations, building codes, and safety standards. They may also
need to obtain permits and licenses from various government agencies and comply with labor
laws and other regulations.

4.3 Importance of Conducting a Feasibility Study

Conducting a feasibility study is crucial in determining the viability and success of a proposed
project or business venture. Here are some reasons why a feasibility study is essential:

1. Identifies Potential Risks and Challenges: One of the primary benefits of conducting a
feasibility study is that it helps to identify potential risks and challenges that may arise during the
business venture. The project team can develop mitigation strategies to overcome these hurdles
and ensure success by assessing the potential risks and challenges. It is especially important
when dealing with large-scale projects or complex business ventures where numerous factors
may impact the project’s success.

2. Determines Financial Viability: Feasibility study also helps to determine the financial
viability of the business venture. It provides insights into the potential costs and revenue streams,
allowing the project team to make informed decisions about feasibility. It is essential in helping
to avoid costly mistakes that may arise due to a lack of financial planning or inadequate funding.

3. Helps in Decision-Making: Feasibility studies give decision-makers the information they

need to make informed decisions about the business venture. It includes insights into market
demand, competition, and potential revenue streams. By comprehensively understanding these
factors, decision-makers can make informed decisions about the project and ensure its success.

4. Assists in Securing Funding: A feasibility study is also vital in securing business venture
funding. Financial institutions and investors typically require a feasibility study before they
commit to financing a venture. By providing a comprehensive overview of the venture viability,
a feasibility study can help secure the necessary funding to make the project successful.

5. Provides a Roadmap for Success: Finally, a feasibility study provides a roadmap for success.
It outlines the steps to complete the business venture, including timelines, budgets, and resource
requirements. By having a clear roadmap, project teams can work towards a common goal and
ensure the project’s success.
4.4 Risk analysis

4.4 1 Definition:

Risk: A risk may be define as an uncertain event or condition that in case it occurs May have a
negative effect on investment performance. Common examples of risk may come from various
sources which include uncertainty in financial market, natural disasters,bad weather, machines
breakdown etc

Risk management: ISO 31000 defines risk management as the identication and evaluation of risk
followed by the economic application of resources to minimize and control the probability of
uncertain events. It can also be defined as the process of identifying potential risk in advance,
analysing them and taking preventive measures to prevent it's effects on organization success.

4.4.2 Objectives of risk management

 Ensure the management of risk is consistent with and supports the achievement of the
strategic and corporate objectives.
 Provide a high-quality service to customers.
 Initiate action to prevent or reduce the adverse effects of risk.
 Minimize the human costs of risks, Where reasonably practicable.
 Meet statutory and legal obligations.
 Minimize the financial and other negative consequences of losses and claims.
 Minimize the risks associated with new developments and activities.
 Be able to inform decisions and make choices on possible outcomes.

4.4.3 Importance of project risk management

Planning for Success: Risk management plans contribute to project success by establishing a
list of internal and external risks. This plan typically includes the identified risks, probability of
occurrence, potential impact and proposed actions. Low risk events usually have little or no
impact on cost, schedule or performance. Moderate risk causes some increase in cost, disruption
of schedule or degradation of performance. High risk events are likely to cause a significant
increase in the budget, disruption of the schedule or performance problems.

Communicating with Stakeholders: To ensure that venture run smoothly, effective managers
communicate their plan to sponsors, stakeholders and team members. This sets expectations to
people who provide funding and are affected by the outcomes. It ensures that the venture runs
smoothly so one step proceeds to the next without disruption. By identifying, avoiding and
dealing with potential risks in advance, you ensure that your employees can respond effectively
when challenges emerge and require intervention.

Maximizes Results and Meet Deadlines: By defining risk management processes for the
company, managers make success more likely by minimizing and eliminating negative risks so
the venture can be finished on time. This enables to meet budget and fulfill targeted objectives.
Effective risk management strategies allow the company to maximize profits and minimize
expenses on activities that don’t produce a return on investment. Through detailed analysis,
effective leaders prioritize ongoing work based on the results produced, despite the odds.

Proactive management: Having a risk management plan in place allow managers to be

proactive and take steps to mitigate possible harms before they arise, instead of constantly fire
fighting. The team can take the risk that have been identified and convert them to actionable
steps that will reduce likelihood. Those steps then become contingency plans that hopefully can
be aside. Should a risk event occur, the contingency plan can be used out quickly, reducing the
downtime on a project.

4.4.4 Common categories of Risk or types of risk

 Operational Risk: This risk occur due to improper process implementation, failed system or
due to some external events example or sources could be insufficient resources or no team
members training
 Schedule Risk: schedule risk occur when activities are not properly planned. Schedule risk
mainly affect the venture which may lead to failure
 Financial or budget risk: wrong budget estimate or project scope expansion may lead to
financial risk. This may lead to failure or an incomplete closure of the venture.
 Supplier Risk: it may occur when a 3rd party supplier is involved in the development of the
venture. This risk occur due to inadequate incapability of the supplier.
 Technological Risk: it is a risk related to complete change in technology or introduction of a
new technology.
 Quality or scope Risk: This risk occur due to incorrect application of processes or deviation
from guidelines or when new members allocated to the ventuee are not trained in quality
process and procedures adopted by the organization.
 Catastrophic risk: it involves risk that can not be predicted effectively and therefore can
not be quantified accurately. The usual precaution is to cover such risk with some form of
contingency.

4.4.5 Project risk management process

1. Identifying the Risk: The first step is brainstorming or reviewing the list of possible risk
sources as well as the team experience and knowledge. All possible risk are identified here. This
step in a successful risk management process is to identify the type of risk the organization is
currently dealing with or could deal with in the future. Some of the different types of
risks include: Strategic risk, Compliance risk, Market risk, Regulatory risk, Operational risk. It is
important to identify all the different potential types of risks that the organization can face.

2. Analyzing the Risk: The traditional problem solving often move from problem identification
to problem solution, however before trying to determine how to best manage the risk the project
team must analyze the risk by identifying the root causes of the risk and its impact on project
successThe risk analysis should answer the following questions:

 What is the likelihood of these risks occurring?

 What will be the consequences of these risks to the organization?

During the risk analysis process, teams estimate the probability of each risk occurring and its
fallout to prioritize the identified risks. The factors that companies consider when prioritizing the
risks include:Potential financial lossTime lostThe severity of the impacAvailability of resources
to manage the risk Risk analysis helps companies create their response to these risks depending
on their severity.

3. Assessing the Risk: After completing a thorough analysis of risks, they need to be ranked in
order of severity and then prioritized. When companies use a risk management solution, they
already have different categories of risks in-built into the solution, which categorizes the risk
based on its severity.A risk causing minor inconvenience to the organization gets a low rating,
whereas risks that can have a big impact on operations is considered to be high risk. Low risks
do not necessarily need intervention from upper management, but high risks require immediate
intervention.

4. Developing a contingency plan: Once the risks have been analyzed and prioritized, it is time
to take action. Every risk to the organization or the project needs to either be eliminated or
contained. : Here the project team convert into action those ideas that were developed to reduce
or eliminate the risk likelihood. Those tasks identified to manage the risk in case it occurs can be
converted into a contingency plan. When companies employ a risk management solution, the
stakeholders are immediately notified by the application, and all the key decisions are made in
one go. This way it becomes easy to monitor the progress of the solution.

4.5.6 Risk management strategy

Risk management strategy

1. Risk avoidance: The risk avoidance strategy is designed to deviate as many threats as
possible in order to avoid the costly effect of the uncertain event. The team can avoid the risk by
changing the activity that will create the risk. For example, severe weather conditions can delay
the completion of key project activities. In this case, the manager may choose to move the
calendar or cancel the activity altogether. Avoidance may seem the answer to all risks but
avoiding risks also means losing out on the potential gain that accepting (retaining) the risk may
have allowed. Not entering a business to avoid the risk of loss also avoids the possibility of
earning the profits.

2. Risk Mitigation/reduction: These are activities designed to reduce the impact to the venture
if the risks were to occur. For example, an activity that may take too much time to complete will
delay the entire venture, the plan will require an increase in the resources or people available
during the performance of that critical activity. company are sometimes able to reduce the
amount of damages the uncertain event can have on the process. This is achieved by adjusting
certain aspects of the overall plan or by reducing the scope complexity.

[Link] retention/Risk Acceptance ‐ Due to its low probability and Impact, the best action is to
accept the risk. Even if it happens the cost of doing a response can be higher than the cost of the
risk impact. The manager should do a risk/benefit analysis to determine the cost of accepting the
risk. These risks should be monitored regularly to see if their probability or impact changes over
time.

4. Risk sharing: sometimes the consequences of the risk are shared or distributed amongst the
members or project participants. This risk can also be shared with business partners who may
have more expertise. For example, the project team may not have the skills required to complete
a critical activity and the project manager decides to hire a consultant to do that work.

5. Risk transfer: Risk transfer means that the expected party transfers whole or part of the losses
consequential to risk exposure to another party for a cost. The insurance contracts fundamentally
involve risk transfers. under such technique the firm transfer its risky assets and liability to a 3rd
party who is willing to take the risk. The counter party willing to take the risk (insurance
company) will be paid a premium by the project firm.

Self-assessments questions:
1. Define the concept of feasiblity study
2. Examine the different types of feasiblity study
3. Examine the importance of feasiblity study
4. Examine the Risk management process
5. Examine the various Risk management strategies