'Everything is always feasible if you run a finance exercise and come justifying how things could work. But the real issue is to say how do you translate that into practice' -Sergio Ermotti
We have assisted numerous clients in making informed investment decisions and securing funding for projects ranging from $150,000 to $10 million. Most of these decisions are driven by a necessity for expansion and upgrading (primarily known), while others cover new ventures (validated but untested) or innovation projects (commercialization). Each of these projects was supported by a feasibility study that ensured that their decisions were grounded in fact, not assumptions.
In conducting a feasibility study, you can either follow the conventional, predominantly research and number-based approach or a more strategic approach built around three core questions supported with detailed feasibility modelling.
The technical approach lends itself primarily to large-scale industrial projects but can lead to a feasibility study to justify the investment decision. The strategic approach is ideal for small—to medium-sized projects and will help you challenge and validate any investment decision.
Desirability: Is It Worth Pursuing?
As the owner of a growing business, investing in necessary expansions isn't always as appealing as it may seem. Even if your project is feasible and viable, such investments come with increased risks, pressure, and uncertainty. In such a situation, you must first answer whether this investment is worth pursuing. If you're unsure but know it's needed, you need to consider the format that would make the most sense for you to pursue this investment.
To assess a new venture or project, determine whether your planned investment is desirable. Focus on aligning shareholders and stakeholders, understanding market needs and appeal, and seeing how the project fits into your long-term goals and the bigger picture. Validate customer and market demand using secondary and primary market research, check for stakeholder support, and address potential resistance early.
Identifying desirability first rarely leads to cancelling the planned investment. Instead, it shifts and sharpens one's perspective on how to assess the project's feasibility and viability.
Feasibility: Can It Be Done?
If the investment involves known and proven technologies for an existing and growing business, the feasibility evaluation primarily focuses on financial considerations. However, if the investment requires substantial up-skilling, behavioural changes and cultural shifts, evaluating feasibility in relation to personnel, organizational culture, and leadership is essential.
In the case of a new venture or project, the feasibility analysis will focus on the operational and technical requirements needed for success. This analysis determines whether the necessary resources, skills, infrastructure, and technologies are available to implement the plan effectively. Additionally, it helps identify potential obstacles, develop strategies for mitigating risks, and offers solutions to address those challenges.
Viability: Will It Succeed?
Only once you've determined desirability and feasibility do you assess the financial feasibility of your planned investment. Financial viability consists of detailed revenue forecasting, accurate cost estimates, ROI, IRR, and a three-statement financial model. Ensure you also stress-test the developed financial model against a low, most probable, and high-road scenario.
Where can things go wrong.
Although the process of conducting a feasibility study is straightforward, it can go wrong. Some of the most common mistakes to be careful of are:
- Start the process by believing it is desirable or worth pursuing or by complicating what should be a fact-based approach with emotions - without any supportive research or financial assessment. Our first task in such a situation would be to agree that facts should drive the decision - otherwise, managing expectations can become a problem.
- Underestimating the complexity and time required to get it done. For example, whereas operational and technical feasibility is known and not an issue, aspects such as the regulatory environment are overlooked or underestimated. This can quickly add substantial and unforeseen costs to a planned project or even deem it non-viable.
- Basing viability numbers on wrong or elevated assumptions. Most projects are built primarily on secondary research and market data, with primary research, such as interviews and conversations, rarely representing a representative sample. This is why it's essential to include scenario analysis in your feasibility study.
