What a feasibility study is for
A feasibility study tests whether a proposed project is worth doing before major resources are committed. It differs from a business plan, which assumes the decision to go ahead and describes how. A good study is balanced: it looks for reasons the project could fail as hard as for reasons it could succeed, and it ends with a clear go, no-go or go-with-conditions recommendation.
| Dimension | Key question | Typical evidence |
|---|---|---|
| Market | Is there enough demand at a viable price? | Surveys, interviews, market size data, competitor analysis |
| Technical and operational | Can we deliver it with the resources and skills we have? | Process design, capacity, suppliers, staffing, location |
| Financial | Will it generate an acceptable return? | Cash flow forecast, break-even, NPV, IRR, sensitivity |
| Legal and regulatory | Are there licenses, rules or contracts that block or shape it? | Regulations, permits, IP search |
| Organizational and risk | Can the organization manage it, and what could go wrong? | Stakeholder analysis, risk register |
Test the market honestly
Many studies assume a market and then multiply. Better ones size it from the bottom up and test it with real customers. Estimate the total market, the serviceable market you can reach, and the share you can plausibly win in year one to three. Tie assumptions to evidence: interviews with 15 to 30 potential customers, a pilot, pre-orders or comparable launches.
Bottom-up demand (hypothetical)
A fitness studio targets a district with 40,000 adults aged 25 to 55. Survey and local benchmarks suggest 8 percent are active gym or class users, so the pool is 3,200 people. With four competitors and a differentiated offer, a realistic year-three share is 10 percent, or 320 members. At $55 a month, annual revenue is 320 x 55 x 12 = $211,200.
Show the logic, state each assumption and test the figure with a range.
Financial feasibility: break-even, payback, NPV and IRR
Begin with break-even. If fixed costs are $120,000 a year, price is $40 and variable cost is $22, the contribution per unit is $18 and the break-even volume is 120,000 / 18 = 6,667 units a year. Compare it with your demand estimate.
Investment appraisal (hypothetical)
Initial investment $250,000. Net cash flow of $70,000 a year for six years. Required return (discount rate) 10 percent.
Payback = 250,000 / 70,000 = 3.6 years.
NPV = 70,000 x annuity factor (6 years, 10 percent = 4.3553) - 250,000 = 304,871 - 250,000 = $54,871. Positive, so the project adds value at a 10 percent return.
IRR is the rate at which NPV is zero. At 15 percent the annuity factor is 3.7845, giving NPV = 264,915 - 250,000 = +14,915. At 18 percent the factor is 3.4976, giving NPV = 244,832 - 250,000 = -5,168. Interpolating gives an IRR of about 17 percent, above the 10 percent hurdle rate.
Add sensitivity analysis because the cash flows are estimates. If annual cash flow is 20 percent lower at $56,000, NPV = 56,000 x 4.3553 - 250,000 = 243,897 - 250,000 = -$6,103, and the project fails. That tells decision-makers the project is only marginally robust and demand is the assumption to check. See our guide to valuation for the discount rate.
| Scenario | Annual cash flow | NPV at 10% | Verdict |
|---|---|---|---|
| Base | $70,000 | +$54,871 | Accept |
| Pessimistic (-20%) | $56,000 | -$6,103 | Reject |
| Optimistic (+20%) | $84,000 | +$115,845 | Accept |
Risks and conditions
List the main risks, rate them and say how each could be reduced. Common feasibility risks include weaker demand, cost overruns, delays, competitor reaction and regulatory change. Where possible, identify early warning signs and decision points.
| Risk | Likelihood | Impact | Mitigation |
|---|---|---|---|
| Demand below plan | Medium | High | Pre-sell memberships before opening; staged fit-out |
| Fit-out over budget | Medium | Medium | Fixed-price contract; 10 percent contingency |
| New competitor opens nearby | Low | High | Differentiate on classes; loyalty pricing |
Operational feasibility: can we deliver it?
A project can be financially attractive and still impossible to run. Test capacity with simple arithmetic.
Studio capacity (hypothetical)
The studio runs 6 classes a day, 6 days a week, with 20 places per class: 6 x 6 x 20 = 720 class places a week.
With 320 members attending an average of 1.5 classes a week, demand is 320 x 1.5 = 480 places. Utilization = 480 / 720 = 67 percent.
That is workable, but classes at peak times (early morning and early evening) will fill first. If 60 percent of attendance falls in four peak slots a day, demand in those slots may exceed capacity, so the schedule and pricing must handle it. Capacity checks like this catch problems that financial models miss.
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| Test | How | What it tells you | Example result |
|---|---|---|---|
| Landing page | Advertise the offer and count sign-ups | Interest at a price | 2,000 visitors, 4 percent leave details: 80 leads |
| Pre-sales | Take founding memberships before opening | Willingness to pay | Target 150 founding members before fit-out |
| Pilot | Run a small version for a month | Real behavior and costs | Pop-up classes, 60 percent fill rate |
| Interviews | Ask 20 target customers what they would do | Reasons and objections | Common objection: location and times |
Treat such tests as evidence, not proof: people who sign up for free are not the same as people who pay. Say what each result suggests and its limits.
Staged commitment and a go or no-go template
A feasibility study can recommend a staged path that lowers risk. For example: stage one, pre-sales and a pilot with a $15,000 budget; stage two, fit-out only if pre-sales reach the target; stage three, expansion only if year-one membership reaches 250.
| Element | Content |
|---|---|
| Recommendation | Go, no-go or go with conditions, in one sentence |
| Reasons | The three findings that matter most, each with a number |
| Conditions | The tests or thresholds that must be met, and by when |
| Downside | The most you can lose at each stage |
| What would change the answer | The assumptions the decision is most sensitive to |
A staged plan converts a risky, all-or-nothing decision into several small ones, and it is often the most persuasive recommendation when the numbers are close.
A two-way sensitivity grid
Investment decisions depend on two uncertain things at once: the cash flows and the discount rate. Show both.
| Annual cash flow | NPV at 8% | NPV at 10% | NPV at 12% |
|---|---|---|---|
| $84,000 | $138,324 | $115,845 | $95,358 |
| $70,000 | $73,603 | $54,871 | $37,798 |
| $56,000 | $8,882 | -$6,103 | -$19,762 |
Annuity factors for six years: 4.6229 at 8 percent, 4.3553 at 10 percent and 4.1114 at 12 percent, with the $250,000 outlay subtracted. The project fails only when cash flow falls 20 percent and the discount rate is 10 percent or higher, which tells decision-makers where the risk is concentrated.
Legal and regulatory feasibility
| Question | Example check |
|---|---|
| Is a license or permit required? | Business license, health and safety, professional registration |
| Are there zoning or lease limits? | Permitted use, noise, opening hours |
| Is insurance available at reasonable cost? | Liability and property cover quotes |
| Are there contracts or IP issues? | Franchise terms, trademarks, supplier exclusivity |
| Who is responsible for compliance? | Named owner and a calendar of renewals |
Make a go or no-go recommendation
The conclusion should be unambiguous. Options are go, no-go, or go with conditions, such as a pilot or minimum pre-sales before committing the full investment. In the example above, a reasonable recommendation is go with conditions: proceed only if pre-sales reach 150 memberships before fit-out begins, because the project fails if cash flow falls by 20 percent.
- Cover all dimensions A strong financial case does not rescue a project that cannot be delivered.
- Use evidence for demand Customer data beats assumption.
- Test the downside Show what happens when key assumptions are wrong.
- Decide Give a clear recommendation and the conditions that apply.
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