A business plan and a feasibility study may share similar characteristics, however, they often serve very different purposes. A feasibility study is designed to explore the potential of a business model in terms of its success and potential outcomes. The study may test several scenarios in order to determine how to effectively construct a business model, or if it is practical to undergo a project. The level of analysis and style of a feasibility study will vary by industry, project size and several other factors. A business plan, on the other hand, generally already assumes the business model to be successful. If the business plan is for investors, the plan is designed to provide the basis for the argument that the business will achieve profitable financial projections.
To provide an idea of how feasibility studies differ, take two different companies. The first company is Macrosoft, they are releasing a new software for small businesses to better manage their resources. The second company is Arcelite Steel considering opening a steel production facility in Brazil. While Macrosoft may collect a group of several hundred business owners and conduct surveys, Arcelite may focus on compared benefits and costs of operating their steel mill in Brazil, compared to another country. Both companies could try several variations and make modifications to their strategy based on the feasibility study before creating the business plan.
Creating a purposeful feasibility study means not just compiling a lot of market research and trying to make sense of it. Having more research – is not necessarily better. In the case of Arcelite, it may want to analyze the costs saved from producing in Brazil, compared to the increased logistics costs of transporting to Europe. This research may mean that Arcelite has to do its own research, but this may be much more valuable than having many costly industry reports.
Conducting the feasibility study gives Macrosoft a better idea of which paths to take in the business plan and even product development. For Arcelite, it may be the difference between several millions in operating profits. While this magnitude is increased for a large company such as Arcelite, it may also mean the difference between success and failure for a start-up that fails to conduct preliminary research. The moral of Macrosoft and Arcelite is that if someone requests a feasibility study, it should not be viewed as a chore or hurdle to jump through. Rather, it should be perceived as an opportunity to gather knowledge helping your team to make the soundest decisions possible for high impact decisions. The answer is often available, but hidden within the data or your customers’ minds just waiting to tell you.