Financial Risk Manager: Feasiblity Study and Business Plan

Feasiblity Study and Business Plan
Saturday, January 10, 2009

Feasibility Studies:In order to make wise investments in a marketplace experiencing increasing levels of risk, companies are turning to feasibility studies to determine if they should offer new products, services or undertake a new business endeavor. The purpose of a feasibility study is to determine if a business opportunity is possible, practical and viable. When faced with a business opportunity, many optimistic people tend to focus on just the positive aspects. A feasibility study enables a realistic view at both the positive and negative aspects of the opportunity. A feasibility study is an important tool for making the right decisions. A wrong decision often leads to business failure. For example, only 50% of start-ups are still in business after 18 months and only 20% are in business after 5 years.
Feasibility studies are useful when starting a new business or identifying a new opportunity for an existing business. Ideally, the feasibility study process involves making rational decisions about a number of enduring characteristics of a project, including:

Definition of the project;
Current market segmentation;
Projected growth in each market segment;
Current market offerings;
Customer profile(s);
Estimation of customers/revenues;
Determination of competitive differentiation and advantage(s);
Vision/mission statement;
Definition of proposed operations/management structure and management methods; and
Financing and projected cash flows.

Pre Feasibility Studies: In large (and usually joint venture or multinational) projects, a preliminary study undertaken to determine if it would be worthwhile to proceed to the feasibility study stage.
Business Plan is a document that summarizes the operational and financial objectives of a business and contains the detailed plans and budgets showing how the objectives are to be realized.
Because the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for business planning. For anyone starting a business, it's a vital first step.
The Feasibility Study vs. the Business Plan
Groups often confuse the role of two of the tools used by groups in the project development process; the feasibility study and the business plan. Various components are common to both the feasibility study and the business plan. Assuming positive feasibility study results, some but not all of the information developed in the feasibility study will be incorporated into the business plan. The business plan also contains aspects that were not included in the feasibility study. It would, therefore, be useful to clarify the differences between the two.
The feasibility study is conducted during the deliberation phase of the project development cycle prior to obtaining project financing. It is an analytical tool that includes several scenarios for the decision-makers of the group to utilize in determining if they should continue the project. If, after completion of the feasibility study, the group decides to not proceed, there is no need to undertake the process of creating a business plan.
If the group decides to proceed, they construct a business plan. The business plan is the design for project implementation and, as its name implies, presents the guideline for the project plan. Its purpose is to serve as a blueprint for the group's responses during project operations.
Usually, the business plan contains less emphasis on differing scenarios than the feasibility study. Typically, it elaborates the scenario shown by the feasibility study to be most promising. Since the concept has been shown to be viable in the feasibility study, the business plan is much more focused on what action steps will be taken during and after project implementation.
The business plan is created later in the development process than the feasibility study. By this time project details, which required assumptions for the feasibility study, have been decided. Standard business plans include details such as key management personnel, business location, the financial package, product flow, and possible customers.
Since the feasibility study presents an independent review of the project, persons from outside of the group normally complete it. In contrast, he group typically develops their business plan internally. The group may revise the plan with input from bankers and investors, as the financial situation of the project becomes clearer.
Another difference between the two, although not as important for project development considerations, is that while the feasibility study is only applicable for the developmental stage of a project, businesses continue to use, and revise their business plans after a project has been implemented.
To summarize, a business plan shows the group's intended response to the critical issues revealed in the feasibility study. As the feasibility study refines the group's initial ideas, the business plan uses information from the study to further prepare the project for operation.

Labels: finance