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Important Objectives Of A Feasibility Study
It is important for every company to perform a cost benefit analysis before undertaking a new project, making a new investment, implementing a process change and so on. Sometimes, the benefits expected out of a particular project may exceed the costs involved in the execution of the project.
In order to ensure successful execution of the project, a company should ensure that the risks associated with the project and complexities involved in the project have been taken into consideration at the time of project planning.
A feasibility study can help in evaluating the company’s ability to meet the requirements of the project. For Instance, a company is planning to implement an ERP system to manage its accounts receivables process. However, before purchasing the system, management has decided to undertake a feasibility study.
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Feasibility study revealed that while the system may generate expected benefits over a long period of time, it may not be practically possible to ensure accurate transfer of data from the company’s current accounting system to the new ERP system within next one year as a result of which there may be further delays in the collection of money from the customers.
Feasibility study can also be applied to situations where a company is planning to invest money in some other companies, raise money from general public, borrow money from banks and financial institutions and so on.
Important Objectives of a Feasibility Study
Identification of Strengths and Weaknesses
Success of any project depends on the company’s ability to capitalize on its internal strengths. It is quite possible that a company may have sufficient funds to finance purchase of new machinery but it may not have technical manpower to understand the complexities involved in the installation and operation of the new machinery.
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A feasibility study can help the company in taking appropriate measures to deal with its weaknesses. Further, a feasibility study may indicate that it is practically not feasible to accept/undertake the project.
Evaluation of External Impact
Feasibility study also helps in evaluation of external factors that may have an impact on the successful execution of the project. Such factors are generally beyond the control of the management.
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However, it is advisable to include a separate section (in the feasibility study) on such factors even though it may not be possible to quantify the exact impact of such factors.
Information for Decision Making
On the basis of the results of the feasibility study, management of the company can make informed decisions on whether to accept or reject a project. Such information can save a lot of cost that may result from the failure of the project at a later stage.
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Feasibility study should not be conducted from the point of view of rejecting the project, but in the light of actual benefits that may be derived from the acceptance of the new project.
It is advisable to conduct feasibility study before developing the project plan. It is important to note that conduct of feasibility study also involves cost. However, the benefits associated with the feasibility study cannot be completely ignored.