Simply put, a feasibility study is the preliminary appraisal of the opportunities and risks that abound in a target area of business or endeavour. In other words, it is about trying to discover if the target business is feasible or not.
For instance, prospective entrepreneurs may have an idea about the type of fruit or vegetable product that they would like to make. This can come from having seen others successfully producing food and wanting to copy them all from talking to friends and family members about products that they think they could make.
However, an idea for a business is not a sufficient reason to begin production straight away, without having thought clearly about the different aspects involved in actually running the business. Too often, people invest money in a business only to find out later that there is insufficient demand for the product or that it is not the type that customers want to buy. To reduce the risk of failure losing money, potential producers should go through the different aspects of running their business in discussions with friends and advisers before they commit funds or try to obtain a loan. This process is known as a feasibility study, and when the results are written down, the document is known as a business plan.
Conducting a feasibility study need not be difficult and expensive, but the most important aspects should all be taken into account to ensure that potential problems are addressed. Among the essential questions that can be answered by a feasibility study are:
- Is there a demand for the product? Find out the characteristics required of the product and the size and value of the market.
- Who else is producing similar products? Determine the number and type of competitors.
- What is needed to make the product? Find the availability and cost of staff, equipment, services, raw materials, ingredients and packaging.
- What is the cost of producing a product? Calculate the capital cost of getting started and operating costs of production.
- What is the likely profit? Calculate the difference between the expected income from sales to an estimated share of the market and the cost of production.
Each of these aspects should be looked at in turn. When all the information has been gathered and analysed, it should be possible to decide on whether the proposed investment in the business is worthwhile or whether the producer’s money could be better spent doing something else. According to experts, the same consideration should be taken into account when an existing entrepreneur wishes to diversify production or make a new product.
It is also important to remember that the business plan is a working document that should be used as a framework to guide the development of a business. To do this, it should be regularly updated. However, it often happens that an entrepreneur pays an adviser or consultant to prepare a business plan but then does not understand the contents, or having read it once, puts it away on a shelf never to be seen again.
Here, we are going to look at the sub-concepts of product quality survey, the survey of market size and value, and market share and competition.
Once the potential producers decided that he wishes to start the business, the first thing to do is to find out the likely demand for the fruit or vegetable product that he wants to make by conducting a short market survey. Although there are market research agencies that can do this type of work in many developing countries, the prospective producers should do it themselves (where necessary with assistance from partners or advisers), because they will then probably understand their potential customers’ needs and how their businesses should operate. If an idea is found to be feasible, this knowledge will, in turn, give them the confidence required when problems are encountered, knowing that their product is in demand.
Although telephone or posted questionnaires are possible, most developing countries, it is better to conduct a market survey by going out into areas where the producers expect to find consumers and asking people for their views.
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