When you’re starting a new business, it’s important to make sure your products are viable in the market. That’s where a feasibility study comes in. But what is a feasibility study, and when should you use one? Read on to find out.
What is a feasibility study?
A feasibility study is an assessment of whether a proposed project is likely to be successful. It looks at things like the market potential for the product or service, the financial resources required, and the technical feasibility of building and launching the product or service.
What is an appraisal?
An appraisal is an assessment of how much a proposed project is worth. It looks at things like the estimated costs and benefits of the project, and how those costs and benefits are spread out over time.
What's the main difference between a feasibility study and an appraisal?
A feasibility study determines if the desired requirement can be done. If the answer is no, then likely the project is cancelled. An appraisal tends to look into the cost/impact analysis. Typically, the feasibility study has already been completed at this point in the process. Unless the cost to reward ratio is significantly skewed, usually, the project is a go.
When is a feasibility study needed?
A feasibility study is used when you’re still in R&D, or very soon after that. It outlines whether your product idea has potential in the market. It’s important to note that this is different from the initial idea you might come up with. A feasibility study will define whether it can be done if it can be done in a cost-effective way, and how long it might take.
When is an appraisal needed?
An appraisal is typically used after product development has started, but still before any money has been spent on the product. At this point, your goal is to determine whether the product you have developed will be worth investing in, or if it should be abandoned. This assessment better identifies how much investment is needed for the project.
How can I choose between a feasibility study and an appraisal?
An appraisal and a feasibility study are similar in that they both look at whether or not your product is viable. A feasibility study tends to be more development-focused, while an appraisal looks more into the financial aspects of launching a product. If you’re just starting out with research and design, such as creating an MVP (minimum viable product), a feasibility study is the best option.
Conclusion on new product feasibility study vs appraisal
A new product feasibility study looks at whether your idea for a product will be financially viable. If the answer is no, then you either need to adjust the cost or change direction. An appraisal, on the other hand, provides you with an estimate of how much money you might expect to make from your proposed business. If it’s cost-effective and you expect a good return, then the appraisal will likely be positive.
Examples of new product feasibility studies are, "The market is too small to have an impact", "We don't have the resources to achieve our goals", or "we can't find a way to produce this product at a low enough cost."
Examples of new product appraisals are, "the revenue does not meet the costs", or "the investment returns are not high enough".
So, if you cannot find ways to make the idea viable, the likely answer is that your idea for a project should be abandoned. But if you expect financial success with this business, then an appraisal will help provide you with more insight on how much investment is needed to generate enough returns from your product or service.