A feasibility study’s main goal is to assess
the economic viability of the proposed business. The feasibility
study needs to answer the question: “Does the idea make economic sense?”
The study should provide a thorough analysis of the business opportunity,
including a look at all the possible roadblocks that may stand in the way
of the cooperative’s success. The outcome of the feasibility study
will indicate whether or not to proceed with the proposed venture.
If the results of the feasibility study are positive, then the cooperative
can proceed to develop a business plan.
If the results show that the project is
not a sound business idea, then the project should not be pursued.
Although it is difficult to accept a feasibility study that shows these
results, it is much better to find this out sooner rather than later, when
more time and money would have been invested and lost.
It is tempting to overlook the need for
a feasibility study. Often, the steering committee may face resistance
from potential members on the need to do a feasibility study. Many
people will feel that they know the proposed venture is a good idea, so
why carry out a costly study just to prove what they already know? The
feasibility study is important because it forces the NGC to put its ideas
on paper and to assess whether or not those ideas are realistic.
It also forces the NGC to begin formally evaluating which steps to take
The NGC’s organizers will typically hire
a consultant to conduct the feasibility study. Because the consultant is
independent of the cooperative, he or she is in a better position to provide
an objective analysis of the proposed venture. The consultant should
have a good understanding of the industry as well as the new generation
cooperative model of business. He or she should have previous experience
in directly related work. To get an estimate of the costs of a feasibility
study, prepare a rough outline of the work needed to be done. Contact
several consultants and provide them with a copy of this rough draft to
see what sort of estimates they give. When the time comes to hire
a consultant, prepare a formal request for proposals that outlines the
information that is needed and send this to several consultants.
It might be tempting to choose the lowest-cost
consultant or a personal acquaintance of one of the NGC’s organizers, but
always remember that quality work is the most important factor when choosing
a consultant. Make sure that the consultant can provide an independent
assessment of the business opportunity. For instance, hiring an engineering
firm or an equipment manufacturer to conduct market analysis may lead to
biased results in favor of proceeding with the venture. Engineering
firms and equipment manufacturers may have an incentive to show positive
results so they can obtain contracts with the cooperative once it chooses
to start up operations. Engineering firms and equipment manufacturers
are needed in order to provide information about equipment requirements
and costs, but an independent consultant should conduct the overall feasibility
A feasibility study should examine three
technical and organizational requirements
The primary area that the feasibility study
needs to address is potential market opportunities for the cooperative.
If an adequate level of demand does not exist for the product and the NGC
does not know how to differentiate its product so that it can compete with
established industry players, then the proposed venture should not be pursued.
Questions that need to be answered in this
area of the feasibility study include:
What type of industry is the NGC planning
to enter? What are its primary features?
What are the possible target markets for the
NGC’s product? What demographic characteristics do they possess?
How large are these markets? Where are they located? Is the
market expected to grow in the future?
Will the NGC be competing in a mature industry
or a growth industry?
Who are the NGC’s competitors in this market?
How large are these competitors? How established are they?
How do they price their goods? How will these competitors react to
the entrance of the NGC?
How will the NGC differentiate its product
from those of its competitors? What are the competitors’ strengths and
weaknesses, and how would the NGC compare against them? How does
the NGC plan on gaining market share?
What is the projected market share for the
Data that can help to answer these
questions may be found in already-published information or through primary
research activities such as market surveys conducted on behalf of the NGC.
Relevant information may be found through various sources such as government
statistical publications, trade journals, industry reports, or companies
such as Dun & Bradstreet. The Internet has also opened up new
routes to obtaining information.
The answers to market-related questions
should help the NGC develop realistic estimates of the projected demand
for the NGC’s product for the first several years of operation. Based
on this projected demand, the NGC can determine its anticipated level of
business volume, which is needed in order to design the processing facilities.
If the projected business volume is not large enough to justify a processing
facility, then the project is not feasible.
Technological and organizational requirements:
This area concerns the internal set-up
of the cooperative. Questions to be answered in this area include:
Plant and equipment issues:
What type of equipment and technology will
the business need to produce its product? What are the costs involved?
This includes both the initial purchase and installation costs of the equipment
as well as the operational costs of running the equipment.
Who are the potential suppliers of this equipment?
Where are they located? What sort of service and warranties do they
provide? How long will it take to acquire the equipment and begin
Based on its projected business volume, how
much raw product will be required by the NGC? What are the quality
specifications? Will the NGC have a sufficient membership base that
can provide the raw materials?
What are the possible locations for the NGC’s
facility? What size of facility is needed? What are the costs
of the building? Does the proposed location have adequate access
to infrastructures and services such as major highways, railways, and utilities?
Will the NGC build its own facility, or purchase an existing location?
Where will the facility be located relative
to the NGC’s customers? Who will be responsible for the transportation
of goods between the facility and the market? What are the transportation
Managerial and organizational
Is the NGC organizational structure the right
one for this business? How important are delivery contracts and a
fixed source of supply to the success of the business?
What qualifications are needed to manage these
operations? What are the key staff positions that need to be filled?
What type of experience should management
have? Are there potential candidates available to fill such positions?
What will be the cost factor involved in finding and retaining acceptable
Based on the estimates that have been gathered
from the preceding sections of the study, the NGC needs to determine its
overall financial situation. Sources and uses of financing should
be listed. Questions such as the following need to be considered:
What are the total start-up costs required
in order to begin operations? For instance, what are the capital
costs of the land, plant and equipment, and other start-up costs such as
legal and accounting costs?
What are the operating costs involved?
These include the daily costs involved in running the business, such as
wages, rent, utilities, and interest payments on outstanding debt.
These will determine the cash flow requirements of the NGC.
Based on the estimated demand, what are the
NGC’s revenue projections? How will the NGC determine its pricing
What are the possible sources of financing
for the NGC? Who are potential lenders? What will be their required
terms and limitations of borrowing?
Based on the estimated revenues and costs,
what is the projected profit(loss) of the NGC? What is the break-even
If the results of the feasibility study
indicate that the proposed venture is economically viable, then the NGC
can begin to develop a business plan.