The economic justification is the reason that motivates an organization to undertake a specific project. This concept includes consideration of the benefits that the enterprise will receive as a result of the project. In addition, the business case examines various alternatives and also analyzes the project from a financial and economic point of view. The latter allows you to assess the investment attractiveness of the project. How to write a business case? An example is in this material.

The essence of the concept

The economic justification is reminiscent of the analysis that we conduct when planning some kind of serious purchase. For example, your own car. Let's assume that we can allocate 35 thousand US dollars from the family budget for this purchase. The first step is to find out which automobile concerns produce cars of the class we are interested in. Then we determine the main technical characteristics and agree on the final price with the company that sells these products. But that's not all. How to write a business case? An example in the matter of choosing a payment scheme.

At the same time, there may be another situation when the buyer is primarily interested in the total amount that will have to be paid for a new car. This is especially true in a situation where the final price is affected by the amount of interest when it comes to buying on credit. In this case, it is advisable to choose the option that provides the lowest interest rate. Another way is to look for an offer with the lowest monthly payment. Such an acquisition will allow you to stretch out payments for as long as possible. At the same time, the monthly amount of such a payment will not hit your pocket too much. When carrying out a financial and economic feasibility study, attention is paid to similar aspects.

Components of a business case

There are no clear rules for documenting a business case. Its main task, as in the case of a feasibility study of a project, is to determine the material or intangible results of its implementation. Tangible results mean those that can be measured.

Below is a list that gives an idea of ​​those material components that are important in the process of preparing the financial and economic feasibility study of the project. It would be useful to say that not all of them require mandatory documentation. The need to record them on paper depends on the complexity of the project, cost and number of risks for the enterprise.

Material elements of the business case

So, the main tangible components of the business case include savings, cost reduction, the likelihood of generating ancillary income, an increase in the enterprise's market share, customer satisfaction and cash flow assessment. In addition to the material components of the business case, it must also contain intangible components.

Intangible elements of the business case

These may include probable, but not pre-planned, company costs. Among the main intangible elements of the business case are transition costs, operating costs, transformation of business processes, as well as reorganization affecting company employees. In addition, the intangible components of the business case include recurring benefits. How else can you write a business case? Example below.

Other components of the business case

It should be emphasized that along with the benefits and assessment of cash flow in the EO, it is necessary to pay attention to alternative approaches and methods for implementing a specific project in practice. How to write a business case? An example in the following situation.

It is known that there are a large number of manufacturers of different products on the market. However, each of them sets its own price for its own products. What to choose? An option that is a turnkey solution costing $2 million. Or an alternative solution that involves partial purchasing from a third-party manufacturer and, to some extent, using its own resources?

In fact, aspects of precisely this nature often have to be considered when drawing up an economic feasibility study for an enterprise. Any of the proposed options must include the previously listed tangible and intangible components. At the end of the business case, proposals and conclusions must be stated. In addition, you can add additional materials to it.

It does not contain marketing research. The business case usually contains a detailed description of the technologies and equipment, as well as the reasons for their selection.

When drawing up a business case, it is necessary to comply with certain requirements. It starts with initial data, information about the market sector. Then the existing opportunities for business development, sources of raw materials, material resources for business expansion, the amount of capital expenditure required to achieve the goal, production plan, financial policy, and general information about the project are described.

Thus, the economic justification contains a description of the industry in which the enterprise operates, the type of products supplied, and the price level for it. The financial part of this document for attracting borrowed funds, sources of their coverage. Calculations are given in tables that reflect cash flows.

When drawing up an economic feasibility study, it is necessary to study the current position of the enterprise, its place in the market, the technologies and equipment used. In addition, it is necessary to determine ways to increase the profitability of the company and business development, predict the level of profitability that can be achieved when implementing the project, study the necessary technical data, and analyze the level of staff training. You will also need to draw up a project implementation plan, cost estimate and cash flow plan, as well as give a general economic assessment of the investment.

A business case is also called a financial economic assessment, which is a form of impact assessment. It is used to assess changes in all net cash flows that arise as a result of the implementation of government regulation methods, the establishment of regulatory legal documentation, and corporate programs that are aimed at changes in the economic and social structure.

Instructions

Introduce changes to technical regulation standards, as well as change industry norms, introduce various technical regulations. This will help you change and redistribute the benefits, costs, and risks of the enterprise.

Predict changes in all existing factors (benefits, costs) at the design stage of changing technical regulation standards. Assess the financial and economic results of compliance with these standards, ensure optimization of costs for compliance with the standards.

Adjust the direction of the standard development process and ensure that the impact of all standards being developed is modeled on the state of the enterprise and its industries. Create a plan for more effective interaction between requirements across different technical regulatory structures.

Carry out the necessary calculations in the course of forecasting economic analysis related to the transition to the implementation of all necessary changes in the regulatory document, including: the amount of income, budget expenditures, costs of economic entities, costs of society, tax contributions, as well as efficiency.

Estimate in monetary terms additional associated costs and identify the impact of changes on the financial position of stakeholders. Then analyze the changing structure of costs, risks and income and evaluate the redistribution of benefits to all stakeholders.

Evaluate the previously conducted business case analysis. In this case, you will receive the data that was before the analysis, as well as after changing all the factors. Thus, evaluate the feasibility of this project in monetary terms and make recommendations for its improvement, based on problems of cost optimization.

A feasibility study is a document that contains an analysis of the feasibility of creating a specific product or service. It allows investors to determine whether they should invest their own money in the proposed business project.

Instructions

Use the following structure when drawing up a feasibility study: - initial data and conditions; - market characteristics and company capacity; - material factors of production activity; - location of the company; - design documents; - information about the organization of the enterprise and overhead costs; - labor resources; - forecasting the timing of the implementation of this project; - financial and economic.

Write general data about the project, that is, the general concept in the feasibility study. Indicate the location and participants of the business project. Then write a brief profile for the industry to which the project relates. Next, conduct a supply and demand analysis and estimate the market capacity. After this, identify the main potential consumers of products (services), as well as the main competitors.

Write a justification for the selected region for the location of the project from the perspective of market conditions. Provide the main parameters in Feasibility study: type and range of products (services), volume of services of the enterprise.

Please provide capital expenditure details in Feasibility study. Provide an estimate of capital (one-time) expenses necessary for the implementation of the business project under consideration. Calculate the amount of operating costs. To do this, refer to Feasibility study for estimated operating (annual) costs.

Draw up a production program in Feasibility study. Describe all types of products (services) that the company plans to produce as part of the analyzed project, indicating the volume of production activities and sales prices. Justify the main price indicators.

Indicate how the project is planned to be financed. To do this, draw up a financing scheme for a business project, which will contain a description of all sources of loan funds, their purpose and repayment terms.

Assess the commercial feasibility of implementing the created business plan. Make calculations of the main economic indicators based on the necessary initial data that are accepted for the economic analysis of the project. In turn, the calculation part of the feasibility study must contain the following calculation material: a table of the company’s cash flows, a balance sheet forecast.

Video on the topic

Justification stage project very important. During it, you can identify and, if possible, correct those moments that may lead to failure in the future. Focus on starting early and you will achieve better results.

Instructions

Define the goals and objectives of the justification project. You need to answer the main question: is the project necessary? Based on how well you develop the idea and convey the benefits that the new business can bring, a decision will be made whether to accept or not project.

Describe the essence project. Tell us what exactly you plan to do and what goals are being pursued. Explain how the need for a new business arose and why this particular path was chosen.

Convey to the reader or listener the main ideas and ways in which the result will be achieved. Convince him that the chosen methods are the most effective in this case.

Tell us how many employees will be needed to implement your project, and what qualifications they should have. Give reasons why the workforce should be exactly like this. Describe in detail the functions of each team member. If you already have candidates, voice their names. In addition, committee members or your management should know how participation in the project will affect the main work of these employees.

Establish a sequence of actions and announce deadlines project. Clearly list the main stages of its implementation. Then go into detail about each stage. There should be a logical relationship between actions so that it is clear why one point follows another. Talk about realistic deadlines; if this is problematic, do not just name the possible completion date project, it is better to indicate the maximum period. Explain what factors may affect task completion time.

Provide a calculation of the material resources that will be involved in the project. Show what each expense item consists of. Before the presentation, count everything again. Remember that if you make inaccurate calculations or leave out an important item, it may blur the impact of the rest of your case and result in your rejection. project.

A feasibility study (feasibility study) is a study of the economic profitability, analysis and calculation of the economic indicators of the created investment project. The purpose of the project may be the creation of a technical facility or the construction or reconstruction of an existing building.

The main task in drawing up a feasibility study is to assess the costs of an investment project and its results, and analyze the payback period of the project.

It is necessary for the entrepreneur himself to draw up a feasibility study to understand what to expect from the project, and for an investor, a feasibility study of an entrepreneur requesting investment is necessary to understand the payback period for the money invested. The development of a feasibility study can be entrusted to a group of specialists (in complex projects), or it can be compiled independently by an entrepreneur.

What are the main differences between a feasibility study and a business plan?

Typically, a feasibility study is compiled for new projects at an existing enterprise, so blocks such as marketing research, market analysis, description of the enterprise and product are not described in such feasibility studies.

But sometimes a situation arises and additionally the feasibility study provides detailed data on the analysis of technologies and equipment and the reasons for their choice.

Thus, a Feasibility Study (TES) is a shorter and more substantive document than a full-fledged business plan.

Methodology for compiling a feasibility study

When compiling a feasibility study, the following sequence of thematic parts is allowed:

• initial data, information about the market sector;
• existing business opportunities of the enterprise;
• sources of raw materials, material factors for business development;
• capital costs expected to achieve the goal;
• operating costs during project implementation;
• production plan;
• financial policy and financial component of the project;
• general information about the future project.

In general, the feasibility study provides a description of the industry in which the enterprise operates, and provides a rationale for the choice of territorial and geographical location of the existing and proposed business, as well as describes the type of products produced. Here it is necessary to describe and justify prices for manufactured products. At the same time, the financial part of the feasibility study contains information about sources of financing and debt repayment terms, conditions for the use of borrowed funds.

Calculations in a feasibility study consist of tables that present cash flows and balance sheets.

This structure of the feasibility study may not be the only correct one and may vary depending on the specific project. Also, it can be expanded for large and complex business projects.

What is the difference between a feasibility study (TES) and a business plan?

In modern business and office work, the terms business plan and feasibility study have firmly entered the vocabulary of entrepreneurs and economists, but there is still no clear division of such concepts. The material attempts to highlight the similarities and differences between a business plan and a business feasibility study.

Theorists suggest that a feasibility study is the result of a variety of studies, both economic and marketing research. But at the same time, a conclusion is made about the feasibility of the project, and a range of economic, organizational and other proposed solutions for optimizing the production process is determined. At the same time, a feasibility study is often an integral part of a business plan.

At the same time, there is an opinion that a feasibility study, to some extent, is either an abbreviated version of a business plan, or, on the contrary, it is a regular business plan, which is called a feasibility study.

It should be noted that if the procedure for drawing up and the structure of a business plan are clearly spelled out, then when drawing up a feasibility study you can find several different writing options, which differ depending on the problems being considered.

There are the following options for feasibility studies in practice:

Example No. 1

1. the real state of the enterprise;
2. market analysis and assessment of the production capacity of the enterprise;
3. technical documentation;
4. state of affairs with labor resources;
5. organizational and overhead costs of the enterprise;
6. project duration estimation;
7. analysis of the financial attractiveness and economic feasibility of the project.

Example No. 2

1. the essence of the proposed project, presentation of the basics of the project and the principles of its implementation;
2. a short overview of the market, a presentation of the results of various studies in order to study the demand for a new service or product;
3. technological and engineering aspects of the project:
   • description of the production process;
   • evidence of the need to purchase new equipment or upgrade old equipment;
   • comparison of a new product with current quality standards;
   • review of the strengths and weaknesses of a new product or service.
4. financial and economic indicators, including:
   • expected and required investments in the project;
   • expected internal and external financial sources;
   • production costs.
5. assessment of the effectiveness and payback of the promoted project, guarantee of repayment of external borrowings;
6. the susceptibility of the proposed new product or service to existing risks in the markets, as well as resistance to possible risks in the future;
7. general assessment of the effectiveness of possible external borrowing.

Example No. 3

1. a summary of all the main provisions of the feasibility study;
2. conditions for implementing a new project (who owns the authorship of the project, source material for the project, what preparatory activities and research have already been carried out, etc.);
3. analysis of proposed sales markets, review of the production capabilities of the enterprise, as well as calculation of the peak capabilities of the enterprise and a number of other factors;
4. This section reflects everything related to ensuring production (necessary inventories and production resources), analysis of existing contractors and possible suppliers, analysis of possible costs for various production factors;
5. the section is devoted to the territorial location of the enterprise and the costs associated with this position (approximate estimate of where the enterprise will be located, preliminary calculations associated with paying the rent of a site for production or office space);
6. design and project documentation (assessment of necessary technologies for a new project, assessment of additional auxiliary facilities, without which production would be impossible;
7. organizational and other additional costs associated with the new project (calculation of additional costs, as well as an outline of the expected structure of future production);
8. analysis of labor resources for a future project (assessment of the human resources that will be needed to launch a new project). The estimated number of workers and maintenance personnel and the required number of engineering and technical workers are indicated. In addition, it is indicated whether only local workers or non-resident (foreign) specialists will be involved. The same section indicates calculated labor costs, taxes associated with wages and a number of other points;
9. progress schedule of the presented project;
10. general assessment of the economic and financial viability of the planned project.

Note that many of the examples of feasibility studies given, especially the last example, resemble a detailed business plan. There is a fine line between a feasibility study and a business plan, and this leads to the fact that with a high degree of confidence we can say that if you are required to provide a feasibility study for a project, you can safely draw up a detailed business plan, while leaving unnecessary disputes - theorists of economic science, but it’s better to get down to business.

Methodology for compiling a feasibility study (TES)

1. Table of contents or structure. Brief description of the document chapters.
2. General description of the project, introductory information about the project. Information about studies that have been carried out in advance, an assessment of the necessary investments.
3. Description of the market and production. Assessment of demand and forecast of future sales, description of the enterprise's capacity.
4. Raw materials and resources. Calculation of the required volumes of material resources, forecast and description of the supply of resources to the enterprise, analysis of prices for them.
5. Selecting the location of the enterprise (enterprise facilities). Justification for choosing a location and assessment of the cost of renting a room or site.
6. Project documentation. Description of the production technology for future products, characteristics of the necessary equipment, additional buildings.
7. Organizational structure of the enterprise. Description of the enterprise organization and overhead costs.
8. Labor resources. Assessment of the need for labor resources divided into categories (workers, employees, top managers, executives, etc.). Estimating salary costs.
9. Timing of the project. Project schedule, cost estimate, trench sizes, etc.
10. Economic calculations. Estimation of investment costs, production costs, financial assessment of the project.

The difference between a feasibility study and an Investment Memorandum

When conducting research in the field of marketing, the task of which was to identify consumer preferences in the market of consulting services, the need for writing investment memoranda and business plans was also identified. In the course of the analysis of surveys, questionnaires, and written requests, we can conclude that in the modern Russian market of business services, there is some uncertainty regarding the definitions and interpretations of a number of related concepts, such as: investment memorandum, feasibility study and business plan. Let us give an explanation of the frequency of the birth of these economic documents.

Before the investment memorandum appears, a feasibility study or feasibility study is created - this is the basis for determining the need for financial investments. A feasibility study is a document, usually created by leading financial managers of companies. The purpose of a feasibility study is to determine whether a given financial investment is promising and capable of bringing financial benefits. When creating an investment memorandum, essentially the same thing is being pursued, but the investment memorandum is created for investors.

Having created a feasibility study, they move on to drawing up a more thorough document, which determines how the newly created product or project will behave in the conditions of the existing market. And also, what impact will existing competitive factors in the market, as well as current and future risks, have on the planned project. This kind of document is called a business plan.

While working with a business plan, as a rule, the costs of a commercial structure begin to increase, associated with the need to work in the field of research in the field of marketing. Such studies aim to determine how well the assumptions set out in the feasibility study will correspond to the data that will be obtained during these studies. If these studies lead to the fact that if the data, assumptions and proposals of the feasibility study are confirmed during marketing research, then the project has the right to qualify for funding. Financial calculations later form the basis of the investment memorandum.

The birth stage of a new enterprise is extremely important for financial managers. At this stage, the definition and formation of the enterprise's policy begins, information begins to arrive that provides real information about the possible sides and speeds of development.

What is the difference between an investment memorandum and a feasibility study?

In the course of assessing the current situation of the enterprise, as well as possible future risks, a document called the “Investment Memorandum” is developed. The main purpose of the investment memorandum is to attract, if necessary, external financing to the existing project.

Most often, an investment memorandum is formed by a consulting company on the basis of a business plan and differs from it in that it includes information of an investment nature.

At this stage, the financiers of the enterprise must constantly monitor the state of the market. The purpose of such work is to monitor competing structures, identify new opportunities in existing markets and find possible new niches for development.

In this case, the main task comes down to calculating and identifying the stage of development when the enterprise will need financial investments, writing an investment memorandum and attracting strategic investments in its project. And, in addition, financial managers must determine and calculate the amount of necessary financial investments into the project. The period when financial managers of an enterprise begin to work out various development scenarios is the initial period when drawing up an investment memorandum. Various scenarios for the development of events are identified. Pessimistic scenario (all possible consequences of insufficient financing and associated profitability indicators and business risks are calculated). An optimistic scenario where it is necessary to reflect economic indicators with sufficient funding.

How to write, compose a justification? How to justify the proposed solution? (10+)

Rationale. Tips for writing

Let's consider the rules for compiling justifications. First, we will discuss the general approach, then we will dwell on the particulars relevant to certain types of justification.

Before drawing up a justification, you need to answer two questions:

• What do we want to justify? It is necessary to formulate the idea being justified as briefly and clearly as possible.
• To whom do we want to justify (from now on I will call these people conditionally “readers”). This is important to understand, since the basis on which you need to rely depends on it.

Rationale structure

Basic statements

First you need to formulate statements with which readers are likely to agree.

For example, freezing of a water pipe will make the facility unusable. The existing pipe laying depth is higher than the freezing depth.

For example, the cost of liquefied gas is half that of motor gasoline, and the consumption per 100 kilometers is the same.

What do we want to justify?

Now you need to make a substantiated claim or concept.

For example, I propose to re-equip the water supply system.

For example, I propose to switch vehicles to liquefied gas.

Logical chain

Let's build a logical chain

For example, according to statistics, once every three to five years in our region there are extremely low temperatures that our water supply cannot withstand. If the water supply freezes, it will have to be relocated in any case. This will take from one to two weeks. During this time, we will not be able to produce products and will lose income.

For example, the cost of installing gas equipment for one car is 40 thousand rubles. The daily mileage of one car is 300 km, and the cost of gasoline is 1000 rubles. in a day. Daily savings will be 500 rubles. The payback period for the project is 80 days.

Supporting materials

For example, in the appendix are meteorological tables with minimum temperatures over the past 30 years and standards for laying water pipes depending on temperature.

For example, the attachment contains a commercial proposal from a gas equipment supplier, safety certificates, data on current fuel costs, materials confirming gas consumption per 100 km.

Objections. Protection

According to the first example, there may be objections:

• The water supply has been in use for three years and has not frozen.
• High cost of laying water pipes.

According to the second example, there may be objections:

• Gas equipment is unstable at low ambient temperatures
• Lack of gas filling stations along the route of cars.
• Less security.

In the justification, we provide explanations on these objections:

First example

• Over the past three years there have been relatively warm winters. But relatively warm periods are always replaced by extremely cold ones.
• A complete relocation is not required. It is possible to equip the water supply system with an automatic periodic flow of water to prevent freezing.

Second example

• It is planned to install equipment that involves switching between petrol and gas. At low temperatures, starting and warming up will be carried out on gasoline.
• A gas filling station is located 10 kilometers away from the route. Refueling will be required every 200 kilometers, that is, the route will lengthen by 20 km (to the refueling station and back). This is 10%, and the savings are 50%.
• Standards for gas equipment guarantee its safe operation when the requirements are met.

Conclusions. Draft decision

According to the first example. I propose to make a decision to install an automatic water supply protection system against freezing.

According to the second example. I propose to make a decision to convert the vehicle fleet to gas.

Alternative options

In conclusion, it is sometimes useful to consider alternative options to show that they have been analyzed and to indicate the advantages of the chosen solution over the alternatives.

Certain types of justifications

There are some standard types of justification. They differ in the considerations on which decisions are made and in what is justified.

The work carried out by our specialists will allow you to look at your project from the point of view of its real effectiveness and prospects.

It often happens that a promising project, which is capable of bringing good profits to investors, is simply not noticed and not implemented. What comes between an entrepreneur and an investor? Daydreaming, outdated views on the market and facts that are not supported by arguments, or something else?

Feasibility study: the key to success

A business feasibility study is what it sounds like: a systematic study to understand whether a particular project, venture or approach is possible. You either move forward or you don't. Keys to a successful feasibility study include.

Typical questions asked in a feasibility study

This usually requires a primary and a secondary to understand whether clients are buying or whether investors will invest. The project, undertaking, or approach must be sufficiently well defined to test specific hypotheses. Without detailed characteristics of a product or service, nothing can really be determined to any degree of certainty. Research must be - not pure speculation or abstract theory. . Here are some examples of the types of questions we consider in a typical feasibility study.

The answer is very close, ineffective business planning is to blame. To do everything correctly, you need to develop a feasibility study.

A feasibility study, abbreviated as feasibility study, is an analysis, assessment and calculation of the economic feasibility of implementing a project for creating an enterprise, reconstructing and modernizing existing facilities, constructing or constructing a new technical facility. It is based on a comparison of the assessment of results and costs, determining the effectiveness of application and the period over which the investment pays off. These may be third-party investments.

What is a feasibility study for a project?

Are there benchmarks or obstacles that need to be surpassed? for a successful solution? Are there imminent market risks or environmental risks? What is the best way to soften them? What data is available internally and externally? What is the quality and reliability of the data?

It is also necessary to confirm the feasibility of choosing a new production technology, processes, and equipment. Most often this is suitable for already existing enterprises.

Feasibility study is necessary for every investor. During its development, a sequence of work is carried out to analyze and study all components of the investment project and calculate the time frame for returning the invested funds.

Why conduct a feasibility study?

The most common reason is to limit your losses. For example, suppose a company is considering developing and launching an expensive new product. Research and development costs can cost millions of dollars, and launch will cost even more. If a feasibility study indicates a very low probability of success, it would be much cheaper to invest in the feasibility study and kill the project than it would be to go ahead without studying it and see the project fail.

The difference between a feasibility study and a business plan

Often they do not distinguish between a business plan and a feasibility study. The main difference between their structures is that in the second there is almost no description of the company and product, market analysis, risk analysis and marketing strategy - the most important aspect in the business plan. You can read more about the marketing strategy in the article “Marketing Plan”. This abbreviated structure is due to the fact that it is written for projects introducing new processes, technologies and equipment to existing enterprises. The feasibility study provides information on the reasons for choosing certain solutions, processes and technologies, and economic calculations of the effectiveness of their implementation.

Whether the study results are positive or negative, a feasibility study can help entrepreneurs and managers better understand which aspects of a project are of greatest strategic importance to the success of the venture. If the feasibility study is negative, the results may still reveal a previously unknown market opportunity and thus help create the basis for some other successful commercialization of the product or service.

Types of Market Feasibility Study

If the feasibility study is positive, the results should provide useful information and guidance for the project as it moves forward in the commercialization process. Different feasibility study companies have different advantages. We study and analyze market factors such as demographics, demand, market capacity, competition, regulation, cultural issues, etc. Here are some examples of the types of feasibility studies we do.

So, we can say that a feasibility study has a specific character compared to a business plan, and is narrower.

Why do you need a feasibility study?

A correctly compiled feasibility study will allow you to see the effectiveness of investments in the development of new or refinement of the company’s previous activities, whether the enterprise needs a merger or acquisition, and whether there is a need for lending. The feasibility study also helps to select the necessary equipment, select and implement suitable production technologies, and correctly organize the company’s activities.

New products and services new business methods or approaches new enterprises new technologies restaurants hotels apartments complexes schools and other educational projects development and tourism projects. We have alliance partners in construction, architecture, strategic planning, marketing, technology and other areas that we can bring to the completion of any size project.

If you are looking for companies that do feasibility studies, please set up a free initial consultation! Wouldn't it be nice to learn from others' mistakes so you can avoid repeating them? That's when conducting feasibility studies.

The package of documents that must be submitted to the bank for loan approval must include a feasibility study. In this case, the feasibility study shows the profitability of providing a loan, an increase in the level of activity due to lending, and, of course, a guarantee of repayment of the loan to the bank. Before taking out a loan from a bank, we advise you to read the article Sources of business financing, which describes the advantages of two main types of business financing - lending and finding an investor.

Unbridled enthusiasm is a wonderful thing. But when it comes to starting or growing a business, it can also be very expensive. Now to set up your free initial consultation. Feasibility studies are the basis of any major product or investment. Read our top 10 techno-economic mistakes that can doom a business from the start. An independent point of view provides a fresh perspective on risk assessment and chances of success. . First floor partners.

Feasibility study and business plan: so what are the differences?

“The strategy is always better than yours, you haven’t thought about it yet.” “Tactics without strategy is the noise before defeat.” “What good is work if you are not on the right track?” Planning is an unnatural process; it is much more interesting to do something. The best part about not planning is that failure comes as a complete surprise rather than preceded by a period of anxiety and depression.

Development of feasibility study

Development of a feasibility study is needed in the following cases:

• when company management needs justification for choosing new equipment;
• when company management needs an explanation for a decision to modify production technology.

To develop a feasibility study, you will need the holistic work of a group of specialists - lawyers, financiers, economists, etc.

“Change is inevitable, growth is intentional.” “Chaos in the world creates anxiety, but it also provides an opportunity for creativity and growth.” “The innovation point is a key moment when talented and motivated people seek the opportunity to act on their ideas and dreams.”

A fool with a plan is better than a genius without a plan. Boone Pickens. The general consensus of the board was that we had nothing to lose by doing a feasibility study. This will give us data, not just feelings and something. “It is impossible to say when until the feasibility study is completed.”

When developing a feasibility study, consider the following points:

1. General information about future work. Brief description of the area of ​​activity of the project, its participants and location, analysis of supply and demand, main buyers of products, main competitors. Important parameters are prescribed: product range and type, company volume.
2. Capital expenditures. An estimate of one-time expenses necessary to implement the decisions made is depicted.
3. Annual costs. The estimate of operating costs with distribution by item is shown.
4. Manufacturing program. It consists of a description of all types of products that are supposed to be provided within the limits of these works, indicating the volume of production and selling prices. Price indicators are also justified here.
5. Financing. This item is very similar to the financial plan of a business plan, but it also has its differences. Financing scheme indicating sources of loan funds, terms of use and repayment terms.
6. Assessing the rationality of implementing the proposed option. Based on the initial data suitable for economic assessment, the main economic indicators are calculated, which will allow one to calculate the rationality of the project.
7. Calculation part. Prescribes important calculation materials - balance sheet forecast and financial flow patterns.

Feasibility study structure

“You can observe a lot just by watching.” The quieter you go, the further you'll get. "Watch the turtle: he's only progressing with his neck." Michael Jordan. “Measure what is measurable and measure what is not.” "You have to be careful if you don't know where you're going, because you can't get there."

Difference from a business plan

Every great dream begins with a dreamer. Always remember, you have within you the strength, patience and passion to reach for the stars to change the world. Designed to determine the feasibility and practicality of a strategy, design, product, or process. The following are illustrative examples.

Again, compared to the structure of a business plan, which has clearly defined sections and points, the structure of a feasibility study can fluctuate between several variations. The options may differ in that each of them deals with different problems.

If we focus on the UNIDO methodology, then the structure of the feasibility study will look something like this:

As the name suggests, a feasibility study is used to determine the viability of an idea, such as ensuring that the project is legally and technically feasible as well as economically feasible. This tells us whether the project is worth investing in - in some cases the project may not be feasible. There can be many reasons for this, including requiring too many resources, which not only prevents those resources from completing other resources, but can also cost more than the organization would earn by taking on a project that is not profitable.

1. Summary. A brief description of the main issues in the content of all chapters.
2. History and position of the project.
3. Market analysis and marketing concept.
4. Material resources. The raw materials and resources needed for production, the approximate needs for the same resources and raw materials, the situation with their supply. If there is no money to sell your business, start looking for it. Read about where to get funds to open and expand a business in another article.
5. Location, site and environment. Preliminary selection of location, including calculation of the cost of renting premises or land.
6. Design and engineering work. Early determination of the scale of work, as well as civil engineering facilities, production technology and equipment that are needed for the normal operation of the company.
7. Organization and overhead costs. Approximate organizational structure, estimated overhead costs. It's something like an organizational plan.
8. Human resources. Estimated resource requirements by worker category.
9. Calendar implementation of decisions made. Approximate project implementation schedule.
10. Investments and financial analysis

A feasibility study can subsequently serve as the basis for developing a business plan.

Five areas of project feasibility

As a rule, such studies precede technical development and implementation of the project. A feasibility study evaluates a project's potential for success; therefore, perceived objectivity is an important factor in research credibility for potential investors and lending institutions. There are five types of feasibility studies - the individual areas that are studied by a feasibility study, described below.

Technical Feasibility - This assessment focuses on the technical resources available to the organization. This helps organizations determine whether technical resources are matched to capacity and whether the technical team can transform ideas into working systems. Technical feasibility also includes an assessment of the hardware, software, and other technological requirements of the proposed system.

Methodology for compiling a feasibility study.

When compiling a feasibility study, the following sequence of thematic parts is allowed:

• initial data, information about the market sector,
• existing business opportunities of the enterprise,
• sources of raw materials, material factors for business development,
• capital costs expected to achieve the goal,
• operating costs during project implementation,
• production plan,
• financial policy and financial component of the project,
• general information about the future project.

In general, the feasibility study provides a description of the industry in which the enterprise operates, and provides a rationale for the choice of territorial and geographical location of the existing and proposed business, as well as describes the type of products produced. Here it is necessary to describe and justify prices for manufactured products. At the same time, the financial part of the feasibility study contains information about sources of financing and debt repayment terms, conditions for the use of borrowed funds.

It also serves as an independent assessment of the project and enhances the credibility of the project by helping decision makers determine the positive economic benefits to the organization that the proposed project will provide. Legal Feasibility - This assessment examines whether any aspect of the proposed project conflicts with legal requirements, such as zoning laws, data privacy practices, or social media laws. Let's say an organization wants to build a new office building in a certain location.

Feasibility study - what is it and how does it differ from other similar documents

A feasibility study may reveal that the organization's ideal location is not zoned for this type of business. This organization just saved a lot of time and effort by learning that their project was not feasible to begin with. Operational Feasibility - This assessment involves conducting a study to analyze and determine how well and to what extent the organization's needs are met by completing the project. Operational feasibility studies also analyze how the project plan satisfies the requirements identified during the requirements analysis phase of system development.

Calculations in a feasibility study consist of tables that represent movement and balance.

This structure of the feasibility study may not be the only correct one and may vary depending on the specific project. Also, it can be expanded for large and complex business projects.

In modern business and office work, the terms business plan and feasibility study have firmly entered the vocabulary of entrepreneurs and economists, but there is still no clear division of such concepts. The material attempts to highlight the similarities and differences between a business plan and a business feasibility study.

Planning Feasibility Study - This assessment is most critical to the success of the project; after all, the project will fail if it is not completed on time. In planned planning, the organization estimates how long it will take to complete the project.

Benefits of conducting a feasibility study

Once these areas have been considered, the feasibility study helps identify any constraints that the proposed project may face, including. The importance of a feasibility study is based on the organizational desire to “get it right” before committing resources, time or budget. A feasibility study can reveal new ideas that can completely change the scope of the project. It's better to make these determinations up front rather than jumping in and learning that the project just won't work.

Theorists suggest that a feasibility study is the result of a variety of studies, both economic and marketing research. But at the same time, a conclusion is made about the feasibility of the project, and a range of economic, organizational and other proposed solutions for optimizing the production process is determined. At the same time, a feasibility study is often an integral part of a business plan.

Conducting a feasibility study is always beneficial for a project as it gives you and other stakeholders a clear picture of the proposed project. Below are some of the main benefits of conducting a feasibility study.

In what cases is a feasibility study of a project necessary?

In addition to the feasibility study approaches listed above, some projects also require analysis of other constraints. Internal limitations of the project: technical, technological, budgetary, resource, etc. internal corporate restrictions: financial, marketing, export, etc. external constraints: logistics, environment, laws and regulations, etc.

At the same time, there is an opinion that a feasibility study, to some extent, is either an abbreviated version of a business plan, or, on the contrary, it is a regular business plan, which is called a feasibility study.

It should be noted that if the procedure for drawing up and the structure of a business plan are clearly spelled out, then when drawing up a feasibility study you can find several different writing options, which differ depending on the problems being considered.

There are the following options for feasibility studies in practice:

Example No. 1

1. The real state of the enterprise;
2. Market analysis and assessment of the production capacity of the enterprise;
3. Technical documentation;
4. State of affairs with labor resources;
5. Organizational and overhead costs of the enterprise;
6. Estimation of project duration;
7. Analysis of the financial attractiveness and economic feasibility of the project.

Example No. 2

1. The essence of the proposed project, presentation of the basics of the project and the principles of its implementation;
2. A short overview of the market, a presentation of the results of various studies in order to study the demand for a new service or product;
3. Technological and engineering aspects of the project:

a) description of the production process;
b) evidence of the need to purchase new equipment or modernize old equipment;
c) comparison of the new product with current quality standards;
d) review of the strengths and weaknesses of a new product or service;

4. Financial and economic indicators, including:

a) expected and necessary investments in the project;
b) expected internal and external financial sources;
c) production costs;

5. Assessing the effectiveness and payback of the promoted project, guaranteeing the repayment of external borrowings;
6. The sensitivity of the proposed new product or service to existing risks in the markets, as well as resistance to possible risks in the future;
7. General assessment of the effectiveness of possible external borrowing.

Example No. 3

1. A summary of all the main provisions of the feasibility study;
2. Conditions for implementing a new project (who owns the authorship of the project, source material for the project, what preparatory activities and research have already been carried out, etc.);
3. Analysis of proposed sales markets, review of the production capabilities of the enterprise, as well as calculation of the peak capabilities of the enterprise and a number of other factors;
4. This section reflects everything related to ensuring production (necessary inventories and production resources), analysis of existing contractors and possible suppliers, analysis of possible costs for various production factors;
5. The section is devoted to the territorial location of the enterprise and the costs associated with this position (approximate estimate of where the enterprise will be located, preliminary calculations associated with paying for the rent of a site for production or office space);
6. Design and project documentation (assessment of necessary technologies for a new project, assessment of additional auxiliary facilities, without which production would be impossible;
7. Organizational and other additional costs associated with the new project (calculation of additional costs, as well as an outline of the expected structure of future production);
8. Analysis of labor resources for a future project (assessment of human resources that will be needed to launch a new project). The estimated number of workers and maintenance personnel and the required number of engineering and technical workers are indicated. In addition, it is indicated whether only local workers or non-resident (foreign) specialists will be involved. The same section indicates calculated labor costs, taxes associated with wages and a number of other points;
9. Progress schedule for the presented project;
10. General assessment of the economic and financial viability of the planned project.

Note that many of the examples of feasibility studies given, especially the last example, resemble a detailed business plan. There is a fine line between a feasibility study and a business plan, and this leads to the fact that with a high degree of confidence we can say that if you are required to provide a feasibility study for a project, you can safely draw up a detailed business plan, while leaving unnecessary disputes - theorists of economic science, but it’s better to get down to business.

Approximate composition of a feasibility study (TES)

1. Table of contents or structure. Brief description of the document chapters.
2. General description of the project, introductory information about the project. Information about studies that have been carried out in advance, an assessment of the necessary investments.
3. Description of the market and production. Assessment of demand and forecast of future sales, description of the enterprise's capacity.
4. Raw materials and resources. Calculation of the required volumes of material resources, forecast and description of the supply of resources to the enterprise, analysis of prices for them.
5. Selecting the location of the enterprise (enterprise facilities). Justification for choosing a location and assessment of the cost of renting a room or site.
6. Project documentation. Description of the production technology for future products, characteristics of the necessary equipment, additional buildings.
7. Organizational structure of the enterprise. Description of the enterprise organization and overhead costs.
8. Labor resources. Assessment of the need for labor resources divided into categories (workers, employees, top managers, executives, etc.). Estimating salary costs.
9. Timing of the project. Project schedule, cost estimate, trench sizes, etc.
10. Economic calculations. Estimation of investment costs, production costs, financial assessment of the project.

The difference between a feasibility study and an Investment Memorandum.

When conducting research in the field of marketing, the task of which was to identify consumer preferences in the market of consulting services, the need for writing investment memoranda and business plans was also identified. In the course of the analysis of surveys, questionnaires, and written requests, we can conclude that in the modern Russian market of business services, there is some uncertainty regarding the definitions and interpretations of a number of related concepts, such as: investment memorandum, feasibility study and business plan. Let us give an explanation of the frequency of the birth of these economic documents.

Before the appearance of the investment memorandum, a feasibility study or feasibility study is created - this is the basis for determining the need for financial investments. A feasibility study is a document, usually created by leading financial managers of companies. The purpose of a feasibility study is to determine whether a given financial investment is promising and capable of bringing financial benefits. When creating an investment memorandum, they essentially pursue the same thing, but the investment memorandum is created for investors.

Having created a feasibility study, they move on to drawing up a more thorough document, which determines how the newly created product or project will behave in the conditions of the existing market. And also, what impact will existing competitive factors in the market, as well as current and future risks, have on the planned project. This kind of document is called a business plan.
While working with a business plan, as a rule, the costs of a commercial structure begin to increase, associated with the need to work in the field of research in the field of marketing. Such studies aim to determine how well the assumptions set out in the feasibility study will correspond to the data that will be obtained during these studies. If these studies lead to the fact that if the data, assumptions and proposals of the feasibility study are confirmed during marketing research, then the project has the right to qualify for funding. Financial calculations later form the basis of the investment memorandum.

The birth stage of a new enterprise is extremely important for financial managers. At this stage, the definition and formation of the enterprise's policy begins, information begins to arrive that provides real information about the possible sides and speeds of development.

What is the difference between an investment memorandum and a feasibility study?.

In the course of assessing the current situation of the enterprise, as well as possible future risks, a document called the “Investment Memorandum” is developed. The main purpose of the investment memorandum is to attract, if necessary, external financing to the existing project.

Most often, an investment memorandum is formed by a consulting company on the basis of a business plan and differs from it in that it includes information of an investment nature.

At this stage, the financiers of the enterprise must constantly monitor the state of the market. The purpose of such work is to monitor competing structures, identify new opportunities in existing markets and find possible new niches for development.

In this case, the main task comes down to calculating and identifying the stage of development when the enterprise will need financial investments, writing an investment memorandum and attracting strategic investments in its project. And in addition, financial managers must determine and calculate the amount of necessary financial investments into the project. The period when financial managers of an enterprise begin to work out various development scenarios is the initial period when drawing up an investment memorandum. Various scenarios for the development of events are identified. Pessimistic scenario (all possible consequences of insufficient financing and associated profitability indicators and business risks are calculated). An optimistic scenario where it is necessary to reflect economic indicators with sufficient funding.

Feasibility Study (TES)

A feasibility study (feasibility study) is a study of the economic profitability, analysis and calculation of the economic indicators of the created investment project. The purpose of the project may be the creation of a technical facility or the construction or reconstruction of an existing building.

The main task in drawing up a feasibility study is to assess the costs of an investment project and its results, and analyze the payback period of the project.

It is necessary for the entrepreneur himself to draw up a feasibility study to understand what to expect from the project, and for an investor, a feasibility study of an entrepreneur requesting investment is necessary to understand the payback period for the money invested. The development of a feasibility study can be entrusted to a group of specialists (in complex projects), or it can be compiled independently by an entrepreneur.

What are the main differences between a feasibility study and a business plan?

Typically, a feasibility study is compiled for new projects at an existing enterprise, so blocks such as marketing research, market analysis, description of the enterprise and product are not described in such feasibility studies.

But sometimes a situation arises and additionally the feasibility study provides detailed data on the analysis of technologies and equipment and the reasons for their choice.

Thus, a Feasibility Study (TES) is a shorter and more substantive document than a full-fledged business plan.

Methodology for compiling a feasibility study.

When compiling a feasibility study, the following sequence of thematic parts is allowed: - initial data, information about the market sector, - existing opportunities for the existing business of the enterprise, - sources of raw materials, material factors for business development, - capital costs expected to achieve the goal, - operating costs during the implementation of the project , - production plan, - financial policy and financial component of the project, - general information about the future project.

In modern business and office work, the terms business plan and feasibility study have firmly entered the vocabulary of entrepreneurs and economists, but there is still no clear division of such concepts. The material attempts to highlight the similarities and differences between a business plan and a business feasibility study.

Theorists suggest that a feasibility study is the result of a variety of studies, both economic and marketing research. But at the same time, a conclusion is made about the feasibility of the project, and a range of economic, organizational and other proposed solutions for optimizing the production process is determined. At the same time, a feasibility study is often an integral part of a business plan.

At the same time, there is an opinion that a feasibility study, to some extent, is either an abbreviated version of a business plan, or, on the contrary, it is a regular business plan, which is called a feasibility study.

It should be noted that if the procedure for drawing up and the structure of a business plan are clearly spelled out, then when drawing up a feasibility study you can find several different writing options, which differ depending on the problems being considered.

There are the following options for feasibility studies in practice:

Example No. 1

1. the real state of the enterprise; 2. market analysis and assessment of the production capacity of the enterprise; 3. technical documentation; 4. situation with labor resources; 5. organizational and overhead costs of the enterprise; 6. estimation of project duration; 7. analysis of the financial attractiveness and economic feasibility of the project.

Example No. 2

1. the essence of the proposed project, presentation of the basics of the project and the principles of its implementation; 2. a short overview of the market, a presentation of the results of various studies in order to study the demand for a new service or product; 3. technological and engineering aspects of the project: a) description of the production process; b) evidence of the need to purchase new equipment or modernize old equipment; c) comparison of the new product with current quality standards; d) review of the strengths and weaknesses of a new product or service; 4. financial and economic indicators, including: a) expected and necessary investments in the project; b) expected internal and external financial sources; c) production costs; 5. assessment of the effectiveness and payback of the promoted project, guarantee of repayment of external borrowings; 6. susceptibility of the proposed new product or service to existing risks in the markets, as well as resistance to possible risks in the future; 7. general assessment of the effectiveness of possible external borrowing.

Example No. 3

1. a summary of all the main provisions of the feasibility study; 2. conditions for implementing a new project (who owns the authorship of the project, source material for the project, what preparatory activities and research have already been carried out, etc.); 3. analysis of proposed sales markets, review of the production capabilities of the enterprise, as well as calculation of the peak capabilities of the enterprise and a number of other factors; 4. This section reflects everything related to ensuring production (necessary inventories and production resources), analysis of existing contractors and possible suppliers, analysis of possible costs for various production factors; 5.section is devoted to the territorial location of the enterprise and the costs associated with this position (approximate estimate of where the enterprise will be located, preliminary calculations associated with paying for the rent of a site for production or office space); 6. design and project documentation (assessment of the necessary technologies for the new project, assessment of additional auxiliary facilities, without which production will be impossible; 7. organizational and other additional costs associated with the new project (calculation of additional costs, as well as an outline of the expected structure of the future production); 8. analysis of labor resources for the future project (estimate of the human resources that will be needed to launch a new project). The estimated number of workers and maintenance personnel, the required number of engineering and technical workers are also indicated. , or non-resident (foreign) specialists. The same section indicates the calculated costs of labor, taxes associated with wages and a number of other points;

Methodology for compiling a feasibility study (TES)

2. General description of the project, introductory information about the project. Information about studies that have been carried out in advance, an assessment of the necessary investments. 3. Description of the market and production. Assessment of demand and forecast of future sales, description of the enterprise's capacity. 4. Raw materials and resources. Calculation of the required volumes of material resources, forecast and description of the supply of resources to the enterprise, analysis of prices for them. 5. Selecting the location of the enterprise (enterprise facilities). Justification for choosing a location and assessment of the cost of renting a room or site. 6. Project documentation. Description of the production technology for future products, characteristics of the necessary equipment, additional buildings. 7. Organizational structure of the enterprise. Description of the enterprise organization and overhead costs. 8. Labor resources. Assessment of the need for labor resources divided into categories (workers, employees, top managers, executives, etc.). Estimating salary costs. 9. Timing of the project. Project schedule, cost estimates, trench sizes, etc. 10. Economic calculations. Estimation of investment costs, production costs, financial assessment of the project.

The difference between a feasibility study and an Investment Memorandum.

When conducting research in the field of marketing, the task of which was to identify consumer preferences in the market of consulting services, the need for writing investment memoranda and business plans was also identified. In the course of the analysis of surveys, questionnaires, and written requests, we can conclude that in the modern Russian market of business services, there is some uncertainty regarding the definitions and interpretations of a number of related concepts, such as: investment memorandum, feasibility study and business plan. Let us give an explanation of the frequency of the birth of these economic documents. Before the investment memorandum appears, a feasibility study or feasibility study is created - this is the basis for determining the need for financial investments. A feasibility study is a document, usually created by leading financial managers of companies. The purpose of a feasibility study is to determine whether a given financial investment is promising and capable of bringing financial benefits. When creating an investment memorandum, they essentially pursue the same thing, but the investment memorandum is created for investors.

What is the difference between an investment memorandum and a feasibility study?.

In the course of assessing the current situation of the enterprise, as well as possible future risks, a document called the “Investment Memorandum” is developed. The main purpose of the investment memorandum is to attract, if necessary, external financing to the existing project.

Most often, an investment memorandum is formed by a consulting company on the basis of a business plan and differs from it in that it includes information of an investment nature. At this stage, the financiers of the enterprise must constantly monitor the state of the market. The purpose of such work is to monitor competing structures, identify new opportunities in existing markets and find possible new niches for development.

In this case, the main task comes down to calculating and identifying the stage of development when the enterprise will need financial investments, writing an investment memorandum and attracting strategic investments in its project. And in addition, financial managers must determine and calculate the amount of necessary financial investments into the project. The period when financial managers of an enterprise begin to work out various development scenarios is the initial period when drawing up an investment memorandum. Various scenarios for the development of events are identified. Pessimistic scenario (all possible consequences of insufficient financing and associated profitability indicators and business risks are calculated). An optimistic scenario where it is necessary to reflect economic indicators with sufficient funding.