Step by Step Guide to Write a Good Feasibility Report?
Developing a feasibility report before initiating the project would be a normal routine in most of the organizations. Against the norms, Project managers become responsible most of the time for this tiring but critical job. Before jumping to the step by step guide to making feasibility report, let’s have a quick look on why feasibility report is required and how it can be beneficial for the project?
Why is Feasibility Report required?
Simply, organizations want to ensure that whether the proposed project will be feasible or not? It might be simple in saying but equally difficult in development when you will be adding cost-benefit analysis of different solutions to meet the project objectives. Yes, there is a math involved in this!
Additionally, an organization can have the estimated idea about the return of investment that describes in detail that when the organization will start receiving returns on investment in the particular project. That can be done through several techniques which will be described later in this post.
Contrarily, it is not always necessary to write a feasibility report for each project. Sometimes a project can be initiated due to non-negotiable reasons such as mandates from authorities, technology advancements, internal process re-engineering and much more.
Step by Step Guide to Write a Good Feasibility Report
Step 1 — Research the Business Need
In most cases, projects are initiated to fill up the business needs by providing either deliverable or service. Before start writing a feasibility study, you will have to find and research on that need. You need to know about everything on that need like expected timeframe, impacts on success or even failure.
For instance, the project can be initiated to fill the technology gap of some functional sections of the company or new product launch. Regardless of business need, you have to go deep down and find every single element behind those requirements to make your understanding plus ownership stronger.
Step 2 — Find Solutions
Now you understand what is a project and what it will deliver at the end. In this step, find solutions to achieve those deliverables. Solutions should be multiple and aligned to solve the business problem with all constraints like time frames, cost, anything else.
For example, if the project is about to fill the technology gap then solutions would include developing new technology in-house or hire some partner to deploy an already developed solution.
Step 3 — Assess Each Solution
You now can perform detail assessment on each solution to find some basic plus critical information like how much cost will be occurred to opt this solution or how long it will take to implement that solution? At the end, each solution assessment must be aligned with business needs which you identified in step 1.
This can be done through several methods of cost and benefit analysis. Few methods are listed and explained in this post, rest you can ask us by contacting us through comments or this link.
Following are the most common methods along with brief application to evaluate each solution:
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Benefit / Cost Ratio (BCR)
- Payback Period (PP)
- Opportunity Cost (OC) and much more…
Net Present Value (NPV)
The NPV of a solution is defined as the difference between present value of cash in and outflow over the project life cycle time. The following formula can be used to calculate NPV.
PV = FV / (1+r) n where PV = Present Value, FV = Future Value, r = interest rate and n = number of accounting periods.
Internal Rate of Return (IRR)
The internal rate of return is defined as the interest rate at which the net present value of a solution equals zero. Mathematics will same as NPV method, you only need to find interest rate where NPV becomes zero. and solution with best interest rate will be a winner.
Benefit Cost Ratio (BCR)
In this method, you will have to express all benefits and all costs in monetary terms of present values at given interest rates. You can consider cash inflows as benefits and cash outflows as cost in the following a formula.
BCR = PV in / PV out
Payback Period (PP)
This method is the simplest one where you have to calculate when a solution will give payback. Following is a formula to calculate payback period.
Payback Period = Total Cash Out / Average Per Period Cost In
There is also another dimension (Math Less) to assess each solution, which can be utilized for quick and more appropriate assessment. Such as conducting online research to other organizations, prototyping and time boxing.
Step 4 — Recommend the Preferred Solution
Now you have all solutions including their cost benefits analysis. Now you have to choose the most recommended solution to enable your management for a quick decision. The recommendation can be based upon lower risks, capabilities to deliver, etc.
If you have followed our guidelines from step 1 to step 4, you must have a good and presentable feasibility report in your hand and will get approval plus appreciation from your management. If you follow another approach to developing feasibility report please share us in following comments section of this post. We can help you out to produce detail oriented feasibility report and might not charge for this.