The main purpose of a feasibility study is the estimation of economic efficiency of development of new or existing businesses. A feasibility study answers the question "Does the idea make economic sense?" This study provides a thorough analysis of business opportunities, including consideration of all possible problems that may become an obstacle on the way to success. The result of this feasibility study shows whether it is worth starting the deal.
A feasibility study should consider three main directives:
- - market;
- - implementation of the project;
- - financial constituent.
If the results of the feasibility study are negative, in other words, show that an investment is not a viable business idea, then it makes no sense to start the project. It is better to know about this before money is spent. Despite the temptation to avoid a feasibility study, it shouldn't be neglected. A feasibility study forces the initiators to put their own ideas on paper and estimate their achievability, profitability, and extent of risk.
A financial model is a mathematic-economic model of business functioning. It can be a part of a business plan, feasibility study, or investment memorandum as well as a separate document. Separation of some factors (assumptions) in the model allows estimating sensibility of work results to the change of the given factors. In the process of modeling, mistakes may be made only on paper. Modeling allows choosing optimal variants of business development and so to find a key road to success.
In case of changes, the model gives a possibility to orient rapidly in these changes, allows understanding the consequences of this and what should be changed urgently. A financial model may also be used as a primary development stage of business accounting. Financial modeling may be used as a separate work as well as a constituent part of a business plan or feasibility study.