Key takeaways
- A feasibility study is an objective analysis of whether a proposed project, such as a new facility, service line, acquisition or business, is viable before significant capital is committed.
- Strong studies address market, operational, financial, legal/regulatory and organizational feasibility, and they test assumptions under multiple scenarios.
- Lenders, investors, boards and regulators often require a feasibility study, and they expect it to be independent and well-supported.
- The most valuable output is not a “yes” or “no,” but a clear understanding of what must be true for the project to succeed, and what could cause it to fail.
- A study that only confirms what management hopes to hear is not a feasibility study. It’s a sales document.
Every year, organizations commit millions of dollars to projects that seemed like great ideas: a second location, a new outpatient clinic, a manufacturing line, a senior living community, a restaurant concept. Some succeed beyond expectations. Others struggle for years or fail outright, often for reasons that could have been identified in advance.
A feasibility study is the discipline of asking hard questions before committing capital. This guide explains what a feasibility study includes, how to conduct one, and what lenders and investors look for.
What is a feasibility study?
A feasibility study evaluates whether a proposed venture is likely to be successful given market conditions, operational requirements, financial projections, regulatory constraints and the organization’s capabilities.
It answers questions like: – Is there enough demand at a price that covers costs? – Can we deliver the product or service at the required quality and scale? – Will the project generate an acceptable return on the capital invested? – What regulatory approvals are required, and how long will they take? – Do we have the people, systems and financing to execute? – What are the key risks, and how sensitive are results to them?
A feasibility study is different from a business plan. The feasibility study determines whether to proceed; the business plan explains how to execute once the decision is made. Foxboro also provides business plan development for that next step.
When you need a feasibility study
- Expanding to a new location or market;
- Launching a new product, service line or business;
- Building or renovating a major facility;
- Acquiring a business or entering a joint venture;
- Applying for financing, including bank, SBA, bond or USDA financing;
- Raising capital from investors (see our offering memorandum guide);
- Seeking regulatory approval, such as Massachusetts Determination of Need (DoN) approval or certificate-of-need processes in other states for certain healthcare projects; and
- Evaluating whether to continue, restructure or exit an underperforming operation.
The five components of a feasibility study
1. Market feasibility
This is often the most important, and most frequently underestimated, part of the study.
Questions to answer: – Who are the target customers, and how many are there in the service area? – What is the current and projected demand? – Who are the competitors, and how will they respond? – What pricing will the market support? – What market share is realistic, and how quickly can it be achieved?
Methods: – demographic and economic data analysis; – service area definition (drive times, population, referral patterns); – competitive analysis, including capacity and utilization; – surveys, interviews and focus groups; and – analysis of comparable projects.
For healthcare projects, market analysis often includes population health trends, payer mix, physician supply, referral patterns, use rates by age cohort, and the impact of value-based reimbursement models.
2. Operational (technical) feasibility
Questions to answer: – What facilities, equipment and technology are needed? – What staffing is required, and can it be recruited and retained? – Are there supply chain constraints? – What are the capacity and throughput assumptions? – How long will it take to build, equip and ramp up?
3. Financial feasibility
This translates the market and operational analyses into numbers.
Components: – Capital budget: construction, equipment, technology, pre-opening costs, working capital and contingency. – Revenue projections: volume × price, with realistic ramp-up. – Operating expense projections: fixed and variable costs, including staffing. – Financing structure: debt, equity, grants and their costs. – Projected financial statements: income statement, balance sheet and cash flow, typically for five to ten years. – Return measures: net present value (NPV), internal rate of return (IRR), payback period and debt service coverage ratio (DSCR). – Break-even analysis. – Sensitivity and scenario analysis.
Break-even example
An outpatient imaging center expects: – annual fixed costs (rent, salaried staff, equipment leases, insurance): 1, 200, 000 * * − averagenetrevenueperscan : * *420 – variable cost per scan (supplies, contrast, per-scan fees): $120
Contribution margin per scan = $420 − $120 = $300
Break-even volume = $1,200,000 ÷ $300 = 4,000 scans per year, or about 16 scans per operating day over 250 days.
The study would then test whether market demand, referral relationships and capacity support significantly more than 4,000 scans, and how quickly the center can get there.
Sensitivity analysis
A credible study shows how results change if key assumptions are wrong:
| Assumption | Base case | Downside | Effect to evaluate |
|---|---|---|---|
| Volume | 5,500 scans/yr | 4,400 scans/yr | Margin, DSCR, cash needs |
| Net revenue per scan | $420 | $380 (payer mix shift) | Break-even volume rises |
| Ramp-up period | 18 months | 30 months | Working capital and financing needs |
| Construction cost | $3.0M | $3.6M (+20%) | Return and debt capacity |
The goal is to identify which assumptions matter most and whether the project survives reasonable downside scenarios.
Discount rates used to calculate NPV should reflect the project’s risk. See our article on cost of capital for private companies.
4. Legal and regulatory feasibility
Questions to answer: – What licenses, permits and approvals are required? – Are there zoning or land-use constraints? – What environmental issues exist? – For healthcare: are there Determination of Need / certificate-of-need, licensure, accreditation, Stark Law, Anti-Kickback Statute or reimbursement issues? – How long will approvals take, and what is the risk of denial?
5. Organizational feasibility
Questions to answer: – Does the organization have the leadership and expertise to execute? – Does the project fit the mission and strategy? – Can the organization absorb the financial risk if results fall short? – What partnerships are needed.
Steps to conduct a feasibility study
- Define the project and decision. What exactly is being evaluated, and what decision will the study inform?
- Set criteria for success. Minimum IRR, payback period, DSCR, mission goals.
- Gather data. Market, financial, operational and regulatory information.
- Analyze each component.
- Build the financial model with documented assumptions.
- Test scenarios and sensitivities.
- Identify risks and mitigations.
- Draw conclusions and recommendations, including conditions under which the project is or isn’t feasible.
- Present findings to decision-makers, lenders or regulators.
What lenders and investors look for
- Independence: Studies prepared by an objective third party carry more weight.
- Supported assumptions: Every major assumption should have a source.
- Realistic ramp-up: New projects rarely hit full capacity on day one.
- Downside cases: Lenders want to know the project can service debt if things go wrong.
- Management capability: Who will run it, and what is their track record?
- Clear presentation: An executive summary, transparent model and appendices.
For SBA-financed projects, lenders may also require a business valuation when financing a change of ownership. See our article on SBA business valuations.
Common feasibility study mistakes
- Starting with the answer. Building a study to justify a decision already made.
- Overestimating demand and underestimating competitor response.
- Ignoring ramp-up and the working capital needed to survive it.
- Underestimating capital costs and leaving out contingency.
- Using a single scenario.
- Neglecting regulatory timelines.
- Overlooking staffing constraints, especially in healthcare and skilled trades.
- Failing to define success criteria before the analysis begins.
Frequently asked questions
It depends on scope and complexity. Many studies take several weeks to a few months.
Costs vary with scope, complexity and the amount of primary research required. A study is usually a small fraction of the capital at risk.
Yes, and that can be the most valuable outcome. A good study can also identify changes that would make a project feasible.
Not always, but lenders often require one for large, complex or start-up projects, or projects without operating history.
The bottom line
A feasibility study is an investment in clarity. It replaces optimism with evidence, identifies the assumptions that matter most, and helps decision-makers, lenders and investors commit capital with confidence, or walk away before it’s too late.
Foxboro Consulting Group, Inc. provides independent feasibility consulting for businesses, healthcare organizations and investors. Contact us to discuss your project.
This article is for general informational purposes and does not constitute financial, legal or regulatory advice. Consult qualified advisors regarding your specific project.
