Every now and then one comes across an investment idea that is too good to pass off. Then comes the part of convincing yourself if the idea is viable. If it can be commercially successful and if the money you invest it in is going to work for you. This brings us to the part where one would like to conduct a feasibility of the idea. A feasibility study is a lot more than just a go or no-go decision. While the easiest way to ascertain whether it is a good investment to make is to compare the opportunity cost of capital and the IRR of the investment (or invest in a positive NPV project), feasibility is not so easily determined.
The basic drawback of a quantitative approach is that it assumes you know exactly where and when the investment will give returns and the exact or approximate quantum of the return. In the ideal world this would be more than enough to make your decisions but in a dynamic world like ours, this approach would lead to the most random investment decisions that will have one of two results, either the investment will work for you, or it won’t and there is no way for you to know what the actual outcome will be.
One could argue that even after putting a lot of thought and basing the decision on experience and research one of these outcomes will only present itself however, you can lessen the probability of the negative outcome by a significant margin if you can make intelligent, research based estimates. But are the estimates enough, and can the estimates be made accurately if you do not clearly lay down your plan and then test it against market realities.
This brings us to the most important part of the discussion, what is your strategy, and can your strategy or plan help navigate the uncertainty?
Before we go any further, it is important to note that a feasibility is a lot more than a financial viability. It includes the following aspects that make it more holistic:
What are you going to sell?
How are you going to sell it?
What will you price it at?
Who is going to buy from you?
Are the raw materials readily available?
How will you manage costs?
What is go-to-market plan?
How will you make your customers aware?
How will you ensure that others don’t jump on to the bandwagon as soon as you create the market?
Who is going to help you develop, produce and sell?
How are they going to do it?
Who is going to support them?
What is the tech implication of the plan?
Do the assumptions make sense?
Does the plan make money?
Is the idea sustainable and scalable?
How much will be needed to make this possible?
Where is it going to come from?
Legal and regulatory overview:
Is what you are doing legal?
What are the regulatory requirements, and do you meet them?
This is then a lot more than a quantitative analysis and the market as well as operational aspects require strategic decisions to be made. So, in effect a feasibility is as much a test of whether your strategy works or not and the starting point of a feasibility is the strategy itself. If you do not have these strategic considerations sorted out, it’s time to hit the drawing board again and then testing if it works.
At Falak we look at the importance of such strategic decisions and help our clients navigate the uncertainties that the dynamic environment keeps sending their way.