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Financial Feasibility Analysis Template

What is a Financial Feasibility Analysis?


an illustration of a book

A financial feasibility analysis is a comprehensive evaluation conducted to determine the viability of a project, investment, or business venture from a financial perspective.

The analysis involves assessing various financial aspects of the proposed project, including initial capital requirements, operating costs, revenue projections, cash flow forecasts, profitability, and return on investment (ROI). 


In short, the goal is to understand whether the project is financially sound and can generate the desired financial returns, considering the associated risks and market conditions.

The larger the project and greater the investment, the more likely some kind of feasibility analysis of the financial aspects will be required. 


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Introduction


Diving into a new project is always an exhilarating experience; bringing something new to life, solving a problem, or tapping into uncharted markets is thrilling.


But with all great ventures comes a crucial question: "Is this financially viable?" This is where I've learned that financial feasibility analysis is essential, but the level of exploration is very project-specific. Sometimes, a simple lean business case will provide the information you need in a nice digestible format for stakeholders, but that decision really depends upon the project.


An example of a lean business canvas
An example of a lean business canvas

Personally, I see financial feasibility analysis as a major part of project planning for medium to large projects. 


One of my most significant failings was on a project where I didn't insist on exploring the financial feasibility of a product going to market. The VP said, "I'm the business case!" to me in a meeting, and that was that… Well, the business case for over a quarter of a million in spend turned out to be zero ROI. The project was delivered, but the product wasn't wanted. So, exploring the return on investment has become non-negotiable for me now on larger investments.


This process has been instrumental in helping me inform and guide executive teams and board members to make informed decisions and, importantly, convince investors that projects are worth their time and money. 


Below, I run through the essence of conducting a financial feasibility analysis, distilled from my experiences and learnings.


To make things less daunting, I've developed a template that simplifies the complexities involved.


What are the components of a Financial Feasibility Analysis?


A robust feasibility analysis encompasses several key components, each critical in evaluating the project's financial landscape. Understanding these components is essential to effectively analyse and interpret the financial viability of your project. They are;

Section

Description

Executive Summary

A concise overview of the project and its financial viability, summarising the main findings of the analysis.

Project Overview

This section outlines the project scope, objectives, and underlying assumptions. It sets the stage for a detailed analysis.

Market Analysis

An assessment of the market conditions, competition, demand, and pricing strategy ensures the project's offerings align with market needs.

Financial Projections

Detailed income, expenses, cash flow, and profitability projections over the project's life. This includes best-case, worst-case, and most-likely scenarios.

Investment Analysis

Evaluation of the required initial investment, funding sources, and return on investment (ROI) calculations.

Risk Analysis

Identification and assessment of potential financial risks and the strategies to mitigate them.

Conclusion and Recommendations

Based on the analysis, this section provides a final assessment of the project's financial feasibility and any recommendations for moving forward.


How to Create a Financial Analysis


Before you jump to completing the template, there’s some background work that you will need to carry out.


Step 1: Identifying the Project Scope and Objectives


Defining the Scope


The project scope acts as your blueprint. It details the what, how, and who - outlining the physical and technical aspects of what needs to be done, how it will be accomplished, and who will be involved. 


For instance, if your project is to launch a new software application, the scope would cover the software's features, the technology stack, the development timeline, and the team's composition. I’d also suggest it explicitly calls out anything that is not in scope, but might otherwise be assumed by a stakeholder that it is. All of this will impact your direct or indirect costs, one-off or recurring.


Defining the scope is like drawing the map for a treasure hunt - It tells you where to start, the landmarks to look for, and the boundaries not to cross. This involves a breakdown of every aspect of the project - from the technical specifications to the intended market. Who are you creating this product for? What needs does it fulfil? What are its key features, and how do they stand out?


Defining scope isn’t unique to creating a financial feasibility analysis; it's part of defining your project and crucial to establish from the outset and potentially refine as you go.


Assumptions and mistakes can cripple a project through uncontrolled cost increases.


Setting Objectives


an arrow on a wall as an illustration of objectives.

Once the scope is crystal clear, the next step is to establish your objectives, and the most common way to do this than by making them SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. But, I like to use Objectives & Key Results (OKRs) to define my objectives. Typically, they are used for setting organisational-level goals, but I find they work well for projects and programmes.


Aligning your financial feasibility analysis with solid objectives provides a strong benchmark for assessment. It's not just about whether the project is feasible in a vacuum; it's about whether it can meet these specific, tangible goals within the set timeframe and other constraints.. 


Clarity and direction are invaluable for keeping the project on track and communicating its vision and value to stakeholders and investors. A well-defined project scope and clear objectives are the first steps toward turning your vision into a viable financial reality.


Step 2: Collecting Relevant Financial Data


Collecting thorough financial data is fundamental to conducting a feasibility analysis. 


This step encompasses acquiring all relevant financial details related to the project. Including, but is not limited to;


  • The initial investment required

  • Ongoing operational costs

  • Expected revenue stream

  • Available financing avenues 

  • Potential incentives or subsidies that could impact the financial landscape of the project.

Ensuring the accuracy and currency of this data is important. Nothing will undermine you and your project quicker at this stage than poor data and incorrect calculations and assumptions.


The reliability of your feasibility analysis hinges on the foundation of up-to-date and precise financial information. This could mean delving into industry reports, leveraging financial models, and seeking insights from seasoned experts in the field (certainly, it’s not a place for a layman to be fumbling about). Such consultations can provide valuable perspectives on prevailing market trends, effective pricing strategies, and established cost benchmarks.


I’ve used external consultants many times, and sometimes ou learn things you’d rather not (such as your product is worthless), and then other times, you’ll gain crucial insights that can save you a lot of time and effort.


This stage is not just about gathering numbers; it's about understanding the financial ecosystem surrounding your project. It's about painting a comprehensive picture of the financial dynamics at play, ensuring that every piece of data contributes to a robust and reliable analysis. 


Step 3: Analyzing the Financial Data


Once we have all the necessary financial data at our fingertips, we move on to analysing the information to gauge the financial viability of our project.


This is where we dive deep into the intricacies of the project's costs and revenues to assess its potential for profitability. We employ key financial indicators such as Net New Recurring Revenue (NNRR),  Net Present Value (NPV), Internal Rate of Return (IRR), and the Payback Period to scrutinise the project's prospective financial returns. Again, dealing with these terms normally requires support from a Product, Financial or Commercial Manager. It’s not something most Project Managers should be doing alone, you wildcard, you.


With support, we conduct a sensitivity analysis, a process that reveals the resilience of our project's financial outcomes to changes in underlying assumptions. This analysis is invaluable as it sheds light on how fluctuations in market conditions, costs, or revenue projections could affect the project's viability.


The analytical phase is indispensable. It uncovers the project's financial strengths and potential vulnerabilities and equips stakeholders with the insights needed to make well-informed decisions. 


Understanding the financial landscape in this detail allows us to navigate uncertainties more confidently and positions the project toward success.


Step 4: Assessing the Financial Viability of the Project


Following the detailed analysis of our financial data, we arrive at a pivotal juncture: evaluating the project's overall financial viability.


This stage is about delving into the findings of our financial scrutiny to discern if our project stands on solid financial ground. 


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The crux of this assessment hinges on several critical factors, including whether the project aligns with our pre-established financial benchmarks—like hitting a specific Return on Investment (ROI)—and its ability to maintain financial health through its lifecycle, as evidenced by forecasted cash flows and profitability.


Moreover, this evaluation often extends to juxtaposing our project with alternative investment opportunities. This comparative analysis ensures that we're channelling our resources into the venture that promises the most significant returns and strategic alignment. 


A comprehensive assessment is instrumental in charting the future course of the project. It offers a lucid perspective on whether to green-light the project, recalibrate its parameters, or, in some cases, step back from the venture altogether, based solely on its financial standing and potential. 


This critical assessment stage ensures that every move is grounded in financial logic and strategic foresight, guiding the project towards its most favourable outcome.


Step 5: Creating a Financial Feasibility Report


The journey of conducting a financial feasibility analysis reaches its zenith with drafting a comprehensive financial feasibility report. 


This document summarises the thorough investigation and analysis undertaken, encapsulating the findings and insights.


It brings all the information gathered together, outlines the project scope, presents the financial data gathered, details the analysis performed, and distils the conclusions drawn about the project's financial health and prospects.


Crafting this report is about weaving together the data, calculations, and strategic insights to present a narrative that resonates with the rationale of our financial assessment. 


This narrative is crucial; it provides stakeholders—the decision-makers, investors, lenders, and other interested parties—with the critical information needed to make well-informed choices regarding the project.


The financial feasibility report is more than a document; it bridges the project's potential with the practical considerations of those who hold its fate in their hands. It articulates, with evidence and reasoned argument, why the project deserves the green light, further investment, or, in some cases, a strategic pivot. 


This analysis is indispensable, serving as a key communication tool that underscores the project's financial viability, ensuring all stakeholders are aligned and informed as they move forward.


Tips for Creating an Effective Financial Feasibility Analysis Template


To ensure that your financial feasibility analysis is both effective and efficient, consider the following tips:


  1. Customize the Template for Your Project

While a template provides a valuable starting point, tailoring it to your project's specific needs and characteristics is important. This may involve adding or removing sections to address the unique aspects of your project better.


  1. Ensure Accuracy in Your Data

The reliability of your financial feasibility analysis hinges on the accuracy of the data you use. Take the time to verify all financial information and consider consulting with financial experts to validate your assumptions.


  1. Consider Multiple Scenarios

Financial conditions can change, so it's wise to analyse several scenarios, including best-case, worst-case, and most likely scenarios. This approach provides a more comprehensive view of the project's potential financial performance under different conditions.


  1. Keep It Readable

While financial analyses can be complex, strive to present your findings clearly and concisely. Use visuals like charts and graphs to illustrate key points and make the data more accessible to non-financial stakeholders.


  1. Review and Revise

Financial feasibility analysis is not a one-time task. Review and update your analysis as new information becomes available or as project conditions change to ensure that your assessment remains relevant and accurate.


How To Complete the Financial Analysis Report


The Financial Feasiblity Analysis Template
The Financial Feasiblity Analysis Template

To complete the Financial Feasibility Analysis Template, follow these steps:


  1. Project Name and Analysis Information: Fill in the project name, who completed the analysis, and the date.

  2. Purpose of This Document: This section explains the document's aim to evaluate the financial viability of projects or investments.

  3. Executive Summary: Provide a concise overview of the project and its financial viability, summarising the main findings.

  4. Project Overview:

  • Scope: Outline what is included in the project.

  • Outside of Scope: Clarify what is explicitly excluded.

  • Objectives and Key Results: List the objectives and their corresponding measurable outcomes.

  1. Assumptions: Summarise key assumptions underlying the project or analysis.

  2. Market Analysis:

  • Market Conditions: Analyse market size, growth, trends, segmentation.

  • Competition: Conduct a competitor analysis and determine your competitive advantage.

  • Demand: Investigate customer needs, forecast demand, and analyse demand elasticity.

  1. Pricing Strategy:

  • Cost Analysis: Detail all costs involved.

  • Pricing Models: Evaluate and choose an appropriate pricing strategy.

  • Price Sensitivity: Assess how price changes could affect demand and market competitiveness.

  1. Financial Projections: Provide detailed income, expenses, cash flow, and profitability projections over the project's life, including different scenarios.

  2. Investment Analysis: Evaluate the required initial investment, funding sources, and ROI calculations.

  3. Risk Analysis: Identify significant financial risks and strategies to mitigate them.

  4. Conclusion and Recommendations: Offer a final assessment of the project's financial feasibility and recommendations.



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About the author

Hi, I'm Alan, and have been working within the IT sector for over 30 years.

For the last 15 years, I've focused on IT Governance, Information Security, Projects and Service Management across various styles of organisations and markets.

I hold a degree in Information Systems, ITIL Expert certificate, PRINCE2 Practitioner and CISMP (Information Security Management).

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