Why Prepare Feasibility Studies?

Developing any new business venture is difficult. Taking a project from the initial idea through the oper-ational stage is a complex and time-consuming effort. Most ideas, whether a potential cooperative or an investor-owned business, do not develop into an operational entity. When ideas do make it to the operational stage there is a high failure rate (many within the first 6 months). Thus, before potential members invest in a proposed business project, they must determine if it can be economically viable and then they must decide if investment advantages outweigh the risks involved-a feasibility study is the means by which these decisions are made. Without feasibility studies the percentage of startups that fail would be higher.

Many cooperative business development projects are fairly expensive undertakings that can also be confusing to potential members. Proposed cooperatives often involve operations that substantially differ from those of the members' individual businesses, and cooperative operations may involve risks with which the members are unfamiliar-another reason that a feasibility study is so important. It should provide a clear understanding of project risk to help members decide whether to invest in the proposed business.

Members participate in the development of the feasibility study and thus are educated about various aspects of the project, which will help them decide whether to move to the implementation stage. In addition, this knowledge helps prepare members of the steering committee to become the board of directors, as often happens if the project is implemented.

While the costs of conducting a study may seem high to the potential members, they are relatively minor when compared with the total project investment that will be required. The expenditure for a feasibility study is actually inconsequential if it saves an unprofitable venture from going forward, thus preventing the larger capital investment needed to start most new businesses, as well as the time and effort involved, from taking place. And if the study shows that a project is indeed feasible, it provides the group with some concrete useful data that can be used in subsequent business plans and projections.

Feasibility studies are useful and valid for many kinds of business development projects. Evaluation of whether to start a new business, by either new groups or established businesses, is the most common, but not the only usage. Studies can help groups decide to expand existing services, build or remodel facilities, change methods of operation, add new products, or even merge with another business. A feasibility study assists decision-makers whenever they need to consider alternative development opportunities.

Feasibility studies permit planners to outline their ideas on paper before implementing them. This can reveal errors in project design before implementation is made. Potential stumbling blocks can be identified and decisions made about whether they could be effectively addressed if the project goes forward. Applying the knowledge gained from a feasibility study can significantly lower overall project costs by keeping adverse designs and planning concepts from being made.

A feasibility study presents and clarifies the risks and returns associated with the project so that prospective members can evaluate them. There is no "magic number" or correct rate of return a proposed cooperative needs to obtain before a group decides to proceed. The acceptable level of return and appropriate risk rate will vary for individual members depending on their respective personal situations and need for the proposed services of the cooperative.