Economic feasibility

Economic feasibility
See also


Economic feasibility is a kind of cost-benefit analysis of the examined project, which assesses whether it is possible to implement it. This term means the assessment and analysis of a project's potential to support the decision-making process by objectively and rationally identifying its strengths, weaknesses, opportunities and risks associated with it, the resources that will be needed to implement the project, and an assessment of its chances of success. It consists of market analysis, economic analysis, technical and strategic analysis.

Market analysis[edit]

Market analysis is a set of activities that aim at creating rational premises for making current decisions, which concern market service in all dimensions on the basis of conducted market research. It uses data obtained through market research. This analysis is defined as a momentary registration of the structure of market behavior at a specific time and place.

Economic analysis[edit]

Economic analysis is a method of studying economic processes, which consists in considering the relationships between the various elements of these processes.

It can be used both to study economic phenomena and processes occurring on a scale of the whole economy (macroeconomic analysis), as well as phenomena and processes occurring within particular economic units and institutions (microeconomic analysis). Economic analysis makes it possible to make diagnoses, facilitates decision making, as well as facilitates rationalization of economic processes, both on a macro- and microeconomic scale. In economic analysis, mathematical methods are widely applied (e.g. marginal calculus and linear programming). Analysis is a way of scientific procedure, ordering and dividing the whole into components. The aim of the analysis is to examine the structure of the whole, to get to know the mechanism of connections between the components.

Activities related to the assessment of the company's activity are the subject of economic analysis. In the conditions of changing environment, technological and scientific development, making decisions concerning enterprise management requires fast and reliable information. Therefore, economic analysis and the financial analysis included in it have become particularly important. The economic analysis covers all economic phenomena occurring within the company and in its surroundings. Investigating factors involves dividing economic phenomena and processes into constituent elements, determining the causal-impact relationship between the elements, and drawing conclusions from the assessment.

Technical analysis[edit]

Technical analysis (graph analysis) is a set of techniques aimed at forecasting future prices (exchange rates) of securities, currencies or raw materials based on the analysis of price formation in the past. The purpose of technical analysis is to determine the moments of purchase and sale of a given security, currency or raw material, which are beneficial from the investor's point of view [1]. Forecasts are supported by numerous technical indicators and statistical analysis tools, such as moving average and standard deviation (volatility measure). In particular, data on changes in prices and turnover volumes on the market of a given security, currency or raw material are analysed [2].

Strategic analysis[edit]

Strategic analysis is a set of activities that diagnose and forecast the organisation and its surroundings in a way that results in the formulation of an appropriate strategy and the construction and implementation of a specific strategic plan.

Strategic analysis means the right way of strategic thinking by people and organisations. Such analysis must be comprehensive and use qualitative and quantitative methods in the fields of economics, finance, marketing, econometrics, statistics, psychology, international relations, security and defence.

The final stage of strategic analysis is to define and evaluate the strategic position of the company. Strategic analysis gives us an answer to the question: in what conditions the company will operate in the future and what possibilities it has to adapt to them.

Objective[edit]

Marketing deals with the study of generated ideas about the needs of consumers, which are perceived in the first stage of the process of creating new concepts of services or alternative products. The promising concepts are subject to feasibility studies, which include several types of analyses, starting with market analysis[3]. Most companies have a team of market analysts who create and evaluate consumer research, interviews, target groups, market tests. The market analysis assesses whether there is sufficient demand for the proposed product or whether to invest in further development [4].

Methods[edit]

If there is a potential demand, the next step is economic analysis, which estimates production and development costs, as well as compares them with the expected sales volume[5].The price range for a given product is compatible with the market segment (a separate group of people). Quantitative techniques such as cost/benefit analysis, decision theory, net present value, or internal rate of return are commonly used to assess the potential return on a project. The company estimates the risk of investing in a new product both whether it is able to bear the cost of the risk[6].

The performance list is written for the product concept, after going through a feasibility study, it contains a description of the product's function - what is how the product should satisfy the needs of consumers [7].

References:[edit]

Footnotes[edit]

  1. J. Matson (2000),s. 4-7
  2. J. Matson (2000),s. 4-7
  3. M. Berrie (2008),s. 3-8
  4. M. Berrie (2008),s. 3-8
  5. L. Bentley (2007),s. 417
  6. L. Bentley (2007),s. 417
  7. L. Bentley (2007),s. 417

Author: Nicoletta Krzewińska