Economic feasibility analysis is the process of determining whether a new venture is worth the cost and time investment. It is also known as cost benefit analysis. This kind of analysis takes into consideration the cost of both developing and operating the new venture. The practice is a way of reducing the risk of trying new ventures. A wide array of factors is considered, and if they show that the idea is cost effective, then it typically will be adopted.
Several kinds of organizations use economic feasibility analysis to make decisions. It is commonly seen in business, government and academic institutions. A study might be conducted to determine whether the costs of adopting a new technology, building a new facility or otherwise investing in a new physical property is feasible. It also can help an organization to decide whether developing a new program, product or service is worth the start-up costs and time.
Some things that might be considered in an economic feasibility analysis include current market conditions, the needs of customers and the historical success of similar ventures. The people making an analysis will also often attempt to determine how much time it would take to achieve the desired results. Overall, an analysis typically will explore whether there is a demand for the things that a new venture would provide, particularly if it is a product or service for sale.
Another factor of an economic feasibility analysis can be determining whether pursuing a new venture will result in cost savings. In some cases, this is the primary purpose of pursuing the project. In this case, many of the same factors will be researched, but a positive end result would not simply show a benefit, but also a reduction in expense.
An economic feasibility analysis is one of five types of commonly conducted studies that are used to weigh the benefits of new ventures, along with a technology and system feasibility analysis, a legal feasibility analysis, an operational feasibility analysis and a schedule feasibility analysis. A technology and system feasibility analysis is used to help an organization decide if it has the technical resources to take on a new venture. A legal feasibility analysis helps determine whether a new venture complies with the law. The purpose of an operational feasibility analysis is to decide whether a new venture is likely to solve the problems that it is meant to address, and a schedule feasibility analysis helps determine whether a project can be completed within the allotted time frame.