Feasibility study or business plan? The difference, and when you need each

Many project owners confuse a feasibility study with a business plan. They ask for one when they need the other, or hand an investor a document that does not answer the investor's question. The difference is not the format; it is the question each document answers.

Two different questions

A feasibility study answers one question: is this project worth the capital it requires? A business plan assumes the answer is yes and moves on: how will the project be delivered, by whom, and how will it be funded and grown?

That is why the feasibility study comes first. If it shows the project is viable, the business plan is built on its numbers and assumptions.

What a feasibility study contains

A professional feasibility study usually has four connected parts:

• Market study: demand, prevailing prices, competitors and sales channels.
• Technical study: location, capacity, equipment and staffing, and the costs that follow.
• Financial study: a model linking investment and operating costs to revenue and cash flows, with indicators such as NPV, IRR and payback period.
• Sensitivity and risk analysis: what happens to the result if sales fall, costs rise or start-up is delayed?

That last part separates a serious study from a cosmetic one. Investors are not satisfied with a single optimistic scenario; they want to know where the danger point lies.

What a business plan contains

A business plan is written for the people who will help deliver or fund the project. It usually explains:

• The opportunity and business model: what we sell, to whom, and how we make money.
• Market entry, marketing and sales strategy.
• Organisation, team and responsibilities.
• Operating plan and implementation timeline.
• Funding required, how it will be used, and the expected return for partners.

The plan's figures should come from the same financial model as the feasibility study, so the two documents never contradict each other.

When you need each

• You are considering a new project, product line or branch and have not decided yet: you need a feasibility study.
• You have decided to go ahead and are looking for a partner, investor or funding: you need a business plan built on a feasibility study.
• A lender has asked for documents to assess your application: usually both, with a financial model they can adjust.
• You want to align management on goals for the coming years: you need a business plan.

Three common mistakes

1. Starting with the business plan before testing feasibility, so a whole strategy rests on assumptions nobody has checked.
2. Relying on one scenario. A study without sensitivity analysis tells you nothing about risk.
3. Handing over a locked financial model. When investors receive figures whose assumptions they cannot change, their confidence in the whole result drops.