After many years of industry practice (as an operating-executive, and management consultant) and in my part-time involvement in the academe (as a professional-lecturer), I have found out that there still exist prevailing confusions among business-executives, academicians, and students alike on the meaning and usage of the subject terms and phrases. This is an issue which I hope to address in this blog.
Current business literature and practice (mine included) are overwhelmingly in agreement that a Feasibility-Study (FS) and Business-case Analysis (BCA) are both investigative-tool; and that while a Business-Plan (BP) is basically a planning-tool but, if properly-packaged, it can also be used in selling the business-idea to prospective investors.
A. The Investigative Tools: The FS and BCA
Both FS and BCA provides information to organizational leaders that will enable them to make informed decisions on which alternative courses of action (among many) to take for a new initiative or business idea—normally, with the end-in-view of solving particular problems and/ or exploiting identified opportunities.
They both are normally expected to recommend either a GO or NO-GO course of actions to the project proponent; and in some instances, an iteration of the previous steps for possible fine-tuning. Recent trend is the reinforcement of traditional socio-economic evaluation-criteria with the project’s ability to align with the organization’s corporate social responsibilities as expressed in its CSR-policy statements.
- A FS is all about assessing a business idea and is carried out with the aim of finding out the profitability and viability of a business venture, by exploring the various options available, and recommending the best way forward. It is normally filled with calculations, analysis and estimated projections of a business opportunity, among others. It typically focus on a variety of wide-ranging factors that can be basically classified into the project’s marketing, operations, and financial aspects.
- Once the FS’ recommendation will have been approved by concerned Stakeholders, the recommended alternative can now be readily converted into a Business Plan, as will be explained below.
- A BCA, on the other hand, focuses more on the economic-attractiveness of identified courses-of-action —normally, in an ongoing concern setting. It should, at minimum, contain a decision-statement citing specific objective(s), identification of alternatives, estimated cost of implementing each alternative, the corresponding benefits in terms of performance improvement or monetary savings, and the corresponding cost-benefit and/ or investment-returns assessment for each alternative. They are appropriately scaled down/ up depending on the size of the project or potential long term impact.
- Once the BCA’s recommendation will have been approved, the recommended alternative can now be readily incorporated into the appropriate operating and/ or capital expenditures (Capex) budgets of the organization, as may be consented.
B. The Planning Tool: The BP
Having established in the FS that a business opportunity indeed exist, the proposed venture (normally, the most attractive among the alternatives that were evaluated) is now ripe to be pursued further. In other words, the BP will only be prepared after a feasibility study will have been conducted and a specific business-option will have been approved by concerned stakeholders.
The findings and conclusions that were arrived at in the FS will, definitely, require fine-tuning and strengthening of assumptions and data/ information-bases; and explicitly incorporating the necessary functional strategies and tactics into the previous FS-recommendations.
- The BP will, in effect, serve as the initial plan in executing the business idea. It will, later on, be supplemented with subsequent management planning and control actions during project-execution. It must be updated periodically (or if/ when necessary) as General Eisenhower’s famed-dictum will definitely be still applicable i.e., “In preparing for battle, I have always found that plans are useless but planning is indispensable”.
- As a planning tool, a properly updated BP will provide basis for effecting control actions that are necessary to steer the organization towards its preset goals.
- As a selling tool, The BP can be used in helping the entrepreneur/ project-proponent raise the required start-up capital from investors. To be effective, it must be packaged in a clearly-written, brief, concise and presentable BP-report; and must be presented/ delivered to the intended audience in a compelling manner.
The framework below sums-up the major stages in converting a proposed business venture into an execution-able business plan.
Figure 1 – A Framework for Converting a Proposed Business Venture Into a Business Plan
A great deal of unnecessary efforts and resources can be avoided if everyone will stick to the aforementioned convention i.e., do only a FS/ BCA to determine the best course of action (among many) for a business idea or new initiative. Preparing a BP is only justifiable once the FS’ recommendations will have been approved for execution by concerned Stakeholders.