Introduction
A feasibility study is a comprehensive document that evaluates your project's viability. Understanding how to read and interpret it is crucial for making informed decisions about your outdoor hospitality development.
This guide walks you through each section of a feasibility study, explains what to look for, and helps you extract actionable insights from the analysis. Whether you're a developer, investor, or lender, this guide will help you understand feasibility studies effectively.
For a complete overview of feasibility studies, see our Feasibility Studies Complete Guide.
Start with the Executive Summary
The executive summary is your starting point. It provides a high-level overview of the study's findings and recommendations. Here's what to look for:
Key Findings
The executive summary should clearly state whether the project is viable, the main opportunities, and primary risks. Look for:
- Overall project viability assessment
- Key market opportunities
- Primary risk factors
- Financial projections summary
- Strategic recommendations
Recommendations
The summary should outline the main recommendations for moving forward. Pay attention to whether the recommendations are supportive, conditional, or cautionary.
Bottom Line
Understand the "go/no-go" recommendation and the reasoning behind it. Even if the study recommends proceeding, note any conditions or concerns mentioned.
Understanding Market Analysis
The market analysis section provides context for all financial projections. It examines demand drivers, market trends, and the overall market environment.
Demand Drivers
Identify what's creating demand in your market. Is it population growth, tourism trends, outdoor recreation growth, or other factors? Understanding demand drivers helps validate revenue projections.
Market Trends
Review the trends discussed. Are they positive, negative, or mixed? How do they support or challenge your project concept?
Target Market
Understand who your target customers are. Does the analysis align with your vision? Are there opportunities to refine your target market?
Market Size
Assess whether the market size analysis supports your project scale. Is the market large enough to support your proposed property?
Reading Financial Projections
Financial projections are the heart of a feasibility study. Here's how to evaluate them:
Revenue Projections
Examine revenue projections carefully. Key questions:
- Are they based on realistic occupancy rates?
- Do ADR assumptions align with competitive properties?
- Are revenue sources clearly explained?
- Do projections account for seasonality?
Operating Expenses
Review expense assumptions:
- Are expense ratios appropriate for your property type?
- Do they align with industry benchmarks?
- Are all major expense categories included?
Cash Flow
Understand the cash flow projections:
- When does the project become cash flow positive?
- Are there seasonal cash flow variations?
- What are the peak cash flow periods?
Key Metrics
Review important financial metrics like ROI, payback period, and net operating income. Compare them to your investment criteria.
Interpreting Competitive Analysis
The competitive analysis helps you understand your position in the market. Look for:
Competitor Identification
Are all relevant competitors included? Consider both direct competitors (same property type) and indirect competitors (alternative accommodations).
Competitive Positioning
Understand how your project compares to competitors. What are your competitive advantages and disadvantages?
Market Gaps
Identify opportunities the analysis reveals. Are there underserved market segments or unmet demand?
Pricing Strategy
Review how your proposed pricing compares to competitors. Is it realistic given your positioning?
Assessing Risk Factors
Every project has risks. The feasibility study should identify and analyze them:
Risk Identification
Review all identified risks. Are they comprehensive? Do they include market risks, financial risks, operational risks, and regulatory risks?
Risk Assessment
Understand the severity and likelihood of each risk. Which risks are most concerning?
Mitigation Strategies
Evaluate the proposed mitigation strategies. Are they realistic and actionable? Do they adequately address the identified risks?
Risk Tolerance
Consider whether the risk profile aligns with your risk tolerance and investment criteria.
Evaluating Recommendations
The recommendations section provides actionable guidance. Assess:
Project Scope
Do the recommendations align with your vision? Are there suggestions to optimize scope that you should consider?
Design and Amenities
Review recommendations about amenities, features, and design. Which ones make sense for your market and budget?
Pricing Strategy
Evaluate pricing recommendations. Do they support your financial projections and competitive positioning?
Development Phasing
If phased development is recommended, understand the rationale and sequencing.
Action Items
Identify which recommendations you should prioritize and which require further evaluation.
Key Questions to Ask
After reading the feasibility study, ask yourself these questions:
- Are the financial projections realistic based on the market analysis?
- Do the recommendations make sense for my situation?
- Are the identified risks manageable?
- Do I understand the assumptions behind the projections?
- Are there areas that need clarification?
- Does the study support my investment criteria?
- What are the key next steps?
If you have questions or need clarification, contact the feasibility study consultant to discuss the findings.