All business endeavors pose some level of risk. Feasibility studies examine potential risks to determine whether they’re worth taking. A comprehensive feasibility study can distinguish real economic opportunities from investments that could fail.
Why Conduct a Feasibility Study?
Feasibility studies are appropriate for almost any type of potential business project.
Feasibility studies are used by tribal governments as economic development decision-making tools, and they can be used to access funding opportunities. Some state and federal grants require feasibility studies, and most lenders and investors prefer to review a feasibility study before providing capital.
What Does a Feasibility Study Evaluate?
Feasibility studies can identify the logistical, financial, and market challenges of a proposed project by evaluating:
- What the estimate would be to fund the project
- When the potential business will offer a return on investment
- The market for the proposed product or service
- Likely consumers of the product or service
- Likely competitors with a similar product or service
- The price consumers may be willing to pay for the product or service
- How large of a market share a tribal business is likely to capture
Who Should Conduct a Feasibility Study for a Tribe?
It’s generally recommended that a study should be conducted by a “qualified” professional or consultant with no financial or personal stake in the outcome of the study.
“Qualified” means that the professional or consultant has enough subject matter expertise about the proposed project, has academic or professional licenses or credentials relevant to the proposed project, and/or has experience conducting similar studies.
If a study recommends that a tribe not pursue a particular project, the tribe can save itself from wasting funds on a project that was destined to fail.
If a study recommends that a tribe move forward on a project proposal, that information can used to persuade lenders and investors to provide financial backing for it. A tribe can also use findings from a feasibility study as the basis for successful application for a federal, state, or private grant.
In either case, a feasibility study’s recommendations are intended to help tribes make informed decisions. As sovereign nations, tribes can always choose to accept or reject the suggestions.
Federal Trade Commission data suggests that American Indians and Alaska Natives are more likely to be victims of scams and less likely to report scams than other racial and ethnic groups, which makes them an even more attractive target for con artists.
Promoters often try to persuade tribal governments to invest in economic development projects inside and outside of tribal communities when they’ve exhausted more traditional modes of financing.
Some promoters offer credible opportunities, but even these claims should be thoroughly vetted by a tribal government.
Other proposals made by promoters may involve unproven technologies, pose a strong likelihood of failure, or are even intended to defraud tribes.
One strategy that a tribe can adopt to protect their interests is to request that a promoter fund a feasibility study conducted by consultants chosen by the tribe before committing to a long-term investment in a proposed project.
Financing a Study
The cost of conducting a feasibility study depends on the complexity of the issues being addressed and the expertise required to evaluate them.
In 2020, the Native American Business Development Institute (NABDI) of the Office of Indian Economic Development (IED) awarded feasibility study grants ranging in value from $25,000 to $75,000.
The IED offers many different types of grants for feasibility studies including the NABDI Grant, the Energy and Mineral Development Program (EMDP) Grant, the Tribal Energy Development Capacity (TEDC) Grant, and the National Tribal Broadband Grant (NTBG).
Washington, DC 20240