I needed to chisel some holes for a scrap wood project but I couldn't find the tool because the house was being remodelled so I resorted to using my carving knife. It was surprisingly easy to create the necessary insets using just a knife. Easy in softwood that is. I had to do one that had a knot in and it was a lot harder.
I expect you could do it in hardwood but it would be far slower and a lot more effort.
Ignore the woodwork on the actual project, its just an octagonal potato planter I threw together quickly.