Definition of Project Feasibility Analysis

» Meaning and Definition of Project Feasibility Analysis
» Content of Feasibility Analysis
» Application of Feasibility Analysis
» Steps/Dimensions of Feasibility Analysis
» Type of Feasibility Analysis

 

 

 

Meaning and Definition of Project Feasibility Analysis

Feasibility literally means whether some idea will work or not. It knows beforehand whether there exists a sizeable market for the proposed product/ service, what would be the investment requirements and where to get the funding from, whether and wherefrom thee necessary technical know- how to convert the idea into a tangible product may be available and so on. In other words, feasibility study involves an examination of the operations, financial, HR and marketing aspects of a business on ex ante (before the venture comes into existence) basis.

Project Feasibility Analysis results in a reasonably adequate formulation of the project in terms of location, production technology, production capacity, material inputs etc., and contains fairly specific estimates of project cost, means of financing, sales revenues, production costs, financial profitability and social benefits.

Various dimensions of project feasibility study are analyzed throughout different stages of feasibility study in varying degrees of detail, both separately and in relation to others. Thus, a multi–dimensional feasibility analysis is a vital exercise.

If a project is seen to be feasible from the results of the study, the next logical step is to proceed with it. The research and information uncovered in the feasibility study will support the detailed planning and reduce the research time.

Content of Feasibility Analysis

The sources for content in a feasibility analysis come through extensive research, discussion and assessment and may incorporate the use of advanced computer modeling to determine the long-term impact of a project on the environment around it. Other feasibility analyses may be rooted only in anecdotal evidence as provided by those who have worked on similar efforts or those who will ultimately be affected by the project’s outcome.

A basic pre-project feasibility analysis might include the following:

1) Executive Summary/Project Goal: Overview or description of the impact of the project on its environment and the potential for success (or failure) based on the analysis. This may also include brief mention of the alternatives considered and their relative viability.

2) Project Description
i) Anticipated As–Built Condition: This section is a description of the project as envisioned, including magnitude, location, community impact and market change.
ii) Anticipated Outputs: In this section, both intended and consequential outputs of the project should be incorporated, without comment as to their relative or detriment to the world around them.

3) Project Environment
i) Financial: This section describes the financial climate in which the project will be developed and implemented. This may include assessments of the relative magnitude of the project within the overall organizational budget and the potential drain on available resources.
ii) Physical Environment: A feasibility analysis should include a description of the environment surrounding the project, including the physical locations for development and implementation.
iii) Societal/Cultural environment: Descriptions of the culture and society in and around the project community are another aspect to a feasibility analysis. This may include an emphasis on those social and cultural issues that will be directly affected by project development and implementation.

4) Similar Efforts
i) Scenarios: The section provides an outline of similar efforts and a synopsis of their effects on the finances and physical and social environments of their project organizations and communities.
ii) Similarities and Implications: Determination of the degree of similarity between the scenarios outlined and the project(s) under scrutiny in the feasibility analysis is covered.

5) Sensitivity Analyses

i) Financial: A “what – if” analysis of finances to determine if the project is deemed viable is an important aspect of a feasibility analysis. An assessment of other organizational areas affected is included. This analysis may also examine the potential range of financial possibilities if the project fares extremely well or poor.
ii) Physical Environment: It involves a “what-if” analysis of the physical environment if the project is deemed viable. It includes an assessment of physical effects to the organization and thee areas around the project. This analysis may also examine the potential range of physical manifestations if the project fares extremely well or poor.

6) Marketing/Public Relations
i) Market Analysis: The market analysis includes an assessment of the potential market for the project or its outputs, including ( but not limited to) the financial buying power of the market, interest in or demand for the project and the life span of the market’s members.
ii) Forecasts: Predictions regarding sales, returns and buying trends related to the project and its outputs are included in the forecasting section. Ideally, the forecast includes the timing of the market entry and the relative impact of early or late into the marketplace.
iii) Competitive Environment: The competitive environment section contains information on other organizations capable of conducting the project and/or producing its deliverables (or their equivalent).This may also incorporate some assessment of how potentially fickle the market may be based and the potential market impact if those risks come to pass.

7) Conclusions and Recommendations: Based on the information from the analysis, it explains the conclusions that can be drawn regarding the viability (or non-viability) of the project , given the environment in which it will be developed and implemented. This normally includes a go/no-go decision and the implications of both of those decisions.

Application of Feasibility Analysis

Feasibility analyses are used to present an approach or a series of alternatives and to offer decision- making guidance based on the climate in which the project will evolve. They often defend a single or primary approach, incorporating extensive forecasts on the project’s development, as well as its evolution after implementation. Because a feasibility analysis may focus on one or many aspects of a project, it may be a very short (one to two- page) or long (multi-volume) document. In any case, it generally begins with an executive summary and a description of the project outputs in their as-built condition.

Steps/Dimensions of Feasibility Analysis

In general terms, the elements of a feasibility analysis for a STEP should cover the following items:

1) Need Analysis: This indicates the recognition of a need for the project. The need may affect the organization itself, another organization, the public, or the government. A preliminary study should be conducted to confirm and evaluate the need. A proposal of how the need may be satisfied is then developed. Pertinent questions that should be asked include;
i) Is the need significant enough to justify the proposed project?
ii) Will the need still exist by the time the project is completed?
iii) What art h alternate means of satisfying the need?
iv) What is the economic impact of the need?

2) Process work: This is the preliminary analysis done to determine what will be required to satisfy the need. The work may be performed by a consultant who is a subject matter expert in the project field. The preliminary study often involves system models or prototypes. For STEPs, artist’s conception and scaled down models may be used for illustrating the general characteristics of a process.

3) Engineering and Design: This involves a detailed technical study of the proposed project. Written quotations are obtained from suppliers and sub-contractors as needed. Technology capabilities are evaluated as needed. Product design, if needed, should be done at this stage.

4) Cost Estimate: This involves estimating project cost to an acceptable level of accuracy. Levels of around 5% to +15% are common at this level of a project plan.

Both the initial and operating costs are included in the cost estimation. Estimate of capital investment, recurring and non-recurring costs should also be contained in the cost estimate document.

5) Financial Analysis: This involves an analysis of the cash flow profile of the project. The analysis should consider r-capitalization requirements, return on investment, inflation, sources of capital, pay-back periods, break-even point, residual values, market volatility and sensitivity. This is a critical analysis since it determines whether or not and when funds will be available to the project. The project cash flow profile helps to support the economic and financial feasibility of the project.

6) Project Impacts: This portion of scope feasibility analysis provides an assessment of the impact of the proposed project. Environmental, social, cultural and economic impacts may be some of the factors that will determine how a STEP is perceived by stakeholders. The value- added potential of the project should also be assessed. A value tax may be assessed based on the price of a product and the cost of thee raw material used in marketing the product. Thee tax so collected may be viewed as a contribution to government coffers for re-investment in the science, technology and engineering infrastructure of the nation.

7) Conclusions and Recommendations: Scope feasibility analysis should end with the overall outcome of the project analysis. This may indicate an endorsement or disapproval of the project. If disapproved, potential remedied to make it right should be presented. Recommendations on what should be done should be included in the scope feasibility report.

Type of Feasibility Analysis

The feasibility study includes the following types of feasibility analysis:

1) Technical Feasibility: The technical feasibility refers to the ability of the process to take advantage of the current state of art technology in pursuing further improvement. The technical capability of the personnel as well as the capability of the available technology in relation to the requirements of the proposed project idea should be considered and the extent of compatibility should be studied.

2) Managerial Feasibility: The managerial feasibility involves the capability of the infrastructure of a process to achieve and sustain process improvement. Management support, employee involvement and commitment are the key elements required to ascertain managerial feasibility.

3) Economic Feasibility: The economic feasibility analyzes sis, the feasibility of the proposed project to generate economic benefits. A cost-benefit analysis and a break-even analysis are used while evaluating the economic feasibility of new industrial projects. In a cost – benefit analysis, all tangible benefits and costs as well as intangible benefits and costs are identified before obtaining the B_C ratio. The break- even analysis helps to find the break- even quantity at which the project has no loss or gain.

4) Financial Feasibility: The financial feasibility attempts to assess the capability of the project organization to raise the appropriate funds needed to implement the proposed project. Loan availability, credit worthiness, equity and loan schedule are important aspects of financial feasibility analysis.

5) Cultural Feasibility: The cultural feasibility deals with the compatibility of the proposed project with the cultural set-up of the project environment. In labor intensive projects, planned functions must be integrated with the local cultural practices and benefits. Some examples of cultural factors are religion, custom- life style, etc.

6) Political Feasibility: The political feasibility deals with the initial acceptance of the project and sustenance of the project in the long-run by the prevailing political system. This is particularly true for the large projects with national visibility that may have significant government inputs and political implications. The issues on which political intervention may arise are conversion of land from agricultural use to industrial us, anticipated health hazard if the project is implemented, possible air pollution and water pollution, possible unemployment due to hi-tech projects, etc.

7) Environmental Feasibility: The environmental feasibility is very much important. If the commissioning of the project results with any kind of pollution, it will be visible to the public, administrators and politicians. If necessary corrections and preventive measures are not taken by the project firm to prevent/curtail pollution, the project will be forced to meet certain problems in terms of opposition from different circles. As a result, sometime, the project firm may be pushed to the corner of closure/re-location of the project itself which will cost the organization more.