A feasibility study is an analysis of how successfully a project can be completed, accounting for factors that affect it such as economic, technological, legal and scheduling factors. Project managers use feasibility studies to determine potential positive and negative outcomes of a project before investing a considerable amount of time and money into it.
A Feasibility Study is an Evaluation of a Project – How Successfully a project can be completed, what are the factors affecting the Project such as Economical, Technological, Legal and Scheduling Factors. Feasibility studies are done to determine the Positive and Negative outcomes of the project before investing considerable time and money into the project. It is a layout of the business/products/services to be offered and how they will be delivered.
A project will be evaluated based on different criteria. Types of Feasibilities evaluated for a project:
- Market Feasibility
- Technical Feasibility
- Financial Feasibility
- Organizational Feasibility
Market Feasibility describes the Industry. What the product has to face if introduced to the Market.
In case if a new product is introduced into the market for the first time, the success of the product depends upon the marketing (advertising) of the product. That is it should be conveyed in such a way so that the product becomes familiar to the people.
Market adaption plays a major role in success of the product.
So it is clear that Market Feasibility Study becomes important indicator before launching a new product or existing product in the new market.
For an Existing Product, Market Feasibility consists of –
- Demand Estimation
- End User Profile – Classification of Customers, Market Segments, etc.
- Study of Influencing Factors – Whether Direct or Derived Demand for a Product
- Market Potential – Evaluation of Regional, National and Exports Markets etc.
- Infrastructure Facilities facilitating or Continuing Demand
- Demand Forecasting
- Supply Estimation depends on
- Past Trends
- Projects Undertaken in the Economy
- Government Licensing Policy
- Availability of required Input
- Import Possibility
- Identification of Critical Success Factors
Some Examples of Critical Success Factors are – Availability of Raw Materials, Supply, Cost of Power, Transportation Facilities, etc. They are Product and Region Specific
Some CSF are subject to Volatile changes that will have its impact on Net Profitability
- Estimation of Demand-Supply Gap
A Multiple Point Forecast gives the most adverse, most likely and most favourable forecast of Demand and Supply
Technical Feasibility describes the details on how a good or Service will be delivered, this includes transportation, business location, technology needed, materials and labor.
It also varies with size and complexity of the project. Commercial viability of the technology is also to be evaluated.
- Plant Location – Site Access, Risk involved (whether it is Earthquake prone Zone, drought prone Zone, etc.), etc.
- Resources Availability – Raw Material Availability – in Quality and Quantity, Vendor Capabilities, Power availability, Water availability, etc.
- Technology – Proposed Technology to be compared with any other alternative Technologies available in the Market, Availability of Labour for the selected Technology, Ease of Absorption, etc.
- Plant and Machinery – Installation Aspects – Technical Specifications, Plant Design and Layout, Availability of P&M suppliers in case of Downtime, etc.
- Production Aspects – Product Mix, Production Bottlenecks, Process Losses and Possibilities to reduce those Losses, etc.
- Control Aspects – Possibilities of Future Manufacturing or Operating Cost Reduction, Technical Obsolescence Possibilities etc.
- Back up Plans – Disaster Recovery Plans, Possibility of continuing Operations in case of any Disaster, Safety Standards, etc.
Financial Feasibility is a projection of amount of Funding or Startup Capital Required, sources of capital that can be utilized and the returns that can be expected on the Project Investment.
Market Feasibility Study – Demand and Price Estimates are determined
Technical Feasibility Study – Project Costs along with the operating costs are determined
Financial Feasibility Study – requires detailed financial analysis.
The estimates have to be made from prevailing tax laws point of view and costs involved in various financial alternatives available.
Analysis of –
- Projections for Prices of Products, Cost of Resources. The Actual Data of comparable projects are included in the Estimates
- Period of Estimation – Determined on the basis of Product Life Cycle
- Financing Alternatives are to be considered
- Interest and Repayment Schedules, Working Capital Schedules, Depreciation Schedules are to be done
- Financial Statements are to be prepared
This includes a definition of corporate and legal structure of business. This includes information about founders and their educational backgrounds and their ability to keep the project alive.
A Systematic Process of evaluating the potential risks involved in the proposed project. Evolution of risk is necessary through the adoption of various analysis.
Project Report consists of the following aspects:
- Promoters and their qualifications and their experiences.
- Market environment should be analyzed and consider whether it is suitable for the said project.
- Demand and Supply position of particular type of Product under consideration, competitors share of the market and their marketing strategies. Consumer Preferences.
- Working Capital requirements, cost of Plant and Machinery, Labor Cost, Cost of Power, Cost of Land, Development Cost and Operating Cost should be included.
- Preliminary Expenses are also to be evaluated to determine the Cost of the Project.
- Availability of Raw Materials and reliability on the suppliers and alternate backups in case there is shortage of supply are to be provided.
- Technical Know-how, Plant layout, production process, installed and operating capacity of the plant and machinery.
- Estimation of Production Costs, Tax Liability, Working Capital Requirements, and Return on Investment are to be evaluated.
- SWOT Analysis needed to be done carefully – Study of Strengths, Weakness, Opportunities and Threats of the said Project.
- Project Implementation Schedule includes Date of Commencement, Trail Runs, duration of project, time over runs and date of completion of project should be given.
Audit is defined as an Examination of Documents and to verify whether the result is as desired
Post Completion Audit is an attempt at assessing the actual Profile of a given project in terms of results with the intended profile
It is a Part of Internal Audit
When properly carried out, it can help in Continuous Improvement of the Project.
It is performed by Independent Third Parties who have adequate knowledge in different areas
Benefits of PCA –
- Identifying Lessons to be learned in Future
- Identifying Problems and appropriate Solutions so that corrective action may be taken
- Exerting Discipline in the Investment Planning and Control Process
Information required for the Audit comes from three main Sources –
- Written Reports and Other Documentations
- Various Statistics generated when the Project is underway
- Interviews with Project Managers and other Project participants
Post-completion audits play an important role in organisational learning. They also provide a useful basis for control. By investigating each phase of the investment process, using information gleaned from different sources, it is possible to identify what went well and what did not go according to plan. However, post-completion audits can be costly, so many businesses adopt a selective approach to their implementation. There are problems and limitations associated with their use and senior management must be aware of these
- As we have scarce resources in the society, and as they are used in the projects, Social impact of such projects should be evaluated.
- SCBA is an approach for evaluation of merits of a Projects or course of action in a systematic and rigorous way. The objective is to establish the Net Social Benefit of the Project.
- This refers to moral responsibility of the Public and Private Sector Enterprises to undertake socially desirable projects. Social Contribution must be kept in view. SCBA sometimes changes the very outlook of a project as it brings elements of study which are unconventional yet very relevant. Every enterprise have moral responsibility to use scarce natural resources in the best interests of the people.
- In simpler terms, CBA evaluates Costs “C” and Benefits “B” for the project under consideration and proceed with it if and only if benefits match or exceed costs.
- Large Public Sector/Service projects especially in Underdeveloped Countries which would get rejected under simple commercial considerations will find justification if social costs and benefits is considered.
- Successful application of SCBA depends upon reasonable accuracy and dependability of underlying forecasts as well as assessment of Intangibles.
- Technique does not indicate that, whether the same resources employed in another project would yield better results than this project.
- Cost of evaluation by such technique would be enormous for small projects.
- SCBA does not consider the costs and benefits which cannot be quantified like, satisfaction, better quality of life, happiness etc.