Unit 3 – Project Appraisal

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.

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.