FEASIBILITY STUDY

Definition:

According to Investopedia:

A feasibility study is an assessment of the practicality of a proposed plan or project. A

feasibility study analyzes the viability of a project to determine whether the project or
venture is likely to succeed. The study is also designed to identify potential issues and
problems that could arise from pursuing the project.

As part of the feasibility study, project managers must determine whether they have
enough people, financial resources, and the appropriate technology. The study must also
determine the return on investment, whether it's measured as a financial gain or a benefit
to society, as in the case of a nonprofit.
Importance of Feasibility Study

The importance of a feasibility study is based on organizational desire to “get it right”

before committing resources, time, or budget. A feasibility study might uncover new
ideas that could completely change a project’s scope. It’s best to make these
determinations in advance, rather than to jump in and to learn that the project won’t
work. Conducting a feasibility study is always beneficial to the project as it gives you and
other stakeholders a clear picture of the proposed project. 

Below are some key benefits of conducting a feasibility study:

 Improves project teams’ focus

 Identifies new opportunities

 Provides valuable information for a “go/no-go” decision

 Narrows the business alternatives

 Identifies a valid reason to undertake the project

 Enhances the success rate by evaluating multiple parameters

 Aids decision-making on the project

 Identifies reasons not to proceed

Types of Feasibility Study

A feasibility analysis evaluates the project’s potential for success; therefore, perceived
objectivity is an essential factor in the credibility of the study for potential investors and
lending institutions. There are five types of feasibility study—separate areas that a
feasibility study examines, described below.

1. Technical Feasibility

This assessment focuses on the technical resources available to the organization. It

helps organizations determine whether the technical resources meet capacity and whether
the technical team is capable of converting the ideas into working systems. Technical
feasibility also involves the evaluation of the hardware, software, and other technical
requirements of the proposed system. As an exaggerated example, an organization
wouldn’t want to try to put Star Trek’s transporters in their building—currently, this
project is not technically feasible.

2. Economic Feasibility

This assessment typically involves a cost/ benefits analysis of the project, helping
organizations determine the viability, cost, and benefits associated with a project before
financial resources are allocated. It also serves as an independent project assessment and
enhances project credibility—helping decision-makers determine the positive economic
benefits to the organization that the proposed project will provide.
3. Legal Feasibility

This assessment investigates whether any aspect of the proposed project conflicts with
legal requirements like zoning laws, data protection acts or social media laws. Let’s
say an organization wants to construct a new office building in a specific location. A
feasibility study might reveal the organization’s ideal location isn’t zoned for that type of
business. That organization has just saved considerable time and effort by learning that
their project was not feasible right from the beginning.

4. Operational Feasibility

This assessment involves undertaking a study to analyze and determine whether—and

how well—the organization’s needs can be met by completing the project. Operational
feasibility studies also examine how a project plan satisfies the requirements identified in
the requirements analysis phase of system development.

5. Scheduling Feasibility

This assessment is the most important for project success; after all, a project will fail if
not completed on time. In scheduling feasibility, an organization estimates how much
time the project will take to complete.

When these areas have all been examined, the feasibility analysis helps identify any
constraints the proposed project may face, including:

 Internal Project Constraints: Technical, Technology, Budget, Resource, etc.

 Internal Corporate Constraints: Financial, Marketing, Export, etc.

 External Constraints: Logistics, Environment, Laws, and Regulations, etc.

Process of Feasibility Study

1. Feasibility Study Initiation

The lead up to the feasibility study (from the client’s perspective) is the
formalizing of the project with the project charter. The project charter outlines the purpose of the
project and what it is meant to achieve. Likewise the feasibility study should be formalized with
requirements, boundaries and expected outcomes

 Who is responsible
 Project brief to be analyzed
 Who should be involved
 Level of detail
 Budget for the feasibility study
 Report back date.

At this pointy senior management have only made the decision to proceed with the feasibility
study. The decision to proceed with the implementation of the project will be made later-
presumably based on the feasibility studies recommendations.

It is a senior management responsibility to select the project manager for the feasibility study. It
is then the project manager’s responsibility to select the feasibility study team. It is most
important that the team membership should include a representative of the future operators. This
will encourage them to have input into the design and a certain amount of control over their
destiny. The company should make sure that the team members have sufficient time to develop
the new product. This may mean releasing them from part of all their present duties.

2. Plan the Feasibility Study

The feasibility study should be managed as a mini project using the planning and
control techniques outlines in this book. It will also have its own project life-cycle (see figure
4.1)
Level of
effort

Concept Design Implementation Commission

Description Concept Design Implementation commission

Outline the plan how to perform the feasibility study confirm the
purpose of carryout the feasibility study has
the feasibility produced the required
Feasibility study. Report.
Study.

Figure 4.1: Project Life-Cycle (of feasibility study)

3. Stakeholder Analysis
The purpose of the needs analysis is to determine the needs and expectations of all
the stakeholders. Project stakeholders are people and organizations (both internal and external)
who are either actively involved in the project or whose interests may be affected by the project
being implemented.

The project manager should create an environment where the stakeholders are encouraged to
contribute their skills and knowledge as this may influence the success of the project. Consider
the following headings:

 Originator=The person who suggests the project.

 Owner=The person whose strategic plan creates the need for the project.
 Sponsor=The company or client who authorizes expenditure on the project this could
also be an internal client or venture capitalists.
  Project champion=The person who makes the project happens. Often a person with
influence in high places.
 Users=The people who will operate the facility on behalf of the owner when the project
is completed.
 Customers=The people who receive and pay for the benefit from the facility.
Forexample, we are all customers for electricity, telephones and commercial travel
facilities. Customers may prefer a wide range of fashionable products-this would
encourage short production runs and quick turnaround times.
 Project team=The team members who plan, organize, implement and control the work
of the sub-contractors to deliver the facility within the constraints of time, cost and
quality (also consider the affect on their families).
 Senior management=Within your company who you need to support your project
(mentor support and coaching).
 Functional managers=Within your company who will be supplying the workforce
for your project (matrix structure).
 Boss=Your boss, the person you report to, can play an important role in establishing
your working environment, the support you receive and your career prospects within the
organization.
 Colleagues=Although they may not be working on your project, indirectly they can
supply useful information and offer moral peer support or conversely peer pressure.
 Sub-contractors=The external companies or people offering specialist expertise to
supplement the company’s resources.
 Supplies and vendors= The external company’s or people who supply
material and equipment. They have a wealth of experience about their
products which you should try and tap.
 Supporters= The parties who provide goods and services to enable the
facility to be built, for example, the suppliers of telephones,electricity,the
postal service and even the corner shop. Financial support through the
banking system could also be included here.
 Legal requirements= Rules and regulations both nationally and
internationally that must be complied with.

There are other external stakeholders who, although they may not be directly involved with the
project, they can still influence the outcome:
  Regulatory authorities-health and safety
 Trade unions
 Special interest groups (environmentalists) who represent the society at large
 Lobby groups
 Government agencies and media outlets
 Individual citizens

Some stakeholders are interested in the outcomes of the project, while others are only interested
in the project while it is being implemented. Stakeholders can be further classified into those
who are positively affected and those who are negatively affected by the project.

4. Define the Client’s Needs

The starting point for a project is usually to address a problem, need or business
opportunity that may be internal or external to your company.

The evaluation of needs from something quite vague to something tangible that serves as the
basis of a project plan is the project manager’s challenge. Some of the objectives may be stated
as:

 The product must carry out a certain function at a predefined rate\

 The product must operate in a specific environment.
 The product must have a working life of so many years.
 The project’s budget must not exceed $ x
 The project must meet certain specifications and standards.
 The product must achieve reliability requirements-these may be quantified as mean time
between failures (MTBF)
 The product must be energy efficient. A car would quantify this requirement as miles per
gallon or kilometers per liter.
 The product must meet statutory health and safety regulations.
 The ergonomics must be consistent with the latest accepted practice.
 Ease of maintenance and repair must be incorporated into the design.
 A predetermined level of system redundancy and interchangeable parts must be achieved.
 The operational requirements must achieve predetermined manpower levels and
automation.
 The product must be manufactured with a predefined value of local content.
 The product must provide opportunities for future expansion.
 The project must be operational by predefined date.
 The product must be manufactured but approved and accredited suppliers, if necessary
pre-qualified by an audit.
  All suppliers must have implemented an approved quality management system.
 All suppliers must have a good track record, supported by references.
 All suppliers must be flexible to accommodate any =reasonable changes made by the
sponsor during the manufacturing phase.
 All suppliers must be financially stable, supported by a bank reference.
 The end product must be marketable and profitable.

Many of the above items may be mutually exclusive, which means there will have to be a trade-
off. For example, it is generally not possible to achieve both a minimum construction cost for a
machine that also has minimum maintenance cost. These items of conflict to be discussed and
resolved during the early stages of the project with all decisions recorded to form the basis of the
philosophy. This key document must be structured in such a way as to facilitate an audit trail of
the decisions. If the field of the project is specialized the client may employ consultants and
specialists to assist defining the scope- on small project this task may fall to the contractor’s
project managers.

5. Evaluate Constraints
Project constraints can be considered as internal or external restrictions that may affect the
achievable scope of the project. Theses anticipated limitations can be quantified under three sub-
headings:

 Internal project constraints

 Internal corporate constraints
 External constraints

I. Internal project constraints= The internal project constraints relate directly to the scope
of the project and ask basic questions about the product.

 Can the product be made? Can the company meet the specifications? Consider the Rolls
Royce RB111 carbonfiber turbine blades which led to the company’s liquidation in the
1970s.
 Does the company have the technology? Ifnot, can the technology be acquired through a
technology transfer and if so with whom? South Africa took this approach to develop
their offshore gas fields.
 Should we start the project now with the present technology or wait until new and better
technology is available?(see figure 4.2)
Level Available

Of Design Freeze Technology

Technology

Technology

Gap

Project

Technology

Design Phase Constriction Phase Time

Figure 4.2: technology change time(at some point you will have to implement a design
freeze so you can build the product)

 At what point in the development should a design freeze be imposed? This will affect the
technology gap at the end of the project (see figure 4.23).
 Is the new technology component greater that 10%? Practitioners recommend the amount
of innovation should be kept below 10% to reduce risk and uncertainty.
 Can the resources be trained up to the required level of ability or should contractors be
employed to meet the forecast skills requirement?
  Will the multi-project resource analysis consider the effect other projects will have on the
supply of internal resources?
 Are there any special design requirements?
 Are special machines and equipment required? Ifyes, are they available?
 Are there special transport requirements? Can the product be transported to where it is
required or does it need to be made piece-small and assembled on site?
 If new management systems are introduced will they be compatible with existing systems
they need to interface with?
 Can the project be completed within the budget?
 What is the quality assurance requirement? Forexample, is accreditation to ISO 9000
required? Is the present quality management system sufficient?
 Are there companies and project procedure in place? If not allow time to develop them?
 Is the project office established? Has the project manager been appointed, the project
team selected, the office space allocated and are the equipment and information systems
available?
 Can the project meet the clients’ completion date and any intermediate key dates?
 Can the company accept the time penalties?
 Are the project risks and uncertainties acceptable?
 Can the company accept the terms and conditions outlined in the contract document?

All these questions relate directly to the project. The next sections will show how the company
itself can impose further constraints.

II. Internal corporate constraints= The company itself can impose further quasi
constraints on the project. Corporate umbrella policy and strategy usually relates to long
term issues that indirectly (andunintentionally) may impose limitations on the project.

 Financial objectives: the project selection criteria may be based on a financial feasibility
study quantified as, paybackperiod, return on investment (ROI), net present value (NPV),
internal rate of return (IRR) and a cost-benefit analysis.
 The company may wish the project to maintain a positive cash flow.
 The progress of the project may be encourages or delayed to meet the company’s annual
budget.
 The company’s share price may have an effect on the project’s ability to borrow.
 Marketing: the company may wish to diversify its products and enter new markets. Your
project may be implementing the technology transfer for the company to operate in this
market or be a loss leader to enter a new market. The project must therefore accept
subnormal profits to get a ‘foot in the door’.
 Estimating: due to a down turn in the economy, the company’s main priority may be to
keep the workforce intact,the lower the bid the greater the probability of being awarded
 the next contract. The lowest a company can bid is to cover direct costs, with the
overheads being written off. If this is the case, will the project’s budget be based on the
estimated cost on the sales price?
 Partner: the company may wish to take on a partner who has previous experience in the
field of the project (technology transfer) and also to spread the risk.
 Industrial relations: industrial unrest is often caused by conflict over pay and working
conditions. The project-manager may have little power to influence these conditions.
 Training: your project may become the training ground for new recruits, in which case
the learning curve will be an expense to your project.
 Exports: the company may influence the quotation in an effort to acquire exports to enter
new markets or take advantage of export incentives (buy work)

III. External constraints= External constraints are imposed by parties outside the company
and the project’s sphere of influence. Many of these constraints may not be negotiable.
 National and international laws and regulation
 Material and component delivery lead times
 Unavailable resources; finding carpenters after floods or storm damage, welders
while there are offshore projects, computer programmers leading up to the year
2000 (Y2K)
 Logistic constraints, availability of transportation.
 Availability of foreign currency and currency fluctuations.
 Environmental issues, government legislation and pressure group activities,
forexample, green peace and CND. Thenuclear, chemical, mining and transport
industries have been particularly affected in the past.
 Climatic conditions, rain, wind, heat and humidity.
 Market forces, supply and demand curve.
 Political unrest.
 Construction site in a residential area-may not be allowed to work a night shift,
because of the noise.
 Planning permission, licenses, permits, clearances, right of way, and insurance.

These headings should not be seen as comprehensive, but as the forerunner of a company
checklist that ensures all the appropriate questions are asked, which in turn should reduce the
level of risk and uncertainty.

6. Evaluate Alternatives and Options

The alternative analysis is the process of breaking down a complex product into its component
parts before identifying different and hopefully more effective methods of achieving the desired
result.

The technical definition should aid the direct comparison between alternatives. With a machine
for example the capital costs should be compared with the operating costs. Although this process
should be ongoing during the project, the design freeze would usually signal the end of this
phase. Once the manufacturing phase starts the emphasis would shift to consider manufacturing
alternatives. The following checklist outlines a number of the basic questions to be asked:

 Time= Can the project be completed quicker?

 Cost= Can the budget be reduced?
 Quality= Can the project be made to more cost effective level of quality which would be
acceptable to the client and quicker4 the producer?
 Resources= Can the work be cost effectively automated to reduce the manpower
requirements?
 Technical= Is there a simpler design configuration and simpler build method?
 Can cheaper materials be used?
 Has the latest technology been considered?
 Has the use of different equipment and machines been considered?
 Has the tradeoff between cost, delivery schedule and technical performance been
quantified?

7. Gather Information

Without the latest information on the product’s technical and market issues the alternative
analysis will be self-limiting. Information is a prerequisite for effective problem-solving and
decision making. Information may be found in:

 Books and periodicals

 Technical reports
 Bureau specifications
 Sales and marketing brochures(product information)
 Market research(market trends and fashion)
 Internet(data base search)
 Stakeholders(interviews and questionnaires)
 Closeout reports.
Closeout reports= closeout reports from previous projects offer a valuable source of historical
information. It cannot be over stressed how important it is for a company to learn from its
previous experience –not only should the mistakes be noted, but also what went right, together
with any recommendations for future projects.

The size of company will influence how and where information will be available. In small
company, information may be collected by individual managers, while a large company may
have corporate library. This responsibility for setting up a data base of information should lie
with either the project office or the company’s GM.

8. Value Management
Value management is a structured, systematic and analytical process that seeks to achieve value
for money be providing all the necessary functions at the lowest total cost, consistent with
required levels of quality and performance.

Value management looks at the project or product as a whole. It considers the relationship
between function, cost and worth. Its purpose is to ensure value for money over the product life-
cycle. Consider the following points:

 Identify unnecessary expenditure

 Challenge assumptions
 Generate alternative ideas
 Promote innovations
 Optimize resource
 Save time, money and energy
 Simplify methods and procedures
 Eliminate redundant items
 Update standards, criteria and objectives.

Value management is about:

 Clarifying and satisfying customer’s needs

 Creating ideas as to how a system can best do its job at appropriate levels of quality and
performance
 Challenging assumptions and maximizing returns on investment
 Participation by clients, end-users and stakeholders
 Seeing the purpose of the system itself
  Seeking the lowest total cost of providing the client’s needs-it is not about seeking the
cheapest solution.

The process is one of the participatory planning in which the project design team work closely
with stakeholders in a workshop format seeking to identify those functions which the project
must perform, consider:

 Identifying appropriate quality and performance criteria

 Creating alternative ways of performing these functions
 After analysis and evaluation, selecting the lowest total life-cycle cost option that
satisfies those requirements.

During the value management workshop considerable advantage is gained by capitalizing upon
the synergy that is developed and upon the potential constructive overlap of expertise and
knowledge within the project team.

9. Cost-benefit Analysis
A cost-benefit analysis may be performed at this stage to establish the financial feasibility of the
project. A cost-benefit analysis is generally based on the following economic principles:

 Pareto improvement criteria

 Hicks-Kaldor test
 Willingness-to-pay test

The basic concepts simply to express the costs and benefits in money terms. If the financial
benefits exceed the costs, then the project passes the test. The Pareto improvement criteria is
expressed as; ‘the project should make some people better off without making anyone worse
off’. This situation may be difficult to achieve in royalty.

The Hicks-Kaldor test seems more realistic. This states that,’ the aggregate gains should exceed
aggregate losses.’ This framework will enable the people who gain, to compensate the people
that lose. For example, a dam project may have many benefits to the community, but might cause
the silting up of the river. If the financial benefits of having a dam exceed the costs of dredging
the river, this project will satisfy the Hicks-Kaldor test.

The willingness-to-pay test is simple to determine how much your clients are prepared to pay for
your product. Have you ever considered how airlines manage to change a range of fares for the
same seats? The economists model this test using the following techniques:

 The supply and demand curve

 Monopolies and oligopolies
 Product elasticity
These techniques will model the relationship between supply, demand and prices. With the
presentation of the feasibility study to senior management, so ends this mini project. This
concludes the feasibility study chapter; the following chapter will discuss project selection.