Feasibility Analysis

Latest revision as of 18:46, 16 November 2018

Developed by Iga Cichecka

[edit] Abstract

Feasibility analysis - is a detailed study of the workability of the project, solution or any other process. Its aim is to detect wether given operation is more likely to be a success or a failure. It is recommended to conduct the study before the implementation stage, however it is not a restriction. The feasibility analysis should be conducted on internal level - focusing on the strengths and weaknesses of the executors which may influence the project, as well as on the external level - taking under consideration the external threats. The results of feasibility study help to asses if the project is reasonable and should be finalised.

Feasibility analysis is one of the most complex project analysis tools, because it covers all the fields of interest. This is why before conducting the study it is necessary to plan it. The first part of the article is a brief guide answering the questions how to decide if the feasibility study is appropriate for the given project, how to design the study and how to chose the researcher. Next, the most common components of the study are described with the suggestions what to prioritise. The list of components of the feasibility study is free to be modified, depending on the accessibility, budget, priorities and time boundaries. It should be kept in mind that the feasibility study is not applicable in all business cases, hence the last part of the article points out its limitations.

[edit] Definition

Feasibility study is an analytical tool used to asses the likelihood of the success of the project. It supports decision making process (usually before the implementation stage) ^[1].

[edit] Application

The feasibility study is relatively flexible (there are no permanent, obligatory components of the study) and can be applied in all kinds of projects^[2]. 

Feasibility analysis can be done for the project regardless of its stage, however, it is recommended to already have a project design, but not necessarily the final one. There are no contradictions to making a feasibility analysis for the projects which are already being realised or for the updates to the past projects. However, the study is the most effective for the projects which are still at the planning stage - in case of negative evaluation of the feasibility study the losses are smaller. The study is also exceptionally useful while assessing innovative ideas, which can not be judged based on the previous experience or already existing patterns (since there are none). Moreover, if conducted before the implementation stage, feasibility study may expose the hidden costs, provide arguments for decision making process and inspire the future changes to the projects. It provides valuable information for the potential investors.


The feasibility study applies to individual projects as well as to cooperative ones. In individual projects feasibility study often uncovers the risks connected with the tasks that project members do not deal with daily. It is not possible to be an expert in each field, especially when it comes to complex projects. Cooperative projects tend to be more complicated, hence it is easier to overlook some risks and the potential losses are higher as well. This is why feasibility study should be conducted for cooperative projects. A good practice is to chose an individual approach for analysing cooperative projects, it provides more detailed and reliable outcomes. Individual members of the bigger projects should be tested and then the common evaluation should be made.

[edit] How to organise a study

The feasibility analysis is an expensive and time consuming one. If the decision is made to invest time and money in the study, then the study itself should be carefully prepared. Proper arrangement of the study guarantees higher credibility of results and more well-thought-out study choices.

1. Project definition - first visualise the project, see the goal, make sure there is a willingness to cooperate between the ream members and that they share the enthusiasm. It is important to set the individual interests of parts, describe the project briefly and understand it. To obtain more reliable outcomes it is recommended to already have some numbers , so quantify the project and define its scope (what it deals with and what it does not). Make the project complete before making and analytical study in it. Otherwise it can be a waste of time and money.


2. Group characteristics - prior to conducting a feasibility study a group of project members should be wisely chosen. Motivation and ambitions of the members are key to lead to the project’s implementation. However, at different stages of the project a knowledge of specialists may be needed, e.g. lawyers. analytics, etc ^[3]. It is essential to identify which actors may be needed in the project and most importantly - establish a strong leadership team. The group should depend on the scale and scope of the project as well. 


3. Group decisions - since the outcomes of the feasibility study may be used as a supportive argument in decision making process, it is useful to clarify the attitude of group members towards decision making. It is a key issue if they are willing to invest into the prior-implementation study? If they are a risk takers or prefer to play it safe? Are they fast to decide or rather tend to elaborate for a long time on the best solution? In addition, it should be decided together with representatives if the costs of the study do not exceed the costs of potential failures. Possibly on this stage one can establish a guideline for future decision-making ^[4].


4. Feasibility study decisions - before beginning the feasibility analysis several issues concerning the study itself should be clarified. First of all the project to be studied should be clearly described and its boundaries should be set. Secondly, the main areas of interest of the study should be identified. It is costly and time consuming to investigate all aspects connected with the project on that some precision level. Usually some factors are more significant than others, e.g. low budget, competition market, time limitations. It is recommended to prioritise the research areas. Next, it ought to be decided who would be the conductor of the study, how to analyse the findings, how they would be applied. The prior assumptions and the thesis are welcome as well. 


[edit] Study Responsible


After making a decision to conduct a study, there are three possibilities of who would be in charge of this study.

Internal study



The first possibility is to have the analysis done by one (or few) of the group members. The advantages are detailed knowledge and deep understanding of the studied project. Additionally, this solution is cheaper than others. Disadvantages of this solution include the increased risk of subjectiveness influencing the outcomes of the study. Group members tend to be determined to realise the project, hence they may overlook some negative factors. Another issue is that team members may not have a wide enough perspective or the reference point, simply because they have not been assessing other projects before. They may be lacking expertise. Last but not least, the potential project investors and sponsors often perceive the internal feasibility studies as less reliable than internal ones. 



External consultancy 


Hiring an external consultant increases objectivity of the study. However it is more expensive than internal analysis and demands some additional time to explain the project to the consultant in detail and make sure they understand it. Still, the single consultant cannot be an expert in each field, so if this method is chosen it is essential to make sure that that the consultant is at least an expert in the prioritised fields.

Multi-consultancy

Asking the specialists from different fields to conduct a feasibility study for the study components corresponding with their specialisation. The solution is appropriate for big, complex projects, which are covering various fields. Since it is the most expensive way of conducting feasibility study the budget of the project needs to be higher as well. It provides the most detailed assessment which is reliable for the investors. People analysing particular factors of the project have wider perspective and can uncover the risks or opportunities which were not thought about before.

[edit] Components of the study

As stated, the components of feasibility study differ between the studies and should be individually chosen for each business case. The list presented below points out the most common components.

Technical Feasibility - before proceeding with the next stages of the project it is essential to make sure that technological equipment needed to finalise it is available on the market, the group can afford renting or buying it in the demanded quantity. It is also crucial to check weather the technology can be transported to the site of the project and if it can work properly under the foresaw conditions. The costs of maintenance of the technology are often overlooked such as energy consumption. If machines are used in the project, in order to estimate the production capacity the production time ratio as well as the amount of the input material ought to be calculated before. The technological issues also include the spatial demands of the project ^[5].

Legal Feasibility - the legal feasibility study should take under consideration weather the project complies with the current local and international law. It is also worth knowing what legal changes are planned by the governments, which may affect the project. It is beneficial to recognise the legal requirements which would possibly have to be fulfilled at all stages of the project, not only the implementation stage. Solving legal issues is time consuming, hence the analysis should be made with the greatest precision to avoid the delays caused by administrative issues. 

Legal feasibility study can be simplified by dividing it into the following stages:

1. Recognise a legal framework - acknowledge and analyse any and all laws and regulations that may concern the project. It should be done before the feasibility study of any other component, since the legal compliance is the primary condition to be fulfilled in all cases.

2. Check if there is a legal power to realise the project and what approvals are needed.

3. Detailed study of the most prominent legal issues - consideration of the cases such as land uses and land ownership, local law (on the project site), private/public financial support, taxes, international regulations if relevant to the project (workforce, currency differences). This part is individual for each project.

Organisational Feasibility - this analysis aims to discover if the organisational solutions in the project and the experience of the management team and other members are sufficient to successfully implement the project. The study may be divided into three subsections:


1. Analysis of business structure - why the present structure has been chosen (including its advantages and disadvantages), is it consistent with law, are there any more profitable to the project business structure solutions, is there any risk that the chosen business structure would not be able to maintain the project and fail?

2. Analysis of organisational structure - check if the functions and hierarchy of the members are clear, reasonable and contributing positively to the productivity. Are there enough experts in each field of the project? The CV’s may be reviewed in order to ensure appropriate experience of the members, sufficient to uphold the project. Conclude if there is enough workforce with needed competences, if not how the additional workforce should be recruited and trained. Analyse if there are going to be any changes throughout the project in the needs for the workforce at some stage.

3. Internal and external principles - analyse if there is a legal and reasonable set of rules regulating internal and external relations in the project. What ethics does it introduce and how can it affect the wellbeing of the project. Those rules can regulate every single aspect connected with the project, however they usually also emphasise the mission statement of the project, ambitions, inspirations and the common vision.

Environmental Feasibility - since each project is set somewhere and to some extent leaves the footprint on the environment, environmental approvals and agreements are mandatory before undertaking any physical steps. The stages of conducting environmental feasibility are as follows:


1. Identification of environmental legal issues - this part overlaps with the recognition of legal framework mentioned above. The goal is to identify all activities involved in the project which influence the environment somehow and demand the special approval. Not only the local law should be analysed, but any other regulations concerning the environment which are binding on the project site, e.g. regulations of European Union or United Nations Organisation. It is necessary to estimate the amount of time needed to obtain the approvals and the costs associated with it. Often the costs turn out too high. It is also recommended to write down all the environmental requirements limiting the scope of the project.


2. Environmental report - second step is to write the report which should describe the effect of the project on the environment, point out all possible consequences of the project which may influence the environment in near or distant future (including the influence on the atmosphere), consider what the construction of project’s setting would extract from the nature and try to visualise and write down how would the setting be after the project implementation.

3. Compensation - this part is a search for solutions which may minimise the negative impact of the project on the environment or maybe even cause positive impact.

4. Complete documentation - making the agreements and being granted the approvals. If it is not possible at the moment it should be analysed when and if it would be possible. Additionally, the costs of obtaining the licence and compensating for the environmental footprint should be estimated, so as they will not turn out as hidden costs.

Economical Feasibility - is usually the most prioritised component of the feasibility study. It supports a decision making process more than other components, since even if the analysis has positive outcomes, if the economical feasibility is negative, then the project usually would not get finalised (in this form)^[6]. 
Economical feasibility study is often conducted as a cost-benefit analysis. The estimated costs and revenues of the project are being compared. In the majority of cases, if the costs overgrow the expected revenues then the project is considered as unfeasible. The economical analysis is the most complex one, since it should include spendings on all the factors of the project: one-off costs, temporary costs, permanent costs, etc. The study should show the expected cash flow scheme. Moreover, the expected spendings may change throughout the project, hence the economical feasibility study should never be considered finished.

During the economical analysis administrative solutions may also be decided on, e.g. how the finances would be documented, how the cash flow would be controlled. The graphical representation showing project areas and the financial balance for each of them may also help to identify the main sources of revenues and spendings in the project.

The costs and revenues are different for each project, however in most of them the following spendings should be taken under consideration: organisation of the project’s site (new, bought or rented buildings, technological equipment), recruitment and training of the employees and their maintenance, obtaining the licences and approvals needed to start the project, necessary materials, taxes, transportation, etc.^[7]

[edit] Evaluation



The assessment of feasibility study is based on the assessments of all its components. The evaluation is individual for each study - the components and priorities differ between the projects and there is no single pattern. In order to have wider perspective the outcomes may be compared to similar business cases.


However, there are some universal conditions which should be fulfilled when presenting the outcomes of the study. First and foremost they should be as concise as possible and easy to understand. When applicable, the cause and effect relationships should be clearly stated ^[8].
The most important part of the evaluation is the final conclusion - weather the studied project is feasible or not ^[9]. This part should include pros and cons which influenced the final decision.

If the study has been conducted by an external consultancy the results and conclusions should be discussed with the project team members before accepting the study.

[edit] Limitations

Although the feasibility analysis is flexible, adjustable and useful tool, which covers more than similar ones, it is not an only correct choice and should not be applied in all cases. The most important limitations of feasibility analysis, which should be considered before choosing this tool, are listed below.

- In order to conduct the study a quite detailed project design, which is set in reality (important for environmental and legal considerations) is necessary. Hence, the analysis is not appropriate for models or hardly beginning designs.

- The costs of reliable and detailed analysis are high. Multi-consultancy provided by an external company is an investment not everyone can afford. For some projects the costs of feasibility study overgrow the costs of presumptive losses in case of project's failure.

- Feasibility study is not a part of project creation, although it is often mistaken for it. One should not seek for ideas using feasibility study, but rather asses the existing ideas (which can be later modified).

- Subjectivity of the researchers often influence the results of feasibility analysis making it less reliable. Especially when the study responsible are the team members who tend to posses strong belief into the success of the project. Their high motivation to finalise the project makes them overlook some worrisome elements ^[10].

- There is no fixed pattern telling which components to include in the study and how to asses and evaluate the outcomes. There is no top-down scale for judging advantages and disadvantages. Each case is different and should be individually assessed. This fact makes feasibility analysis a complicated tool.

- Time consumption - to be reliable the study should not be solely based on general data, but it is essential to conduct a series of customised studies for the particular business case. It is more practical than theoretical task, very time demanding.

[edit] References

1. ↑ Page 401, 2017, Exploring Strategy: Text and Cases.
2. ↑ Page 2, 2000, Cooperative Feasibility Study Guide.
3. ↑ Page 400, 2017, Exploring Strategy: Text and Cases.
4. ↑ Page 6, 2000, Cooperative Feasibility Study Guide.
5. ↑ Page 191, 2005, Entrepreneurship and Business Innovation.
6. ↑ Page 399, 2017, Exploring Strategy: Text and Cases.
7. ↑ Page 188, 2005, Entrepreneurship and Business Innovation.
8. ↑ Page 6, 2000, Cooperative Feasibility Study Guide.
9. ↑ Page 401, 2017, Exploring Strategy: Text and Cases.
10. ↑ Page 3, 2000, Cooperative Feasibility Study Guide.