Elements of project feasibility studies

ELEMENTS OF PROJECT
FEASIBILITY STUDIES
Submitted By: Ali Raza

Roll no: 18-MCE-18

Submitted to: Sir Asad Bashir

Semester: 4th
 Elements of project feasibility studies

What is a feasibility study?

In simple definition, a feasibility study is a comprehensive analysis of the viability of a

project, idea or concept. The study typically considers relevant data sources for determining
whether a BIG idea is sustainable, achievable, affordable and ideal considering its scope,
cost, location and/or overall economic impact. Technology today allows for the additional
layering of artificial intelligence regarding site demographic and consumer behaviors making
the analysis of feasibility even more reliable.

Feasibility studies can be used for various planning purposes. A new retail or mixed-use
development may request a feasibility study to determine project costs, community support,
economic impact and market demographics. Retail restaurant franchises may request a study
to determine site selection and identify ideal site opportunities within a region. And, an
inventor may request a feasibility study to help determine the scope of interest, market
approach for a new product and evaluate potential competition. Feasibility studies are key
resource reports that provide detailed insight into a project or "BIG idea"; and, they are great
tools for use in the planning stages of an organization's goals. In addition, lender's and/or
investor groups may require feasibility studies to strengthen fundraising campaigns and
determine funding options.

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

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 Elements of project feasibility studies

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.

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 Elements of project feasibility studies

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

Apart from the approaches to feasibility study listed above, some projects also require other
constraints to be analyzed -

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

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

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

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 Elements of project feasibility studies

The Components of a Feasibility Study

A project feasibility study is a report that investigates the viability of a project.  It seeks to
provide its stakeholders with an analysis that results in a go/no-go decision.

Feasibility studies are performed in a variety of industries.  They are prominent in the oil &
gas, mining, or renewable energy industries, or manufacturing industry for new plant
investments.  They are performed wherever a large capital expenditure for a project must be
approved by the executive or board.

Feasibility studies are usually carried out by major engineering firms who have the multi-
disciplinary expertise on all the major project issues like project design, economics,
environmental, logistics, stakeholder, regulatory requirements, and so forth.

A project feasibility study involves performing the detailed project design to a level that can
justify a final project decision.  Although it varies by industry, this is usually around 80% –
100% complete.  In terms of project cost, it varies from around 5% – 15%.

The contents of a project feasibility study are:

 Design Summary
 Economics
 Geopolitical
 Environmental

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 Historical
 Social
Design Summary

The feasibility study must perform the project design to a minimum level that allows the
executives or board to make a final decision to proceed with the project.

The project cost must be estimated to a level that:

 Is sufficient to obtain project financing

 Is sufficient to make a final project go/no-go decision
On the impact side, the design must be sufficiently complete to ensure that all of the project’s
impacts are well known:

 Environmental
 Social
 Geopolitical
In most industries, many studies are produced prior to the final feasibility study.  In major
industrial projects, for example, a scoping study or pre-feasibility study will assess the
economics of one or two major factors that are driving the project’s viability.  However, they
generally serve only as a guideline used to proceed to the next phase, rather than a definitive
investigation of the viability of the project.

Typically, if there is a processing plant the size and throughput of the plant is finalized.  If
there is a production item like a solar farm the number and size of units are finalized.  For a
mine, the mining and processing rates are finalized.

The manpower and project schedule are analyzed, and the transportation and logistics are
planned out.  In short, every item that has a possibility of derailing the project is investigated

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 Elements of project feasibility studies

to ensure it does not pose a risk to project success.  Or if it does, the stakeholders are
proceeding with full knowledge of that risk.

Although the project design is often completed as part of the feasibility study, the design
details are usually not included in their entirety because they are not the main focus of the
report.  Rather, the project design is summarized within the feasibility study to give the
readers context.  Approval of the final design details comes after the feasibility decision
phase.

Economics

The most important part of a feasibility study is the economics.  Economics is the reason
most projects are undertaken (with some exceptions for government and non-profit projects
in which a cost benefit analysis is the primary tool).

Simply put, none of the other feasibility criteria matter if the project does not generate a
return on investment.

The economic feasibility of a project is determined by:

 Estimating the project costs

Because the design is mostly complete, each item is estimated using comparisons to
previous projects (analogous estimating) or unit rate averages from various sources
(parametric estimating).  These project costs are agglomerated into an overall project
estimate (bottom up estimating) to determine the overall capital cost of the project.
 Estimating revenue
The revenue generated from the project is usually alot less certain than the capital cost of
the plant.  For that reason, feasibility studies usually evaluate several different scenarios,
for example high-medium-low or optimistic/pessimistic scenarios.  If there is an

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underlying commodity price, like the price of crude oil, a discount from the current price
is usually applied to account for potential price volatility.  Risk analysis is an important
component of this step, since there are usually many risk events that could impact the
project’s revenue stream.
 Estimating operations and maintenance costs
The ongoing yearly costs of the facility once constructed are estimated and enter the
analysis together with the capital (one-time) cost.  Usually, but not always, this is known
with a fairly strong degree of certainty and contingency factors are not necessary.
 Capital budgeting techniques
The feasibility study considers all of the capital inflows and outflows accounting for the
time value of money.  Metrics such as the Net Present Value (NPV), Internal Rate of
Return (IRR), and payback period are calculated to give the decision makers the
necessary information to approve or cancel the project.
The first thing the decision makers usually look at are the three main capital
budgeting figures:

1. Net Present Value

The current value, in today’s currency, of the full stream of cash flows (positive and
negative) assuming a discount rate that takes into account the time value of money and
the organization’s opportunity cost.
2. Internal Rate of Return
The percentage return generated by the project, which is comparable to a stock market
return.
3. Payback Period
The length of time it takes to recover the initial investment.
Geopolitical

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Political considerations are a factor in the feasibility of many projects.  Although it is rare
that government regulation causes a project to be rejected outright, it is not uncommon that
they cause project changes which increase the project budget or affect the completion date.

In addition, the geopolitical landscape can change very quickly, and should be assumed to
change for projects that require more than a year of planning.

Project managers need to continually ask themselves what is the appetite for the project
among the political class.  Sensitive sectors include:

 Oil and gas

 Mining
 Renewable energy
 Electric vehicles
In these industries, change is a constant.  But do not assume that change occurs only in one
direction.  A new government can, and has, wiped out many projects that are in a trendy
niche.

Hence, a feasibility study should investigate the odds of obtaining regulatory approval for the
project, and what the future changes to those regulations are anticipated to be.

Environmental

In this day and age, environmental regulations are integral to project feasibility.  There are
many environmental regulations that could derail a project if a project manager is not familiar
with their project’s environmental footprint.  Major projects must plan for stakeholder
engagement since any one stakeholder can revolt and stop the project.

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In most jurisdictions, environmental reviews must be completed for any construction work
that involves disturbing a site.  These reviews require monitoring and establishing a baseline
for a variety of ecosystem components, which include:

 Soils and erosion

 Vegetation (grasses, bushes, and trees)
 Wetlands
 Wildlife
 Fish
 Hydrology and stormwater
 Water quality
 Air quality
 Groundwater
 Noise
 Navigation
 Cultural resources

Historical

You might be surprised how many projects are commissioned without a proper idea of who
tried the same thing, how long ago, and whether or not they were successful.  Success is often
relative – maybe they succeeded partially and there are good lessons learned for the current
project manager.

Even if it doesn’t swing the project feasibility, the previous lessons learned could
significantly reduce the cost or schedule of the project.

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 Elements of project feasibility studies

This is one of the most underrated areas of project feasibility because there is almost always
someone who has done (or is doing) something nearby, or at an earlier time period, which
provides tremendous insight into the project.  

Most mining or oil and gas projects perform an extensive desktop investigation into the
mining history at the site, taken from government records and files.  This is an important
component of the feasibility study as it gives the executives a context in which to make the
decision to approve the project.

Likewise, solar and wind farms must measure and analyze the amount of resource at the site. 
Data from nearby existing operations, or monitoring stations that didn’t result in
developments, are priceless information for project feasibility.

Social

Many projects have a societal impact that is an integral component of project feasibility. 
Even if the societal impacts are moderate and unlikely to be the determining factor in project
feasibility, they can factor into project budgets and schedules.

Societal impacts are often difficult to quantify prior to a project decision.  Although it is often
not possible to get societal buy-in prior to approving the project, it should be addressed to the
maximum extent possible to make a project decision.

Stakeholders who are opposed to the project should be identified and classified into five

categories:

1. Unaware
2. Opposed
3. Neutral
4. Supportive

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5. Leading (actively promoting the project)

When a stakeholder is in the first or second category (negative) but must be moved into the
third or fourth category (positive) in order for the project to proceed, this is a situation that
demands a high level of active management.  A stakeholder engagement plan should be
created which details the strategy used to convert the stakeholder.  The project control phase
must include an assessment of what stakeholder communications were completed in that
period, how well they worked, and what adjustments to the plan are necessary for the next
period.

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