Feasibility Study

Business Plan & Economics

Consideration
Definition
• "Feasible" means practical, viable or possible.
The essence of Feasibility Study is a study on
what is practical or viable or possible.
• "A study on the current and expected
availability of human, physical, and financial:
resources so as to ensure their optimum
deployment, that can be measured according
to specified criteria in the context of prevailing
and predicted commercial and socio-
economic requirements"
Purposes
From the engineering point of view, a Feasibility Study
is carried out to discover:
• Whether or not the project or action taken is
appropriate
• What alternatives/ options are available
• From a selection of alternatives, what is the order of
merit
• Which alternative on its list is the best to pursue
• How best to execute them
• What will be the possible results from the decision
made?
Purposes (Cont’d)
• Feasibility study is also carried out to provide a
quantitative basis that helps in making decision.
• Normally a decision is required when making huge
investments on highway construction, product
manufacturing and others that require capital to be
invested on plant or others forms of physical asset
which will generate profit via sale of products or
services where the value can be assessed in terms of
cash payment.
• The decision have to made in terms of:
Determine
the best
alternative

Techniques
Determine
to analyses
the
all the
suitability of
probability
measures
problem
taken
occur
Purposes

Determine
Determine
the
whether the
suitability of
project can
probability
gain profit.
decision
Types of Feasibility Study

Site/ location Economic Marketing

Financial Design
Types of Feasibility Study (Cont’d)
Site/location Feasibility Study
• Includes description of site location, basic facilities,
planning permission and surrounding

Economic Feasibility Study

• It encompasses studies pertaining to trends of
employment, income of population.

Marketing Feasibility Study

• This includes analysis of supply, demand and price.
Types of Feasibility Study (Cont’d)
Financial Feasibility Study
• It covers studies relating to cost and return,
profit on cost, development return, investment
assessment, etc.

Design Feasibility Study

• This includes allocation and use of land,
design factors, design theme, etc.
Process of Feasibility Study

Evaluation
Synthesis

Analysis

Data
collection

Definition
of
problem/
study
Process of Feasibility Study (Cont’d)
Definition of problem/ study
• At the initial stage of a study, it
is essential that an agreement
reached (between the client and
consultant) on the definition of
problem/ study and ways to
overcome
• It is only appropriate that the
problem/study has been
identified and described and
exists throughout the study
period.
• Any change to the definition of
problem is likely to cause
fundamental changes and thus
wastage of work will occur.
Data collection
• This is the most important
input. It includes:
– Choice of relevant alternatives
and technology
– Location
– Infrastructure requirements of
the alternatives
– Clients' human and physical
resources and availability of
raw materials
– A list of qualified and capable
contractors and their skills in
technology. In addition, the
market needs to be investigated
in order to determine the
predicted price and sale ability
of the product.
Process of Feasibility Study (Cont’d)
Analysis
• Indicate time of project implementation and subsequent information
Programme

• Methods to estimate project capital cost

Capital cost • I.e. Preliminary estimate, approximate estimate, elemental cost analysis

• Working capital can be calculated directly as percentage to the capital cost

Working capital & • The actual percentage depends on the company's standards and performance.
operational cost • The operational cost of a project can be calculated by using the information and records of other
similar projects and usually a small percentage is allocated for this cost. Maintenance costs are
also calculated in a similar manner.

• This covers general management cost. This includes the client's management
Management cost expenditures and supervision of projects, which is between 1 - 2 % from the overall
construction cost.

Assessment on financial • In order to undertake a project a client would probably use his own money or take a loan
resources, their with a certain interest rate to be paid. The duration of the interest rate to be charged
begins from the date the project commences until it is completed.
acquisition and cost

• In particular, the product competitiveness and selling price.

Market condition
Process of Feasibility Study (Cont’d)
Synthesis
• Up to this point, all information must have been
obtained to synthesize a project model
• Most commonly used is the "cashflow" model,
whether for cash inflow or cash outflow.
Process of Feasibility Study (Cont’d)
• Evaluation
• Project evaluation may be carried out using the
following methods:
Aver Inter
Pa Net
age/
nal Pre
yb Annu
Rat
al set
ack Rate e of
of Ret
Val
Me Retur ue
urn
tho n
(IR (NP
(ARR
d ) R) V)
Process of Feasibility Study (Cont’d)
Report and decision
• Focus on communication at work
• The main objective of the study is to choose the best
possible alternative.
• A project is deemed to be more attractive when it has
various uses, low risk and reasonable price.