What is a feasibility study?

As the name implies, a feasibility study is used to determine the viability of

an idea, such as ensuring a project is legally and technically feasible as well as economically justifiable.
It tells us whether a project is worth the investment—in some cases, a project may not be doable.
There can be many reasons for this, including requiring too many resources, which not only prevents
those resources from performing other tasks but also may cost more than an organization would earn
back by taking on a project that isn’t profitable.

A well-designed study should offer a historical background of the business or project, such as a
description of the product or service, accounting statements, details of operations and management,
marketing research and policies, financial data, legal requirements, and tax obligations. Generally,
such studies precede technical development and project implementation.

A feasibility study evaluates the project’s potential for success; therefore, perceived objectivity is an
important 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
evaluation of the hardware, software, and other technology 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 analyze 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 study helps identify any constraints the
proposed project may face, including:

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

2. Internal Corporate Constraints: Financial, Marketing, Export, etc.
3. External Constraints: Logistics, Environment, Laws and Regulations, etc.
4. Benefits of Conducting a 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 learning that the project just 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:

1. Improves project teams’ focus

2. Identifies new opportunities
3. Provides valuable information for a “go/no-go” decision
4. Narrows the business alternatives
5. Identifies a valid reason to undertake the project
6. Enhances the success rate by evaluating multiple parameters
7. Aids decision-making on the project
8. Identifies reasons not to proceed

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

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

2. Internal Corporate Constraints: Financial, Marketing, Export, etc.
3. External Constraints: Logistics, Environment, Laws and Regulations, etc.
Technical Evaluation Analysis

• Project Risk and Contingency Analysis

• Key issues in project analysis

• Market analysis – Supply and demand

• A market analysis is a quantitative and qualitative assessment of a

market. It looks into the size of the market both in volume and in value,
the various customer segments and buying patterns, the competition,
and the economic environment in terms of barriers to entry and
regulation.

• Demographics and Segmentation

• Target Market

• Market Need

• Competition

• Barriers to Entry

• Regulation

• Technical analysis – Technical viability; sensible choices

• The Technical Feasibility Study assesses the details of how you will
deliver a product or service (i.e., materials, labor, transportation, where
your business will be located, the technology needed, etc.).

• Think of the technical feasibility study as the logistical or tactical plan of

how your business will produce, store, deliver, and track its products or
services.

• The Technical Feasibility Study Must Support Your Financial

Information

• Financial analysis – financial viability; return on investment; risk

The general groups of ratios are:

• Liquidity ratios. This is the most fundamentally important set of ratios,

because they measure the ability of a company to remain in business.

• Cash coverage ratio. Shows the amount of cash available to pay

interest.

• Current ratio. Measures the amount of liquidity available to pay for

current liabilities.
• Quick ratio. The same as the current ratio, but does not include
inventory.

• Liquidity index. Measures the amount of time required to convert

assets into cash.

• Activity ratios. These ratios are a strong indicator of the quality of

management, since they reveal how well management is utilizing
company resources

• Accounts payable turnover ratio. Measures the speed with which a

company pays its suppliers.

• Accounts receivable turnover ratio. Measures a company's ability to

collect accounts receivable.

• Fixed asset turnover ratio. Measures a company's ability to generate

sales from a certain base of fixed assets.

• Inventory turnover ratio. Measures the amount of inventory needed to

support a given level of sales.

• Sales to working capital ratio. Shows the amount of working capital

required to support a given amount of sales.

• Working capital turnover ratio. Measures a company's ability to

generate sales from a certain base of working capital.

• Leverage ratios. These ratios reveal the extent to which a company is

relying upon debt to fund its operations, and its ability to pay back the
debt.

• Debt to equity ratio. Shows the extent to which management is willing

to fund operations with debt, rather than equity.

• Debt service coverage ratio. Reveals the ability of a company to pay its
debt obligations.

• Fixed charge coverage. Shows the ability of a company to pay for its
fixed costs.

• Profitability ratios. These ratios measure how well a company performs

in generating a profit.

• Breakeven point. Reveals the sales level at which a company breaks

even.

• Contribution margin ratio. Shows the profits left after variable costs are
subtracted from sales.
 • Gross profit ratio. Shows revenues minus the cost of goods sold, as a
proportion of sales.

• Margin of safety. Calculates the amount by which sales must drop

before a company reaches its breakeven point.

• Net profit ratio. Calculates the amount of profit after taxes and all
expenses have been deducted from net sales.

• Return on equity. Shows company profit as a percentage of equity.

• Return on net assets. Shows company profits as a percentage of fixed

assets and working capital.

• Return on operating assets. Shows company profit as percentage of

assets utilized.

• Economic analysis – social cost-benefit

• Study of assessing in advance the social and economic consequences on

initiation of any project

• Environmental analysis – likely ecological damage; restoration measures/costs

• Environmental Impact Assessment (EIA) is a process of evaluating the

likely environmental impacts of a proposed project or development,
taking into account inter-related socio-economic, cultural and human-
health impacts, both beneficial and adverse.
Although legislation and practice vary around the world, the fundamental
components of an EIA would necessarily involve the following stages:
• Screening to determine which projects or developments require
a full or partial impact assessment study;
• Scoping to identify which potential impacts are relevant to
assess (based on legislative requirements, international
conventions, expert knowledge and public involvement), to
identify alternative solutions that avoid, mitigate or compensate
adverse impacts on biodiversity (including the option of not
proceeding with the development, finding alternative designs or
sites which avoid the impacts, incorporating safeguards in the
design of the project, or providing compensation for adverse
impacts), and finally to derive terms of reference for the impact
assessment;
• Assessment and evaluation of impacts and development of
alternatives, to predict and identify the likely environmental
impacts of a proposed project or development, including the
detailed elaboration of alternatives;
• Reporting the Environmental Impact Statement (EIS) or EIA
report, including an environmental management plan (EMP),
and a non-technical summary for the general audience.
 • Review of the Environmental Impact Statement (EIS), based
on the terms of reference (scoping) and public (including
authority) participation.
• Decision-making on whether to approve the project or not, and
under what conditions; and
• Monitoring, compliance, enforcement and environmental
auditing. Monitor whether the predicted impacts and proposed
mitigation measures occur as defined in the EMP. Verify the
compliance of proponent with the EMP, to ensure that
unpredicted impacts or failed mitigation measures are identified
and addressed in a timely fashion.

• Risk analysis – Levels of risk associated with the project

• We can break project management risks down into five elements:

• Risk event: What might happen to affect your project?

• Risk timeframe: When is it likely to happen?

• Probability: What’s are the chances of it happening?

• Impact: What’s the expected outcome?

• Factors: What events might forewarn or trigger the risk event?

Step 1: Identify potential risks. Sit down and create a list of every
possible risk and opportunity you can think of. If you only focus on the
threats, you could miss out on the chance to deliver unexpected value
to the customer or client. Ask your team to help you brainstorm during
the project planning process, since they might see possibilities that you
don't.

Step 2: Determine probability. What are the odds a certain risk will
occur? It’s a lot more likely that a key team member will be out for a
week with the flu than develop total amnesia. Rate each risk with high,
medium, or low probability.

Step 3: Determine Impact. What would happen if each risk occurred?

Would your final delivery date get pushed back? Would you go over
budget? Identify which risks have the biggest effect on your project's
outcomes, and rate them as high impact. Rate the rest as medium or
low impact risks.

A Risk matrix is a matrix that is used during risk assessment to define

the level of risk by considering the category of probability or likelihood
against the category of consequence severity. This is a simple
mechanism to increase visibility of risks and assist management decision
making.

How to Place Risks in the Matrix

Risks are placed on the matrix based on two criteria:

Likelihood: the probability of a risk

Consequences: the severity of the impact or the extent of damage

caused by the risk.

Likelihood of Occurrence

Based on the likelihood of the occurrence of a risk the risks can be

classified under one of the five categories:

1. Definite: A risk that is almost certain to show-up during project

execution. If you’re looking at percentages a risk that is more
than 80% likely to cause problems will fall under this category.
2. Likely: Risks that have 60-80% chances of occurrence can be
grouped as likely.
3. Occasional: Risks which have a near 50/50 probability of
occurrence.
4. Seldom: Risks that have a low probability of occurrence but still
can not be ruled out completely.
5. Unlikely: Rare and exceptional risks which have a less than 10%
chance of occurrence.
6. Consequences

The consequences of a risk can again be ranked and classified into one
of the five categories, based on how severe the damage can be.
 1. Insignificant: Risks that will cause a near negligible amount of
damage to the overall progress of the project.
2. Marginal: If a risk will result in some damage, but the extent of
damage is not too significant and is not likely to make much of a
difference to the overall progress of the project.
3. Moderate: Risks which do not impose a great threat, but yet a
sizable damage can be classified as moderate.
4. Critical: Risks with significantly large consequences which can
lead to a great amount of loss are classified as critical.
5. Catastrophic: These are the risks which can make the project
completely unproductive and unfruitful, and must be a top
priority during risk management.

Using the Risk Assessment Matrix

Once the risks have been placed in the matrix, in cells corresponding to
the appropriate likelihood and consequences, it becomes visibly clear as
to which risks must be handled at what priority. Each of the risks placed
in the table will fall under one of the categories, for which different
colors have been used in the sample risk assessment template provided
with this article.

1. Extreme: The risks that fall in the cells marked with ‘E’ (red
color), are the risks that are most critical and that must be
addressed on a high priority basis. The project team should
gear up for immediate action, so as to eliminate the risk
completely.

2. High Risk: Denoted with ‘H’ with a pink background in the

risk assessment template, also call for immediate action or
risk management strategies. Here in addition to thinking
about eliminating the risk, substitution strategies may also
work well. If these issues cannot be resolved immediately,
strict timelines must be established to ensure that these
issues get resolved before the create hurdles in the
progress.

3. Medium: If a risk falls in one of the orange cells marked as

‘M’ , it is best to take some reasonable steps and develop
risk management strategies in time, even though there is no
hurry to have such risks sorted out early. Such risks do not
require extensive resources; rather they can be handled
with smart thinking and logical planning.
 4. Low Risk: The risks that fall in the green cells marked with
‘L’, can be ignored as they usually do not pose any
significant problem. However still, if some reasonable steps
can help in fighting these risks, such steps should be taken
to improve overall performance of the project.

• Analysis of project technical and engineering aspects

• Purpose of technical analysis

• Technical viability

• Design basis

• Existing and proven technologies

• New and developmental technologies

• Regulatory approvals – lead time, resources

• Risk considerations – obsolescence, continuous technical support

Questions asked

• Does the infrastructure design meet the need specified during the
Identification Phase?
• Are the engineering and architectural requirements of the project
achievable? If so, are they achievable at a price comparable with similar
infrastructure?
• Is the proposed technology (if a specific technology is being proposed,
this may not always be the best approach as it may constrain
innovation) proven or can the associated risks be properly managed or
allocated?
• Does the technical description of the project avoid, as far as possible,
significant geo-technical risks? Does it avoid other unbearable technical
risks?
• Is there a complete assessment of geo-technical conditions (that
showed the technical potential of the required construction on the site)
that can affect the project, in terms of costs and time? This is
particularly relevant for transport infrastructure, but it should be an
assessment for all Greenfield projects.
• Is the scope of service viable from a regulatory perspective?
• Can the service be specified in terms of outputs? If so, can the service
be measured adequately though performance indicators? and
• Can the main technological changes in the service delivery be
satisfactorily estimated?
The following characteristics highlight relevant technical risks associated with infrastructure
initiatives.

1. Initiatives with technological complexities, such as projects that will use novel technology not
significantly tested, or that will adapt technology not fully operational in the same conditions as
the project under analysis;
2. Projects requiring difficult engineering innovations, such as works of art or complex transport
structures (tunnels or bridges);
3. Projects built in particularly uncertain geo-technical conditions with consequences for a major
part of the project costs (that is, a tunnel project or a large sea bridge);
4. Projects in areas with extraordinary natural risks in terms of weather or earthquakes; and
5. Projects with other complexities and uncertainties concerning the reliability of costs and time of
construction, such as unknown or very old utility locations.

In particular, the following precautions should be considered --

• Including industry experts in the project team;

• Conducting careful evaluations of benchmarks and precedent projects with
comparable risks, associated with an investigation of market interest; and
• Including detailed information about the identified risks in the market sounding
exercise, particularly searching for feedback of players in the construction
industry or other relevant industries (for example, equipment suppliers)

• Sensible choices

• Location

• Process, equipment, methods, procedures

• Size - optimal scale of operation

• Constructability, operability and maintainability

• Availability of human resources, power, and other inputs

• Realistic work schedule