CHAPTER TWO

PROJECT FEASIBILITY STUDY

 Pre feasibility Studies / Opportunity Studies

A pre-feasibility study should be viewed as an

intermediate stage between a project
opportunity study and a detailed feasibility
study, the difference being primarily the extent
of details of the information obtained.
It is the process of gathering facts and opinions
pertaining to the project.
 Pre feasibility Studies / Opportunity Studies

This information is then vetted for the purpose of

tentatively determining whether the project idea
is worth pursuing furthering. Pre feasibility
study lays stress on assessing market potential,
magnitude of investment, , technical feasibility,
financial analysis, risk analysis etc.
 Feasibility Study

Feasibility Study forms the backbone of Project

Formulation and presents a balanced picture
incorporating all aspects of possible concern.
The study investigates practicalities, ways of
achieving objectives, strategy options,
methodology, and predict likely outcome, risk
and the consequences of each course of action.
 Feasibility Study

It becomes the foundation on which project

definition and rationale will be based so that the
quality is reflected in subsequent project activity. A
well conducted study provides a sound base for
decisions, clarifications of objectives, logical
planning, minimal risk, and a successful cost
effective project.
Assessing feasibility of a proposal requires
understanding of the STEEP factors. These are as
under Social, Technological, Ecological,
Economic, and Political.
 Feasibility Study

The project feasibility studies focus on

 Economic and Market Analysis
 Technical Analysis
 Market Analysis
 Financial Analysis
 Economic Benefits
 Project Risk and Uncertainty
 Management Aspects
 Economic and Market Analysis

In the recent years the market analysis has

undergone a paradigm shift. The demand
forecast and projection of demand supply gap
for products / services can no longer be based
on extrapolation of past trends using statistical
tools and techniques. One has to look at
multiple parameters that influence the market.
 Economic and Market Analysis

Demand projections are to be made keeping in

view all possible developments. Review of the
projects executed over the years suggests that
many projects have failed not because of
technological and financial problems but mainly
because of the fact that the projects ignored
customer requirements and market forces.
 Economic and Market Analysis

In market analysis a number of factors need to be

considered covering – product specifications,
pricing, channels of distribution, trade practices,
threat of substitutes, domestic and international
competition, opportunities for exports etc.
It should aim at providing analysis of future
market scenario so that the decision on project
investment can be taken in an objective manner
keeping in view the market risk and uncertainty.
 Technical Analysis

Technical analysis is based on the description of

the product and specifications and also the
requirements of quality standards.
The analysis encompasses available alternative
technologies, selection of the most appropriate
technology in terms of optimum combination of
project components, implications of the
acquisition of technology, and contractual
aspects of licensing. Special attention is given to
technical dimensions such as in project selection.
 Technical Analysis

The technology chosen should also keep in view

the requirements of raw materials and other
inputs in terms of quality and should ensure
that the cost of production would be
competitive. In brief the technical analysis
included the following aspects.
 Technical Analysis
Technology Availability
Alternatives
Latest / state-of-art
Other implications
Plant capacity Market demand
Technological parameters
 Technical Analysis
Technology Availability
Alternatives
Latest / state-of-art
Other implicatios

Plant capacity Market demand

Technological parameters
Inputs Raw materials
Components
Power
Water
Fuel
Others
 Technical Analysis
Availability skilled man power
\Location
Logistics
Environmental consideration – pollution, etc.,
Requirement buildings/ foundation
Other relevant details
 Environmental Impact Studies

All most all projects have some impact on

environment. Current concern of environmental
quality requires the environmental clearance for
all projects. Therefore environ impact analysis
needs to be undertaken before commencement
of feasibility study.
 Environmental Impact Studies

Objectives of Environmental Impact Studies:

 To identify and describe the environmental
resources/values (ER/Vs) or the environmental
attributes (EA) which will be affected by the
project (in a quantified manner as far as
possible).
To describe, measure and assess the
environmental effects that the proposed project
will have on the ER/Vs.
 Environmental Impact Studies

To describe the alternatives to the proposed

project which could accomplish the same
results but with a different set of environmental
effects.
The environmental impact studies would facilitate
providing necessary remedial measures in terms
of the equipments and facilities to be provided
in the project to comply with the environmental
regulation specifications.
 Financial Analysis

The Financial Analysis, examines the viability of

the project from financial or commercial
considerations and indicates the return on the
investments.
 Risk and Uncertainty

Risk and Uncertainty are associated with every

project. Risk is related to occurrence of adverse
consequences and is quantifiable. It is analyzed
through probability of occurrences.
Where as uncertainty refers to inherently
unpredictable dimensions and is assessed
through sensitivity analysis.
 Risk and Uncertainty

It is therefore necessary to analyze these

dimensions during formulation and appraisal
phase of the programme. Factors attributing to
risk and uncertainties of a project are grouped
under the following;
 Technical –relates to project scope, change in
technology, quality and quantity of inputs,
activity times, estimation errors etc.
 Risk and Uncertainty

 Economical- pertains to market, cost,

competitive environment, change in policy,
exchange rate etc.
 Socio-political- includes dimensions such as
labor, stakeholders etc.
 Environmental – factors could be level of
pollution, environmental degradation etc.
 Economic Benefits

Apart from the financial benefits (in terms of

Return on Investment) the economic benefits
of the project are also analyzed in the feasibility
study.
The economic benefits include employment
generation, economic development of the area
where the project is located, foreign exchange
savings in case of import substitutes or earning
of foreign exchange in case of export oriented
projects and others.
 Management Aspects

Management aspects are becoming very

important in project feasibility studies. The
management aspects cover the background of
promoters, management philosophy, the
organization set up and staffing for project
implementation phase as well as operational
phase, the aspects of decentralization and
delegation, systems and procedures, the
method of execution and finally the
accountability.
 Reasons Given Not to Do Feasibility Study

We know it is feasible. An existing business is

already doing it.
Why do another feasibility study when one was
done just a few years ago.
Feasibility studies are just a way for consultants
to make money.
Why not just hire a general manager who can
do the study.
 Reasons to Do Feasibility Study

 Gives focus to the project and outline

alternatives.
 Narrows business alternatives.
 Surfaces new opportunities through
investigative process.
 Identifies reasons not to proceed.
 Enhance the probability of success by
addressing and mitigating factors early on that
could affect the project.
 Reasons to Do Feasibility Study

 Provides quality information for decision

making.
 Helps to increase investment.
 Provides documentation that the business
venture was thoroughly investigated.
 Helps in securing funding from lending
institutions and other sources.
 Feasibility Study vs Business Plan

Feasibility Study
 Feasibility study provides an investigating
function.
 It addresses the question of “Is this a viable
business venture?
 Outlines and analyzes several alternatives or
methods of achieving business success. So, the
feasibility study helps to narrow the scope of the
project to two or three scenarios or alternatives and
to define the best business model or alternative.
 Feasibility Study vs. Business Plan

 The consultant conducting the feasibility

study may work with the group to identify the
best alternative for their situation. This becomes
the basis for the business plan.
 The feasibility study is conducted before
business plan.
 If the venture is deemed not to be feasible,
efforts may be made to correct its
deficiencies ,other alternatives may be explored,
or the idea is dropped.
 Feasibility Study vs. Business Plan

Business Plan
 Business plan provides a planning function.
 Business plan outlines the actions needed to
take the proposal from idea to reality.
 Business plan is prepared only after the
business venture has been deemed to be
feasible. The business plan provides a roadmap
of how the business will be created and
developed .The business plan provides the blue
print for project implementation.