Feasibility study

Last updated

A feasibility study is an assessment of the practicality of a project or system. A feasibility study aims to objectively and rationally uncover the strengths and weaknesses of an existing business or proposed venture, opportunities and threats present in the natural environment, the resources required to carry through, and ultimately the prospects for success. [1] [2] [3] In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained. [4]

Contents

A well-designed feasibility study should provide a historical background of the business or project, a description of the product or service, accounting statements, details of the operations and management, marketing research and policies, financial data, legal requirements and tax obligations. [1] Generally, feasibility 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.[ citation needed ] [5] It must therefore be conducted with an objective, unbiased approach to provide information upon which decisions can be based.[ citation needed ]

Formal definition

A project feasibility study is a comprehensive report that examines in detail the five frames of analysis of a given project. It also takes into consideration its four Ps, its risks and POVs, and its constraints (calendar, costs, and norms of quality). The goal is to determine whether the project should go ahead, be redesigned, or else abandoned altogether. [6]

The five frames of analysis are:

The four Ps are traditionally defined as Plan, Processes, People, and Power. The risks are considered to be external to the project (e.g., weather conditions) and are divided in eight categories: (Plan) financial and organizational (e.g., government structure for a private project); (Processes) environmental and technological; (People) marketing and sociocultural; and (Power) legal and political. POVs are Points of Vulnerability: they differ from risks in the sense that they are internal to the project and can be controlled or else eliminated.

The constraints are the standard constraints of calendar, costs and norms of quality that can each be objectively determined and measured along the entire project lifecycle. Depending on projects, portions of the study may suffice to produce a feasibility study; smaller projects, for example, may not require an exhaustive environmental assessment.

Common factors

TELOS is an acronym in project management used to define five areas of feasibility that determine whether a project should run or not. [7] [8] [9]

  1. T - Technical — Is the project technically possible?
  2. E - Economic — Can the project be afforded? Will it increase profit?
  3. L - Legal — Is the project legal?
  4. O - Operational — How will the current operations support the change?
  5. S - Scheduling — Can the project be done in time?

Technical feasibility

This assessment is based on an outline design of system requirements, to determine whether the company has the technical expertise to handle completion of the project. [10] [11] [12] When writing a feasibility report, the following should be taken to consideration:

At this level, the concern is whether the proposal is both technically and legally feasible (assuming moderate cost).[ citation needed ]

The technical feasibility assessment is focused on gaining an understanding of the present technical resources of the organization and their applicability to the expected needs of the proposed system. It is an evaluation of the hardware and software and how it meets the need of the proposed system [13]

Method of production

The selection among a number of methods to produce the same commodity should be undertaken first. Factors that make one method being preferred to other method in agricultural projects are the following:

  • Availability of inputs or raw materials and their quality and prices.
  • Availability of markets for outputs of each method and the expected prices for these outputs.
  • Various efficiency factors such as the expected increase in one additional unit of fertilizer or productivity of a specified crop per one thing

Production technique

After we determine the appropriate method of production of a commodity, it is necessary to look for the optimal technique to produce this commodity.

Project requirements

Once the method of production and its technique are determined, technical people have to determine the projects' requirements during the investment and operating periods. These include:

  • Determination of tools and equipment needed for the project such as drinkers and feeders or pumps or pipes ...etc.
  • Determination of projects' requirements of constructions such as buildings, storage, and roads ...etc. in addition to internal designs for these requirements.
  • Determination of projects' requirements of skilled and unskilled labor and managerial and financial labor.
  • Determination of construction period concerning the costs of designs and consultations and the costs of constructions and other tools.
  • Determination of minimum storage of inputs, cash money to cope with operating and contingency costs.

Project location

The most important factors that determine the selection of project location are the following:

  • Availability of land (proper acreage and reasonable costs).
  • The impact of the project on the environment and the approval of the concerned institutions for license.
  • The costs of transporting inputs and outputs to the project's location (i.e., the distance from the markets).
  • Availability of various services related to the project such as availability of extension services or veterinary or water or electricity or good roads ...etc.

It determines whether the proposed system conflicts with legal requirements, e.g., a data processing system must comply with the local data protection regulations and if the proposed venture is acceptable in accordance to the laws of the land.

Operational feasibility study

Operational feasibility is the measure of how well a proposed system solves problems and takes advantage of the opportunities identified during scope definition and how it satisfies the requirements identified in the requirements analysis phase of system development. [14]

The operational feasibility assessment focuses on the degree to which the proposed development project fits in with the existing business environment and objectives about the development schedule, delivery date, corporate culture and existing business processes.

To ensure success, desired operational outcomes must be imparted during design and development. These include such design-dependent parameters as reliability, maintainability, supportability, usability, producibility, disposability, sustainability, affordability, etc. These parameters are required to be considered at the early stages of the design if desired operational behaviours are to be realised. A system design and development requires appropriate and timely application of engineering and management efforts to meet the previously mentioned parameters. A system may serve its intended purpose most effectively when its technical and operating characteristics are engineered into the design. Therefore, operational feasibility is a critical aspect of systems engineering that must be integral to the early design phases. [15]

Time feasibility

A time feasibility study will take into account the period in which the project is going to take up to its completion. A project will fail if it takes too long to be completed before it is useful. Typically this means estimating how long the system will take to develop, and if it can be completed in a given time period using some methods like payback period. Time feasibility is a measure of how reasonable the project timetable is. Given our technical expertise, are the project deadlines reasonable? Some projects are initiated with specific deadlines. It is necessary to determine whether the deadlines are mandatory or desirable.

Other feasibility factors

Resource feasibility

Describe how much time is available to build the new system, when it can be built, whether it interferes with normal business operations, type and amount of resources required, dependencies, and developmental procedures with company revenue prospectus.

Financial feasibility

In case of a new project, financial viability can be judged on the following parameters:

The financial viability of a project should provide the following information: [16]

In 1983 the first generation of the Computer Model for Feasibility Analysis and Reporting (COMFAR), a computation tool for financial analysis of investments, was released. Since then, this United Nations Industrial Development Organization (UNIDO) software has been developed to also support the economic appraisal of projects. The COMFAR III Expert is intended as an aid in the analysis of investment projects. The main module of the program accepts financial and economic data, produces financial and economic statements and graphical displays and calculates measures of performance. Supplementary modules assist in the analytical process. Cost-benefit and value-added methods of economic analysis developed by UNIDO are included in the program and the methods of major international development institutions are accommodated. The program is applicable for the analysis of investment in new projects and expansion or rehabilitation of existing enterprises as, e.g., in the case of reprivatisation projects. For joint ventures, the financial perspective of each partner or class of shareholder can be developed. Analysis can be performed under a variety of assumptions concerning inflation, currency revaluation and price escalations. [17]

Market research

Market research studies is one of the most important sections of the feasibility study as it examines the marketability of the product or service and convinces readers that there is a potential market for the product or service.[ citation needed ] If a significant market for the product or services cannot be established, then there is no project. Typically, market studies will assess the potential sales of the product, absorption and market capture rates and the project's timing.[ citation needed ] The feasibility study outputs the feasibility study report, a report detailing the evaluation criteria, the study findings, and the recommendations. [18]

See also

Related Research Articles

<span class="mw-page-title-main">Risk management</span> Identification, evaluation and control of risks

Risk management is the identification, evaluation, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.

<span class="mw-page-title-main">Cost accounting</span> Procedures to optimize practices in cost efficient ways

Cost accounting is defined by the Institute of Management Accountants as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs". Often considered a subset of managerial accounting, its end goal is to advise the management on how to optimize business practices and processes based on cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future.

Systems analysis is "the process of studying a procedure or business to identify its goal and purposes and create systems and procedures that will efficiently achieve them". Another view sees system analysis as a problem-solving technique that breaks down a system into its component pieces, and how well those parts work and interact to accomplish their purpose.

<span class="mw-page-title-main">Valuation (finance)</span> Process of estimating what something is worth, used in the finance industry

In finance, valuation is the process of determining the value of a (potential) investment, asset, or security. Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuation.

Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service. It is a management accounting concept that can be used in full cost accounting or even ecological economics where it includes social costs.

<span class="mw-page-title-main">Requirements analysis</span> Engineering process

In systems engineering and software engineering, requirements analysis focuses on the tasks that determine the needs or conditions to meet the new or altered product or project, taking account of the possibly conflicting requirements of the various stakeholders, analyzing, documenting, validating and managing software or system requirements.

<span class="mw-page-title-main">Systems development life cycle</span> Systems engineering terms

In systems engineering, information systems and software engineering, the systems development life cycle (SDLC), also referred to as the application development life cycle, is a process for planning, creating, testing, and deploying an information system. The SDLC concept applies to a range of hardware and software configurations, as a system can be composed of hardware only, software only, or a combination of both. There are usually six stages in this cycle: requirement analysis, design, development and testing, implementation, documentation, and evaluation.

Structured Systems Analysis and Design Method (SSADM) is a systems approach to the analysis and design of information systems. SSADM was produced for the Central Computer and Telecommunications Agency, a UK government office concerned with the use of technology in government, from 1980 onwards.

Software prototyping is the activity of creating prototypes of software applications, i.e., incomplete versions of the software program being developed. It is an activity that can occur in software development and is comparable to prototyping as known from other fields, such as mechanical engineering or manufacturing.

In business analysis, PEST analysis describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. It is part of an external environment analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors to be taken into consideration. It is a strategic tool for understanding market growth or decline, business position, potential and direction for operations.

A business case captures the reasoning for initiating a project or task. Many projects, but not all, are initiated by using a business case. It is often presented in a well-structured written document, but may also come in the form of a short verbal agreement or presentation. The logic of the business case is that, whenever resources such as money or effort are consumed, they should be in support of a specific business need. An example could be that a software upgrade might improve system performance, but the "business case" is that better performance would improve customer satisfaction, require less task processing time, or reduce system maintenance costs. A compelling business case adequately captures both the quantifiable and non-quantifiable characteristics of a proposed project. According to the Project Management Institute, a business case is a "value proposition for a proposed project that may include financial and nonfinancial benefit."

Target costing is an approach to determine a product's life-cycle cost which should be sufficient to develop specified functionality and quality, while ensuring its desired profit. It involves setting a target cost by subtracting a desired profit margin from a competitive market price. A target cost is the maximum amount of cost that can be incurred on a product, however, the firm can still earn the required profit margin from that product at a particular selling price. Target costing decomposes the target cost from product level to component level. Through this decomposition, target costing spreads the competitive pressure faced by the company to product's designers and suppliers. Target costing consists of cost planning in the design phase of production as well as cost control throughout the resulting product life cycle. The cardinal rule of target costing is to never exceed the target cost. However, the focus of target costing is not to minimize costs, but to achieve a desired level of cost reduction determined by the target costing process.

Requirements management is the process of documenting, analyzing, tracing, prioritizing and agreeing on requirements and then controlling change and communicating to relevant stakeholders. It is a continuous process throughout a project. A requirement is a capability to which a project outcome should conform.

Business analysis is a professional discipline focused on identifying business needs and determining solutions to business problems. Solutions may include a software-systems development component, process improvements, or organizational changes, and may involve extensive analysis, strategic planning and policy development. A person dedicated to carrying out these tasks within an organization is called a business analyst or BA.

Project portfolio management (PPM) is the centralized management of the processes, methods, and technologies used by project managers and project management offices (PMOs) to analyze and collectively manage current or proposed projects based on numerous key characteristics. The objectives of PPM are to determine the optimal resource mix for delivery and to schedule activities to best achieve an organization’s operational and financial goals, while honouring constraints imposed by customers, strategic objectives, or external real-world factors. Standards for Portfolio Management include Project Management Institute's framework for project portfolio management, Management of Portfolios by Office of Government Commerce and the PfM² Portfolio Management Methodology by the PM² Foundation.

A cost estimate is the approximation of the cost of a program, project, or operation. The cost estimate is the product of the cost estimating process. The cost estimate has a single total value and may have identifiable component values.

The engineering design process, also known as the engineering method, is a common series of steps that engineers use in creating functional products and processes. The process is highly iterative – parts of the process often need to be repeated many times before another can be entered – though the part(s) that get iterated and the number of such cycles in any given project may vary.

Engineering economics, previously known as engineering economy, is a subset of economics concerned with the use and "...application of economic principles" in the analysis of engineering decisions. As a discipline, it is focused on the branch of economics known as microeconomics in that it studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. Thus, it focuses on the decision making process, its context and environment. It is pragmatic by nature, integrating economic theory with engineering practice. But, it is also a simplified application of microeconomic theory in that it assumes elements such as price determination, competition and demand/supply to be fixed inputs from other sources. As a discipline though, it is closely related to others such as statistics, mathematics and cost accounting. It draws upon the logical framework of economics but adds to that the analytical power of mathematics and statistics.

Training Analysis is the process of identifying the gap in employee training and related training needs.

Marinus Link is a proposed 1500 megawatt capacity high voltage direct current (HVDC) electricity interconnector, to strengthen the connection between the Australian states of Tasmania and Victoria, on Australia's National Electricity Market. It involves approximately 250 km of subsea cables and approximately 90 km of underground land cables. Marinus Link will also incorporate significant optical fibre capacity for system control, with the remaining capacity available to strengthen telecommunications and data connectivity between the regions. Marinus Link will be supported by approximately 220 km of high voltage alternating current (HVAC) of proposed transmission developments in North West Tasmania, known as the North West Transmission Developments (NWTD). Collectively, Marinus Link and the North West Transmission Developments are known as Project Marinus. In October 2022, authorities pledged loans for the project, as well as supporting facilities such as pumped hydro in Tasmania.

References

  1. 1 2 Justis, R. T. & Kreigsmann, B. (1979). The feasibility study as a tool for venture analysis. Business Journal of Small Business Management 17 (1) 35-42.
  2. ↑ Georgakellos, D. A. & Marcis, A. M. (2009). Application of the semantic learning approach in the feasibility studies preparation training process. Information Systems Management 26 (3) 231-240.
  3. ↑ McLeod, Sam (2021-12-01). "Feasibility studies for novel and complex projects: Principles synthesised through an integrative review". Project Leadership and Society. 2: 100022. doi: 10.1016/j.plas.2021.100022 .
  4. ↑ Young, G. I. M. (1970). Feasibility studies. Appraisal Journal 38 (3) 376-383.
  5. ↑ Feasibility studies as a tool for successful co-operative business enterprises "(A case study of the importance of Feasibility students to co-operative investment)". grossarchive.com. Retrieved 2015-11-09.
  6. ↑ Mesly, Olivier. (2017). Project feasibility – Tools for uncovering points of vulnerability. New York, NY: Taylor and Francis, CRC Press. 546 pages. ISBN 9 781498 757911. See page 130.
  7. ↑ James Hall (23 August 2010). Information Technology Auditing. Cengage Learning. p. 188. ISBN   978-1-133-00804-0.
  8. ↑ P. M. Heathcote (April 2005). 'A' Level Computing. Payne Gallway. p. 176. ISBN   978-1-903112-21-2.
  9. ↑ McLeod, Sam (2021-06-29). "Interrelated Attributes of Project Feasibility: Visualizing the TELOS Framework" (PDF). Scienceopen Posters. doi: 10.14293/s2199-1006.1.sor-.ppt0zrs.v1 . S2CID   237876039.
  10. ↑ Blecke, Curtis. Financial Analysis for Decision making. Englewood Cliffs, N.J.: prentice-Hall, 1966
  11. ↑ Caiden, Naomi, and Aaron Wildovsky. planning and Budgeting in Poor Countries. New York: John Wiley and Sons, 1974
  12. ↑ Pouliquen, Louis Y. Risk Analysis in Project Appraisal. World Bank Staff Occasional Papers, no. 11. Baltimore: Johns Hopkins University Press, 1970.
  13. ↑ O'Brien, J. A., & Marakas, G. M. (2011). Developing Business/IT Solutions. In Management Information Systems (pp. 488-489). New York, NY: McGraw-Hill/Irwin.
  14. ↑ Bentley, L & Whitten, J (2007). System Analysis & Design for the Global Enterprise. 7th ed. (p. 417).
  15. ↑ Benjamin S. Blanchard & Wolt Fabrycky (uk). Systems Engineering & Analysis . 5th ed. (p. 361).
  16. ↑ Finance, Department of (30 October 2013). "ASSESSING FINANCIAL VIABILITY". www.finance.gov.au. Archived from the original on 17 December 2017. Retrieved 21 November 2015.
  17. ↑ COMFAR III Expert Reference Manual United Nations Industrial Development Organisation.
  18. ↑ Michele Berrie (September 2008), Initiating Phase - Feasibility Study Request and Report

Further reading

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.