A feasibility study reveals information that will give substance to a project or investment decision. It is a study which, by definition, assesses whether a project makes sense to carry out. Because of this, a feasibility study that reveals that a project will be unsuccessful if implemented is not a failure, but a natural part of the filtering process that feasibility studies give rise to and are used for. A feasibility study can and should be applied to major public or private projects, as well as to potential business ideas or decisions irrespectively of their scale. Of course, for obvious reasons, bigger projects require more complex feasibility studies than their smaller counterparts.
Overall, feasibility studies comprise a tool that can help in the decision-making process of a project through the specification and comparison of alternatives to the project, as well as the optimisation of the chosen alternative. The studies produce a set of information that allows the client, be it an individual, a firm, a public authority, a bank, a national government or a regional trading bloc, to reach a final go or no-go decision.
A well-designed Feasibility Study will give a description of the project and its background. The project’s context and objectives will also be well-defined, together with the project area, services or products envisaged, demand drivers and estimated demand for those products or services and the main stakeholders. The decision-makers will benefit from feasibility studies as they provide focus to a project by ultimately narrowing down the list of available alternatives through the identification of alternative solutions that can potentially result in new solutions that were not being originally contemplated that may yield better results than the originally-proposed solution. A Feasibility study can also act as a supporting document to help secure external funding. For more information on and help with economic support for applications for EU funding, please click here.
If a feasibility study indicates that a project idea is feasible, the next step would be the formulation of the detailed technical designs on the basis of which more detailed feasibility studies will be undertaken as well as a business plan undertaken both from a cashflow and an accruals perspective, together with any other ad hoc technical studies that might be required (like geological surveying, environmental impact assessments, traffic impact assessments, bathymetric studies and the like). These are logical follow ups to feasibility studies as they can build on and develop the analysis thereby bringing the project closer to fruition in incremental steps. The feasibility study spurs private sector entities to understand the market, the competitors, potential expenses, and potential staff needs. Overall, a business plan, which is usually an integral part in a private sector feasibility study, will document how the business will work while allowing for the formulation of contingency plans in the case of future issues that may arise. The Corporate division of Equinox Advisory provides services such as business plan formulation, business administration, budgeting, and business formation and corporate structuring strategy. Undertaken in the public sector, a feasibility study would normally also deal with non-market economic impacts such as external costs and benefits, in addition to the material covered by a feasibility study undertaken in the private sector.
Each Feasibility Study is sui generis and differs depending on the characteristics of the project, such as the:
- critical factors and deliverables;
- budget; and
- method used.
However, each study has a standard set of components that each feasibility study is built upon. These components are the Market Analysis, the Technical Analysis, the Options Analysis, and the Financial Analysis.
The Market Analysis is an important element of any feasibility study. It allows the researcher and the decision-maker to determine the current and forecasted demand for the project outputs, as well as important supply factors that will determine the profitability and sustainability of the project. This analysis will determine the type of market that the final product will be dealing with. It will also provide answers about the size of the market, the market model, the main competitors, their market share, the type of customers, and their willingness to pay. Through the market analysis, the environment that the project will be competing in is defined and the potential success of the project is usually outlined.
The Technical Analysis, especially for larger projects, should be carried out in the preliminary stages of the Feasibility Study. The technical analysis estimates the size and type of infrastructure that is needed for the project, as well as the main cost components that are needed to build and maintain it along the reference period. It also establishes a residual value – the value that the infrastructure will be worth at the end of the reference period. A comparison of different technologies and their providers may also be required to determine the most feasible option.
The Options Analysis helps determine the alternative versions that the project might be able to take. The options analysis must start with a full list of available options, even the most unlikely ones, and this will then be shortlisted to those that make it through a preliminary feasibility assessment. The surviving options will then be elaborated on and will be studied further to determine which ones are feasible under the circumstances pertaining to the scenarios modelled. From this analysis, options that do not make sense in accordance with a pre-established scoresheet are eliminated and the researcher ends up with a few (usually between 2 to 5) alternative, viable options. In most cases, a baseline scenario that can be considered to be a “business as usual” option without any form of intervention is considered for comparison. Other scenarios may include a “do minimum” scenario and “do something” scenario(s). The “do minimum” scenario will represent the least cost option to achieve the project’s goals. The “do something” scenario(s) explore the feasibility of possible alternatives that vary in investment specification and magnitude, and satisfy the project objectives. For each option, the initial capital expenditure and the likely operational cost over the lifetime of the project must be outlined. Through this exercise, the project appraisers will be able to identify the available alternatives and check for their feasibility. The results of the options analysis will determine the options for further analysis within the project.
The Financial Analysis is carried out on the options chosen in the option analysis. The financial analysis calculates financial indicators such as the Financial Net Present Value (FNPV) and the Financial Rate of Return (FRR). It also allows Cost-Volume-Profit analytics to be run on the modelled parameters. The financial analysis also assesses the financial sustainability of the selected option for the lifespan of the project on a cumulative cash flow basis. Therefore, this section of the Feasibility Study breaks down the different cost components and revenues of the different versions of the project to determine the different project versions’ financial return and sustainability and through that, it’s financial feasibility.
There are several components that can be added to the Feasibility Study such as an Affordability Analysis, a Demand Analysis, an Economic Analysis, a Sensitivity Analysis, and other project-specific estimations. The team at Equinox Advisory is equipped to carry out these analyses using a variety of tools and in-house software to generate robust results that cater for your requirements.
The team at Equinox Advisory would be happy to help you by applying their knowledge and experience in management, statistics and economics to carry out the following components of a feasibility study:
- Market Feasibility Analysis through the application of:
- Demand Analyses by evaluating the extent of demand both on a local and international context.
- Supply Analysis including elements such as suppliers, past trends, and forecasted supply availability.
- Competition analysis through the determination of the effects of competing products, services, firms, and industries.
- Options Analysis;
- Technical Analysis including: technology evaluations, major cost investments, alternative technologies, plant location and design, input requirements and availability;
- Operational Feasibility;
- Financial Analysis;
- Economic Analysis; and
- Following up a Feasibility study with a:
- Business plan;
- Environmental Impact Assessment;
- Economic Impact Assessment;
- Cost-Benefit Analysis;
- Input-Output Analysis;
- Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis.