Example Feasibility Study
Regardless
of the definition or agency defining the Feasibility Study outline or contents,
Feasibility Studies attempt to answer the fundamental question: is the project
feasible? Can it be done? Does it make sense?
For this example manual, a Feasibility Study can be considered as an integrated compilation of substudies that demonstrates the workability of a project.
The closest
or most appropriate “Feasibility Study” definition would be from the March 2002
European Commission revised Project Cycle Management Handbook (PCM), p 99. It
is defined as:
Feasibility:
Address the issue whether the project objectives can be really achieved (is the
project
doable?)
Feasibility
Study: A feasibility study, conducted during the (project’s) Appraisal phase
(i.e.
project Ex
Ante evaluation), verifies whether the proposed project is well-founded and is
likely to
meet the needs of its intended target groups / beneficiaries. The study should
design
the project
in its operational details taking account of all policy technical economic
financial
institutional
management environmental socio-cultural gender-related aspects. The study will
provide the
EC and partner government with sufficient information to justify acceptance
modification
or rejection of the proposed project for further financing.
The above
statements may seem to the reader as rather broad, as it must be, considering
that these
must be applied to thousands of projects in many different situations. Given
that
a more
specific, readily understandable methodology and Manual is here provided.
A
Feasibility Study comprises of a range of interrelated and often interdependent
substudies.
A
Feasibility Study links and integrates independent sub-studies into one
coherent whole. Consequently, individual sub-studies may need to be updated and
revised as information from other studies becomes available. For instance,
should capital investment needs overwhelm project financial resources, the
projects investment plan may be reduced or delayed. It is not uncommon, over
the course of a Feasibility Study that many assumptions are revised, new risks
identified and the project’s financial projections changed.
The
following outline is likely suitable compromising between simplicity, clarity
and thoroughness. Users should feel free to expand on some points, if it would
bring additional important information into the Feasibility Study and help in
its understanding, or shorten parts of it, if it is considered of little
interest to an infrastructure project. (For instance, the repair of an existing
road may not
need an
EIA).
Briefly, an
Infrastructure and Investment Feasibility Study most likely would include the
following headings and sub-headings.
1) Executive
Summary
2) Regional
Socio-Economic Situation (General Description of the current situation). Most
likely including brief on your local economy.
3) Legal Study
4) Financial
Plan
5) Project
Implementation Schedule
6) Market Study
and Marketing
7) Detail
Description of Activities
8) Environmental
protection
9) Control
10) Financial
Analysis and Projections
11) Social Economic Effects / Multiplier effects,
related studies
12) Options Analysis on different hypothesis and
scenarios
Annexes:
Scenario 1 -
Expected
Scenario 2 -
Optimistic
Scenario 3 –
Pessimistic
1. EXECUTIVE
SUMMARY
An Executive
Summary should be sharp and precise. It should be no longer than one or two
pages. It is
a challenge to summarize all of a project’s salient points into a compact and
easy to
understand summary. Its objective is that in a few short minutes the reader can
understand a
study’s key issues and findings.
2. SOCIO
ECONOMIC SITUATION
The Region’s
social and economic situation description provides the introduction to and
reasons for
the Feasibility Study. It sets the social and economic framework in which it
takes
place.
As most social
and economic statistics are widely publish and on the Internet, it is not
necessary to
fill these pages with statistics! Rather, the most important number should be
drawn out
for official or other documents and their references cited.
More
importance should be placed on the analysis of these figures and situation, not
presenting
tables of numbers. An analysis should provide what relevance the figures have
to
the project.
This is the most important area for the study writer to emphasis.
3. LEGAL
STUDY
A project
evolves under a legal framework. These rules and regulations must be respected.
A final
consideration is the inclusion or not of private sector investors or
partnerships.
4. FINANCING
The project
will need proper and sufficient financing. For the projects Financing Plan to
be successful, the Applicant should first complete most of the Feasibility
Study and forward copies to perspective lenders, most likely those already are
potential partners of the project.
Discussions
are likely to centre on:
5.
IMPLEMENTATION SHEDULE
A project
implementation schedule should be completed.
6. MARKET
STUDY AND MARKETING
It should be
remembered that without a good marketing plan and actions, you are:
Good first
steps could be:
Remember the
marketing concepts.
Place (Especially
for tourism, some say location, location, location)
Price: How much you
charge for rent, management fees, taxes, services, utilities
Product: How
attractive is your object
Publicity: Your object
brochure and support materials (attractive, well laid out, key
information
provided), web site.
7. DETAIL
DESCRIPTIONS
Detailed
site description is a technical, engineering, based activity. You will need to
provide
drawings,
plot plans, do civil and engineering drawings, obtain cost estimates, etc.
You will
need to hire a civil engineering firm, electrical engineer firm, perhaps an
architect,
land
surveyors etc. A hydrology study may be needed for the later Environment Impact
Assessment
study if that is the case.
Later, you
will need to prepare tender dossiers for procurement of services and works.
These
activities are likely to be time consuming and costly, your project should
include
sufficient
budget for the needed engineering studies.
A brief list
of these activities include:
Discussions
are likely to centre on:
8.
ENVIROMENT
New
infrastructure projects may require Environment Impact Assessments. These
assessments
may include
hydrology studies, nature studies, etc, depending on the project. Therefore, it
is
possible
that a given site will be inappropriate and that another site is needed.
Results of
the study are to be made public through a public hearing where objections to
the
project may
be heard. Depending on the location it is possible that significant objections
will be raised by NGOs, the public in general or the press.
If so, the
project may need to be modified and the public educated on the details of the
new
project.
9. CONTROL
Lenders and
donors will require close control on project funds. At present four types of
controls are
likely. These include:
10.
FINANCIAL ANALYSIS
Financial
analysis attempts to determine the financial viability of projects in regards
to
current
legal and accounting system norms while considering probable sales forecasts or
other
financially measurable benefits. The results do no necessary reflect project
economic
reality.
Nonetheless, it is an important tool, particularly for suppliers of capital, of
both loans
and equity,
as to the financial viability of projects.
Generally,
the most common ratios used are Net Present Value (NPV), Internal Rate of
Return (IRR)
and Cash Flow. These figures reveal the profitability of projects discounted
for
the time
value of money and whether or not the project is sustainable, that is a
project’s
projected
cash flow is projected always as positive.
11. SOCIAL
ECONOMIC EFFECT
Socio-economic
studies attempt to determine economic impacts on society or on GNP.
These are
not easy to measure. In fact, economist may debate the calculating methods and
assumptions
of benefits and losses, depend on how they view projects impact, the economy,
etc. To
simplify the socio-economic analytical process and avoid so-called ‘shadow’
prices (really
a term for
adjusted prices) and micro/macro economic considerations, we have taken a
simpler
approach. The user should however feel free to solicit the assistance of an
economist if
further analysis of a project’s socio-economic benefits is warranted.
Beginning
with Financial results, benefits are modified to further include:
The above
are readily calculated from the earlier financial analysis. Key for the
analysis the number of expected workers to he hired and their expected
salaries, granted a not so easy to determine number.