Project Feasibility Analysis Meaning/Definition of Project Feasibility, Importance of Project Feasibility, Scope of Project Feasibility
Last updated on 14/12/2021 0 By indiafreenotesA feasibility study is an assessment of the practicality of a proposed 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. In its simplest terms, the two criteria to judge feasibility are cost required and value to be attained.
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. 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. It must therefore be conducted with an objective, unbiased approach to provide information upon which decisions can be based.
Benefits of a Feasibility Study
There are several benefits to feasibility studies, including helping project managers discern the pros and cons of undertaking a project before investing a significant amount of time and capital into it. Feasibility studies can also provide a company’s management team with crucial information that could prevent them from entering into a risky business venture.
Feasibility studies also help companies with new business development, including determining how it will operate, potential obstacles, competition, market analysis, and the amount and source of financing needed to grow the business. Feasibility studies aim for marketing strategies that could help convince investors and banks that investing in a particular project or business is a wise choice.
TELOS is an acronym in project management used to define five areas of feasibility that determine whether a project should run or not.
- T – Technical: Is the project technically possible?
- E – Economic: Can the project be afforded? Will it increase profit?
- L – Legal: Is the project legal?
- O- Operational: How will the current operations support the change?
- S – Scheduling: Can the project be done in time?
Importance of Project Feasibility
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 to learn that the project 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.
Benefits of conducting a feasibility study:
- Improves project teams’ focus
- Identifies new opportunities
- Provides valuable information for a “go/no-go” decision
- Narrows the business alternatives
- Identifies a valid reason to undertake the project
- Enhances the success rate by evaluating multiple parameters
- Aids decision-making on the project
- Identifies reasons not to proceed
Apart from the approaches to feasibility study listed above, some projects also require other constraints to be analyzed:
- Internal Project Constraints: Technical, Technology, Budget, Resource, etc.
- Internal Corporate Constraints: Financial, Marketing, Export, etc.
- External Constraints: Logistics, Environment, Laws, and Regulations, etc
Features of a feasibility study for a good project
A project feasibility study evaluates the following topics in project management:
- Time: How long do you think it’ll take to finish?
- Risk: What are the dangers of finishing this project? Based on the predicted rewards, is the risk worth the company’s money and time?
- Legality: Is the company well-equipped to complete the project in terms of technical resources?
- Budget: Is the organisation financially capable of completing the project, and does the cost-benefit analysis justify proceeding?
- Operational Feasibility: Is the project addressing the organization’s needs in its intended scope by resolving issues and/or capturing opportunities?
- Technical capability: Is the company well-equipped to complete the project in terms of technical resources?
Scope of Project Feasibility
Need Analysis
The realization of the need of the project is indicated in this head. This identified need may influence the company itself, another company, the government or public. The need is confirmed and evaluated by conducting preliminary study. A proposal is then developed that specify that how the need may be satisfied.
Process Work
The preliminary analysis performed to ascertain what will be needed to fulfil the need is included in the process work. The consultant who is an expert in the project area may perform the work. System models or prototypes are mostly involved in the preliminary study. The general characteristics of the process can be illustrated by using artist’s conception and scaled down models for technology oriented projects. The forecasting of the result before the starting of the actual project can be carried out by the simulation of the proposed system.
Engineering and Design
A thorough technical study of the proposed project is involved in this. Written quotations are got from subcontractors and suppliers as required. The capabilities of the technology are evaluated as required. If required, the product design must be performed at this time.
Cost Estimate
The estimation of project cost to an acceptable level of accuracy is included in this category. At this level of a project plan, levels of around -5% to +15% are common. Cost estimation includes both the initial & operating costs. Cost estimate document should also contain estimates of capital investment and of recurring and non-recurring costs. The sensitivity of the project plan to the estimated cost values is also viewed by conducting sensitivity analysis on the estimated cost values.
Financial Analysis
The analysis of the cash flow profile of the project is included in financial analysis. This analysis should contain sources of capital, rates of return, payback periods, inflation, breakeven points, sensitivity and residual values. It is important analysis in which it is ascertained that either the funds are available or not and also when the funds will be provided to the project. The economic and financial feasibility of the project is supported with the help of the project cash flow profile.
Project Impacts
The assessment of the impact of the proposed project is provided by this portion of feasibility study. Social, environmental, cultural, economic and political impacts may be some of the factors that how public views the project. The value added capacity of the project must also be evaluated. On the basis of the cost of the raw material used in manufacturing product and the price of the product, a value added tax can be evaluated. The tax so gathered can be considered as a contribution to government pockets.
Conclusions and Recommendations
The entire outcome of the project feasibility analysis should be covered in the ending portion of the project feasibility analysis. This may reflect the rejection or endorsement of the project. This portion of feasibility report must contain the recommendations on what should be done.
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