A feasibility study is a thorough analysis of all important components of a proposed project in order to assess its technical viability, economic feasibility, and chances of success.
Construction industry projects are capital-intensive and often require millions of dollars. Before spending such an enormous amount, lenders and project owners need to be confident of the project’s success and financial returns.
What is feasibility study?
A feasibility study is a detailed assessment study that gives enough information to analyze and decide whether or not to proceed with the proposed project.
It is a set of exploratory investigations conducted in the early stages of a project to address and clear up issues and difficulties that might impact the scope and outcomes of the proposed project.
However, companies often conduct a pre-feasibility study (PFS) before a feasibility assessment. A pre-feasibility study is a preliminary study that analyzes, determines, and selects the best business scenario, assuming multiple business scenarios exist. PFS identifies the best scenario from both technical and financial standpoints.
Feasibility Study: Objective
A feasibility study of a construction project is intended to assist project owners/prospective investors in determining whether a proposed project or investment is likely to succeed. It specifies the project potential, costs associated with the construction process, and the anticipated benefits the project might bring. Conducting a construction feasibility study ensures that the project will not waste essential resources like money, time, and energy before the project execution plan.
For a large infrastructure project, there might be multiple feasibility studies. This is because large-scale projects have various aspects to consider before going ahead with the final investment decision.
- Environmental Impact Assessment
- Regulatory approval
- Project cost
Not all feasibility studies are the same. Every project and every industry has its own way of conducting feasibility studies. Even within the same industry, the study varies when the project scope and operational demands change. In some instances, there might be numerous feasibility studies before the project starts. This is particularly true for complex and large projects, especially in the Oil & Gas industry.
Type of feasibility studies
Here are five main types of feasibility studies associated with a project cycle.
A comprehensive feasibility study is a complete feasibility report that takes into account some of the most rational business practices that should be implemented before beginning any project. The comprehensive feasibility report includes information on land acquisitions, real estate difficulties, and the economic and cultural influence on the surrounding areas.
Economic Feasibility Analysis
When a corporation needs to determine if the projected amount of money and funding is sufficient to finish a project successfully, it conducts an economic feasibility study. While a business plan may include a “CBA” or cost-benefit analysis section, an economic feasibility study will be more extensive and include more figures and numbers in the financials.
Technical Feasibility Analysis
The technical feasibility study of a planned construction project determines if it can be completed without technical concerns. The size of the project site, vital access to the area, land topography, geotechnical information, flooding concerns, existing facilities or structures on the site, and other environmental factors are considered in this element of feasibility. Following the assessment of these factors, the consultants must examine the availability of materials, personnel, resources, and other practical requirements for the project.
Legal Feasibility Analysis
The feasibility assessment includes a section on a legal feasibility study, which discusses the legality of the proposed construction project. Legal feasibility ensures that a project will be built in accordance with current legal state requirements and conditions. It ensures that the project is free of issues with planning authorization, land ownership/easements, and taxation.
Operational Feasibility Analysis
The operational feasibility study of a project determines if the suggested strategy for the project can solve any potential challenges and achieve the set goals. This element of the feasibility study examines the overall project to ensure that the finished property can fulfill its intended function. Once completed, a school, for example, should be able to function optimally. The same should be true for homes, hospitals, and other facilities.
Scheduling Feasibility Analysis
The scheduling feasibility study is the last part of a feasibility assessment in the construction sector. It primarily calculates the time required to accomplish the job. Consultants would normally look at the overall design, materials, risk areas, and laws to see whether any of these elements could affect the project's overall timing. This component of feasibility evaluates the overall number of months or years required to execute a project while maintaining its quality.
Feasibility study report
A feasibility study report is a strategic brief of the findings of a feasibility study analysis. The feasibility report usually includes the following elements:
- An executive summary
- A detailed description of the feasibility study services
- Technical considerations
- The marketplace
- Marketing strategy
- Financial projections/ Cost Estimates
- Geotechnical studies
For some projects, some additional information might be included in the feasibility project report:
- Planning permissions (Legal & statutory approvals)
- Detailed budget analysis (based on client’s requirements)
- Alternate solutions
- Site assessment
- Operational and maintenance assessment
- Consultation with other stakeholder statutory authorities
- Additional site appraisals
Who conducts a feasibility study?
Generally, the EPC contractor tasked with the construction of the project conducts the feasibility study before starting the project. However, in some cases, the company may outsource a feasibility service consultant.
What happens after feasibility studies?
Once the feasibility study report is ready, the project owners/investors decide whether to proceed further. If so, they generally go for the Detailed Project Report (DPR) for civil infrastructure projects. However, for projects related to the oil & gas industry or the energy sector, the project owners go for the FEED (Front End Engineering Design) Study.
How do feasibility studies prevent cost overruns in construction projects?
Feasibility studies aid in the prevention of construction cost overruns by identifying to project stakeholders where and how the project might be improved. The findings of objective feasibility assessments, which include technical, economic, legal, operational, and scheduling considerations, highlight and emphasize what needs to be done before digging begins.
The key benefit of the feasibility study is that it identifies various potential risks that could delay the project and cause cost overruns. Project stakeholders should use the feasibility study findings to determine how to proceed with the construction project.
A feasibility study includes a thorough evaluation of what is required to complete the planned project. A description of the new product or venture, a market research analysis, the technology and labor required, as well as the sources of finance and capital, may all be included in the report. The report will also include financial predictions, the chance of success, and a yes-or-no judgment.
Both pre-feasibility and feasibility studies assist project managers in determining the viability of a project or commercial endeavor by identifying the elements that will contribute to its success. The analysis also illustrates the potential return on investment as well as any threats to the venture's success.