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Feasibility study

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A feasibility study is a professional assessment used to determine the practicality of a proposed project or system. Its primary purpose is to objectively uncover the strengths and weaknesses of a business venture. It also identifies opportunities and threats within the natural environment. By examining the resources required, the study helps decide if a project should proceed, be redesigned, or be abandoned.

This process is vital because it provides credible information to potential investors and lending institutions. A well-designed study must remain unbiased to ensure that decisions are based on rational facts rather than mere hope.

To conduct a thorough analysis, experts often examine five specific frames of analysis. The first is the frame of definition, which establishes what the project is. The second is the frame of contextual risks, which looks at outside factors. The third is the frame of potentiality, exploring what the project could achieve. The fourth is the parametric frame, which uses measurable data. Finally, the frame of dominant and contingency strategies looks at different ways to manage the project.

Experts also consider the "four Ps": Plan, Processes, People, and Power. This comprehensive approach ensures that no major part of the venture is overlooked.

Risks and vulnerabilities are also categorized during the study. Risks are considered external to the project, such as changing weather conditions. These are divided into eight categories, including financial, organizational, environmental, technological, marketing, sociocultural, legal, and political risks. In contrast, Points of Vulnerability, or POVs, are internal to the project. Unlike external risks, POVs can be controlled or eliminated by the people running the project.

Additionally, researchers must manage constraints, which are measurable limits like the project calendar, costs, and quality norms.

One common method for organizing these assessments is the TELOS acronym. Technical feasibility asks if the project is actually possible with current tools and expertise. Economic feasibility examines if the project can be afforded and if it will increase profit. Legal feasibility ensures the venture complies with the laws of the land, such as data protection regulations. Operational feasibility measures how well the project fits into the existing business environment and culture. Finally, scheduling, or time feasibility, determines if the project can be completed within a reasonable and useful timeframe.

Technical and operational details are especially important for complex systems. A technical assessment evaluates hardware and software to see if they meet the expected needs. Operational feasibility focuses on design-dependent parameters like reliability, maintainability, usability, and sustainability. These qualities must be engineered into the design during the early stages to ensure success.

For agricultural projects, the study might focus on the method of production. This involves checking the availability of raw materials, the quality of inputs, and the expected prices in the market. Even the project location is vital, as it must consider land availability, transport costs, and access to services like water or electricity.

Financial feasibility is perhaps the most critical component for many stakeholders. This involves analyzing the total estimated cost and the project's capital structure, such as its debt-to-equity ratio. Experts project cash flows to determine future profitability and assess how easily assets can be converted to cash. They also perform sensitivity analysis. This tests how the project would handle a mild or acute slowing of sales, or a large increase in costs. Understanding these financial risks helps prevent unexpected failures during the project lifecycle.

Technology has played a significant role in making these studies more accurate. In 1983, the first generation of the Computer Model for Feasibility Analysis and Reporting, known as COMFAR, was released. This software was developed by the United Nations Industrial Development Organization (UNIDO). The COMFAR III Expert tool helps analyze investment projects by accepting financial and economic data. It produces detailed financial statements and graphical displays to show performance measures.

This tool is used for everything from new projects to the expansion or rehabilitation of existing enterprises, making complex economic appraisal much more accessible.

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