1.5.1.3 Feasibility Study

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A Feasibility Study is the analysis of a business problem to determine if it can be solved effectively. The operational (will it work?), economical (costs and benefits) and technical (can it be built?) aspects are part of the study. Results of the study determine whether the solution is feasible in all the above aspects and thus should be implemented.

It should be noted that the economic feasibility of an option or a project is typically assessed through a Cost/ Benefit Analysis (refer to subchapter 1.5.1.2), which can be performed either in the framework of a Feasibility Study or as a separate study and then incorporate its results in the overall Feasibility Study.

Conducting a feasibility study is usually a complicated task that should be undertaken by specialised professionals or assigned to external consultants with relevant experience in conducting such studies, as well as with relevant background to the scopes under consideration. Feasibility studies for large scale projects are usually conducted by a team of experts in order to cover all aspects of solution’s feasibility. For example, in case of a bridge construction project, it is necessary to appoint an architect or civil engineer in the feasibility study team in order to examine the technical feasibility of the proposed solution, an economist or financial analyst to examine the economical feasibility, an environmental expert to assess the environmental impacts of each solution and a transport specialist to examine the operational efficiency (e.g. forecasted vehicle load, impact on traffic) of the constructed bridge.

Especially in cases of large investments/ projects, which are proposed for receiving EU funding (e.g. investments co-financed by the Cohesion Fund or ISPA) the Feasibility Study is a prerequisite of the application folder and should be conducted very carefully and by specialised experts in order to justify the request for co-financing and receive the relative approval.

Feasibility Study is usually undertaken as part of the overall Business Case process to add more rigour to the solution options presented in the Business Case. For this reason, the topics defined in both the Business Case and Feasibility Study documents are quite similar. However, the feasibility study may be conducted prior to the Business Case in order to minimise the alternative solutions by excluding those which are either infeasible or they proved to be the least feasible. In this case the results of the Feasibility Study should be included in the Business Case document either under the relevant heading or as an annex (if they are too analytical and extended).

Even though the Feasibility Study is usually outsourced to specialised consultants, the project designers should be accustomed with the basic topics included in a Feasibility Study in order to be in a position to provide the appropriate input to the external consultants, as well as to interpret the results in order to use them in the presentation of the Business Case.

The topics that are usually included in a Feasibility Study and some basic guidance on how to deal with each topic are presented below.

 

Tool 1-5: Typical Contents of a Feasibility Study

Executive Summary: Outline the problem or opportunity, the project requirements, the feasibility assessment results and the overall outcome.
Problem Statement: Firstly, describe the business environment which contains the business problem (or opportunity) by taking into account the external environment (e.g. products and services available, technology and commercial or operational trends, statutory or legislative changes), the business vision, strategy or objectives, the business organisation (e.g. units relevant to this project, internal communication lines), and the Business processes (e.g. procurement, supply chain management, IT systems, HR management, strategic planning, finance/accounting, manufacturing/logistics, engineering). Then provide a full description of the core problem (or opportunity), refer to the reasons why the problem exists (or provide support evidence that the opportunity exists), describe the impact it is having on the business (or the positive impact that the realisation of the opportunity will have), and state the timeframes within which it must be resolved (or for which the opportunity will likely exists).
Requirements Statement: List the key business drivers for this project (e.g. changes to legislative framework, a particular citizens need that must be covered within a certain period, limited timeframe for the absorption of EU funds). For each business problem (or opportunity) describe the detailed business requirements (e.g. training of employees in the new procedures, establishment of a new business unit, 20% increase in the existing connections to the water supply network, upgrade of existing IT networks) 
Feasibility Assessment: Provide a detailed description of each solution option. Assess the feasibility (or likelihood) of each solution option to meet the requirements defined above. To assess the overall feasibility of each option, break the solution down into components and rate the feasibility of each component. To ensure that the feasibility ratings are accurate, use all appropriate methods possible to identify the likely feasibility of the solution. For example, if adopting new technology, develop a small prototype and test it to see if the resultant benefits match those expected from the exercise, or if considering changes in business processes perform staff surveys and interviews, or if considering to purchase, rent or lease a new product/ service undertake market surveys. Then describe the actual result of the assessment in comparison with the expected result. Finally, describe also the risks and assumptions associated with the feasibility of each option.  
Feasibility Ranking: List the criteria used to rank the alternative options (e.g. technical feasibility/ implementability, environmental impacts/ sustainability, economic viability, social acceptance) and describe the scoring/ weighting mechanism used to produce the overall result.
Feasibility Result: Based on the feasibility ranking, identify which option has achieved the highest total score and thus is the most feasible for implementation. Summarise the key reasons why this option is most likely to meet the business requirements.
Appendix: Attach any documentation relative to the study such as: results of a cost/benefit analysis performed to examine the economic viability of each option, market research documents and statistics, risk assessment reports, detailed feasibility assessment results, etc.

 

In order to give an example of the use of a feasibility study in practice, we will examine the case that a Municipality is thinking to create a green park for its citizens and wants to identify which of the two available places will be the best for its location. The following example summarises the basic contents of the feasibility study which was carried out by a private consulting company on behalf of the Municipality. It should be noted that the example is very simplified and represents only a snapshot of a feasibility study in order to serve the purposes of this Guide and be understandable from people who dont have the expertise in elaborating feasibility studies.

 

Example 1-4: Summarised contents of a feasibility study for the selection of the best location of a green park

Executive Summary: The scope of the study is to examine the feasibility of creating a Municipal green park at two different sites in order to decide which of the two options is preferable.
Problem statement: The large increase of the Municipalitys population in combination with the consequent increase of the residence and commercial buildings have limited the open spaces where the citizens could spend a few hours of calmness and their kids could find a place to play and have fun. The Municipalitys objective is to create a green park to cover this emerging need, but it is not sure about which of the two available sites (Site A is located very close to the centre of the town and Site B is located a few km out of town at the foot of a small hill) to select.           
Requirements Statement: Creation of a green park that will include a variety of trees, a small lake (30 m2 surface), walking and jogging paths (aprox. 800 m long), a café with capacity for 80 people and a 200 m2 playground for the kids. The cost of built should be no more than €700.000.
Feasibility Assessment: In order to assess the feasibility of each option the main characteristics for each Site were analytical described: accurate topographical site, dimension in m2, proximity (to the centre of the town, the nearest bus station, the nearest motorway), adequacy of water reserves.
oSite A: The whole area is Municipalitys property. Land surface 780 m2, 800 meters and 10 minutes walking from city centre, the area is served regularly by city bus with frequency of lines 5΄ to 10΄, duration 4 minutes and ticket cost €0,60. The main problem of the area is the high noise levels, since it is located near the centre of the town and next to the busiest road.   
oSite B: The 2/3 of the area is owned by the Municipality and the other 1/3 is private property of several individuals.  Land surface 1,050 m2, 6 kilometres from the city centre, the area is nearby the highway that connects the town with the airport and has a parking space for 100 cars. It is also served regularly by the city bus with frequency of lines 15΄, duration 10΄ and ticket cost €1,00. The area has significant resources of water and the greatest percentage of its surface is covered with trees. However, the place is having a big problem with mosquitoes, since it is located near a small stream.         
Feasibility Ranking: The two basic categories of criteria that were used to evaluate the alternative choices were: a) Benefit of Implementation (all factors that contribute in the success of the choice) and b) Requirements of Implementation (restrictions and cost). The criteria used for each category were:
oThe criteria for the Benefit of Implementation were: proximity to the town centre, accessibility, services provided by public transport, position in relation to inhabited areas, accessibility cost
oThe criteria for the Requirements of Implementation were: legal restrictions, specific physical restrictions (water reserves, noise), cost of land acquisition, sufficiency of networks (electricity, telecom), landscape morphology 

Each of the above criteria were scored/ weighted by two parameters:

oSignificance:
Grade 3: High significance
Grade 2: Medium significance
Grade 1: Low significance 
oIntensity:
High (it corresponds in grade 5 in a scale from 1 to 5),
Low (it corresponds in grade 1  in a scale from  1  to  5),
Intermediate grades

The scoring of the comparative evaluation is being presented in following tables.

Table A: Ranking of the Benefit of Implementation criteria

Evaluation Criteria

Significance Degree

Intensity

Score

Documentation

Site A

Site B

A

B

Proximity to the town centre

2

10

4

Site A: 800m from town centre, Site B: 5 km. Quite big difference in the distances.

Accessibility

3

12

9

Site A: 10΄ on foot, Site B: You cant go on foot but you could drive (available parking)

Services provided by public transport

3

6

6

Both sites are serviced by the same public transport.

Position in relation to inhabited areas

1

4

2

Site A: Near to town centre with population of 80.000, Site B:5 km away from inhabited areas 

Accessibility cost

2

8

6

Site A: No cost if you walk or €0,60 if you take the bus, Site B: €1 by bus or ~€0,80 by car (fuel cost). Site A receives a higher score because it has lower accessibility cost.




TOTAL

40

27


Table B: Ranking of the Requirements of Implementation criteria

Evaluation Criteria

Significance Degree

Intensity

Score

Documentation

Site A

Site B

A

B

Legal restrictions

1

4

2

Site B requires alienation of land from individuals, where Site A is totally owned by the Municipality. Site A receives a higher score because it has fewer legal restrictions.

Specific restrictions

3

6

12

Site A: Has no adequate water resources and problem with high noise levels Site B: Has mosquitoes problem but this problem can easily be solved, so it receives higher score.

Cost of land acquisition

3

15

6

Site A: No cost of land acquisition (Municipalitys property)

Site B: ~ €100.00 to buy the land from the individuals  

Landscape morphology 

3

6

15

Site A: The landscape needs many interventions to be transformed into a green park, Site B: The morphology of the area is identical for a green park, since it is located near a hill with many trees and is also crossed by a small stream.   

Sufficiency of networks

2

6

6

Both Sites have no problem with the established electricity and telecommunication networks




TOTAL

37

39


Feasibility Result: According to the results of the feasibility assessment model, Site A scored 77 points in the two categories of criteria, while Site B scored 66 points. Therefore, the option to create a green park in the centre of the town (Site A) proves to be more feasible than the option to create it a few kilometres away (Site B). The main reasons that Site A predominates Site B in terms of feasibility is that it is located in the town centre (i.e. it is easier and faster accessible) and it doesnt involve any acquisition of land (i.e. no cost for land acquisition and no legal restrictions).

 

The conclusions of the feasibility study should outline in depth the various alternatives examined and the implications and strengths and weaknesses of each. The project designers need to study carefully the feasibility study and challenge its underlying assumptions. Don’t expect one alternative to “jump off the page” as being the best one. Feasibility studies do not suddenly become positive or negative. As you gather information and investigate alternatives, neither a positive nor negative outcome may emerge. The study will help you assess the trade-off between the risks and rewards of moving forward with the project. Remember, it is not the purpose of the feasibility study or the role of the project designer/ consultant to decide whether or not to proceed with a project idea, it is the role of the decision makers.


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