Feasibility Study

1. Feasibility Study Dr. RaghuBista GovindaBhandari

2. What is Project? • A project can be considered to be any series of activities and tasks that: • Have specific objective to be completed within certain specifications. • Have defined start and end dates • Have funding limits • Consume human and nonhuman resources (Kerzner, H. 2003, Project Management, 8th ed. New York: Willy))

3. Examples of Ongoing Project in Nepal Some examples are: Melemchi Drinking Water Project, High Land Mountain Agriculture and Livelihood Project, Upper Tamakoshi Hydro Power Project, Sikta Irrigation project etc.

4. Project as a Dream of the Organisation • Dream of www.amazon.com to modernize delivery of goods to customers • Dreams of Google to provide internet • Dream of Google to develop Self Driving Car Project • Dream of Nepal to Make Modern Second International Airport in Bara District

5. Outputs of Project Implementation • The output of the implementation phase is the new road, new hydropower capacity, new bridge, New hospital department, new irrigation system, trained manpower, new product etc.

6. Project Cycle Identification Evaluation Pre-Feasibility Study Termination Feasibility Study Implementation Appraisal/Approval

7. Project Identification • Project identification stage is also called project conception stage. The project idea/concept is developed in the project identification stage. • To address needs/problems/weakness/threats or to exploit opportunities, an idea/concept is searched and developed as a proposed measure to solve problems/needs or idea to realize opportunities.

8. What is Feasibility Study of Project? • Feasibility study is the analyses of different aspects of identified project conducted to determine its viability. • As its name implies, it is a study to decide whether the identified project is attractive enough to go for implementation • The task needs inputs from many professional disciplines for various areas of the study

9. Feasibility Analysis: A Schematic Diagram(P Chandra (2003) Projects: Planning………, Tata McGraw –Hill, New Delhi. page 13). Preliminary work Analysis Generation of ideas Initial Screening Is the Idea Prima Facie Promising? Yes No Plan Feasibility Analysis Terminate Conduct Market Analysis Conduct Technical Analysis Conduct Financial Analysis Evaluation Conduct Economic and Ecological analysis Is the project Worthwhile? No Yes Terminate Prepare Funding Proposal

10. Why Feasibility Study? - To find if there is adequate demand for the project’s output. • To find if there is availability of suitable technology and inputs • To find the best options • To estimate costs required to implement project. • To answer if the project meets the environmental regulations and priority of the nations • To examine the project’s financial and economic viability etc. • Feasibility study provides enough information to make investment decision.

11. Pre-Feasibility Study Pre feasibility study is a preliminary study to roughly check whether the project is technically or economically feasible The idea behind the rough check is to quickly filter out those projects that are not attractive. The study will help to save the costs which will occur in a more expensive feasibility study.

12. Areas of Analysis in Feasibility study • Demand/ Need Analysis • Technical Analysis • Management Analysis • Financial Analysis • Environmental Analysis • Economic Analysis • Social Analysis • Political and legal analysis etc.

13. Market and Demand Analysis • Market and demand analysis look at the need of the project and help to estimate demand • It is the key activity for determining the scope of an investment, the possible production programs, the technology required and often the choice of location.

14. Market and Demand Analysis The analysis cover mainly: Estimation total demand for the product/service Estimation of the size of unfulfilled demand Forecasting demand of multiple years Seasonality of demand Estimate selling price of product/services Distribution mechanism Analysis of competitors, their strength weakness

15. Technical Analysis • Every project must be technically feasible. • Technical analysis is related to examine whether the project under study is technically feasible to setup and operate to produce service/product. For example, in agriculture project of Apple farming, types of field, soil test, temperature required in selected location, location selection, plantation distance of between plants, variety etc needs to be analyzed.

16. Technical Aspects to be Considered Technology: • Choice of technological process and/ or appropriate technology, • Does the technology/ process/ equipment technically fit with the facility’s existing technology/process/ equipment & machinery? • Equipment capacity & whether it is as per requirement • Identifying List of recommended equipment suppliers.

17. Technical Aspects to be considered Cont. • Investment cost and operational cost of different technology/process • Environmental aspects of different technology Size and scale of operations Location aspects of the project and availability of infrastructural facilities with probable alternative locations Inputs: electricity, water, construction materials etc.

18. Management Analysis - If the management is incompetent, even a good project may fail. So it looks at: • Types of organisation • Academic qualification, and experience of key persons • Availability of personnel required for project execution. • Assessment of other specific skills required for the project • User’s role in case of development projects etc.

19. Financial Analysis The scope of financial appraisal varies considerably with the nature of project and whether it is revenue producing (e.g. industry, agriculture) or not (e.g. roads, public schools). Financial analysis covers: - Investment Cost Estimation - Operating Cost Estimation - Benefits Estimation - Cost Benefits Comparison - Project Selection Decision

20. Economic Analysis • Economic analysis estimate and analyze the project’s net contribution to the whole economy of the region or country. • It helps determine whether the project increases the net wealth of a region or country as a whole or not. • The main advantage of economic analysis/evaluation as compared to financial analysis/evaluation techniques is that externalities and observed price distortions are considered to find out the net contribution of the project for the nation.

21. Economic Analysis • Contribution of Project to total Economy • Calculation of Economic Net Present Value (ENPV), Economic Internal Rate of Return (EIRR) and Economic Benefit Cost Ratio (EB/C Ratio) • Decision: - If ENPV > 0, accept, if ENPV < 0, reject - If EIRR > discount rate (cost of capital), accept project - If EB/C ratio > 1 accept, < 1 reject project

22. Environmental Aspects • A project may causes environmental impacts in many ways • Will the project have any adverse effects on the environment? • Has the analysis Identified positive and negative impacts of projects? • Required Mitigation measures are recommended • Is there environmental management plan • Is there adequate fund for environment management plan

23. Social Analysis • A project may causes social impacts in many ways • Will the project have any adverse effects on the society? • What are positive and negative impacts • Viable measures to address negative impacts • Estimating cost for addressing social impacts

24. Political and legal analysis • Government Policy • Labor laws • Tax Laws • Political Environment

25. Initiating the study • Appointment of an experienced manager and management team • Scope of the study • External Advisers • Plan the Study • Schedule the study

26. Managing the Study • Organization • Implementation • Control

27. Completing the study • The feasibility study should act as a springboard for the next phase in the project life cycle. – design and appraisal –ensuring that it is able to commence in a focused way. The end product should therefore comprise a clear, concise report, the project definition report, which presents with the conclusions and recommendations for use in next stage.

28. Completing the Report Cont.. • The report should highlight advantage and disadvantages – cost, revenue, strategic considerations, economic benefits, etc. – for each of the options which deserve further consideration and the proposed solutions to issues confronting the project. • If the study find the project is not economically or technically viable it should clearly state this and allow the project to be closed down. The feasibility is a gateway through which the project must pass.

29. Manual for the Preparation of Industrial Feasibility Study Report • The manual was first published by UNIDO in 1978, By early 1992, more than 150000 copies had been sold in 20 different languages. • The manual was originally designed to provide developing countries with a tool for improving the quality of investment proposal and the standardization of industrial feasibility studies.

30. Manual for the Preparation of Industrial Feasibility Study continue.. • Executive summary • Project background and basic Idea • Market analysis and marketing concept • Raw materials and supplies • Location, site and environment • Engineering and technology • Organization and overhead costs • Human resources • Implementation and budgeting • Financial analysis and investment appraisal • Annex, Tables, Figures

31. ThankYou