Project Feasibility Studies: Stages and Key Considerations
Chapter 2: Project Feasibility Studies
2.1 Project Scope
Any investment decision must respond to a previous study of the advantages and disadvantages associated with its implementation. The depth to which this is done depends on each particular project.
The commercial feasibility study states whether or not the market is sensitive to the good or service produced and the acceptability it will have in its consumption or use, thus determining the postponement or refusal of a project without having to bear the costs that involve a comprehensive economic study.
The technical feasibility study examines the physical, physical or chemical capabilities to produce the good or service that you want to build the project.
A project may be viable both to have a guaranteed market and to be technically feasible.
The study of organizational viability defines whether minimum conditions are necessary to ensure the viability of the implementation, both in structural and functional terms. It estimates the return on investment and sees if there is a lack of management capacity.
The feasibility study fund determines approval or rejection. Profitability measures the investment returns on monetary compensation.
The feasibility study environmental impact complies with rules imposed on the environment.
2.2 The Study of the Project as a Cyclical Process
The project lifecycle is divided into states: pre-investment, investment, and operation. These states have their respective stages.
At each stage, an increasing depth of study is required in order to gain certainty as to the desirability of the project. Another advantage of the study in phases is to allow that the study itself is intended for a minimum of resources. This is because if a stage comes to the conclusion that the project is not technically or economically viable, it makes sense to continue with the following. Therefore, unnecessary costs are avoided.
Pre-investment State
Four studies are performed (Step) feasibility: Idea, Profile, Pre-feasibility, and Feasibility. Theoretical study only examines the project without running the project. Ex-Ante: Evaluation of the project financially pre-investment in the state before beginning the design phase. Here is where the project is profitable, it explores the stages of Idea, profile, pre-feasibility, feasibility.
Idea Stage
Different ways to solve a problem or seize an opportunity to form project ideas. The process of systematic search for new business opportunities or improvements in operating a business. Identification may arise from internal problems and inefficiencies. There may be different forms of facing business opportunities that could be presented. Before evaluating the idea, it must be precisely defined, specifying the value added created for the client. In the approach and analysis of the problem, it is necessary to define what is to be fulfilled or resolved, to establish the magnitude and point to those affecting the deficiencies identified. Also, responsible for identifying the basic alternative solution to the problem, according to predetermined objectives. From this analysis of the idea, it is possible to take various decisions (leave, study, or further delay it).
Stage Profile
It is made from existing information, the common opinion, and the opinion of the experience. In monetary terms, it has only very global estimates of investment costs and revenues, without going into field research. The development of the profile should include a preliminary analysis of market research, technical aspects, and evaluation. In this analysis, it is essential to make some preliminary considerations about the costs and benefits of the project, which requires first to define the situation “without project.” In other words, try to project what will happen in the future unless the project starts, before deciding whether or not their implementation. Rather than calculate the return, we seek to determine whether there is any justification for abandoning the idea before providing funding in other deeper studies.
Prefeasibility Stage
This study deepens the research and is based primarily on information from secondary sources. Approximation is defined with some key variables relating to the market, technical alternatives of production, and financial capacity of investors. It is characterized mainly by discarding solutions with more evidence. This will deepen the preliminarily identified as critical aspects of the study profile, although still a research project based on secondary information, not demonstrative. Among the aspects that stand out are: the market, the size and location, the terms of legal and institutional order. The approach of the figures makes it advisable to raise awareness of the results, especially for variables that directly affect the profitability of alternatives considered more favorable. It should also be the optimal time to initiate the project. As a result, there is the recommendation of approval, then to deeper levels of study, abandonment, or postponement for reasons explained.
Feasibility Stage
It is made on the basis of accurate records obtained mostly through primary sources and the participation of specialists. The qualitative variables are minimal compared with previous studies. The calculation of financial and economic variables must be demonstrative enough to justify the valuation of the different items. The evaluator must ensure optimization of all those aspects that depend on a decision of an economic nature, for example, the size, technology, or project location, size, timetable, and launch date, among others. In determining the timing of disbursements for investment, we must consider such factors as the financial and capital markets, both internal and external, the preliminary engineering, the availability of equipment and capacity to obtain, additional ancillary works, and the effect of technical difficulties, the supply of inputs beginning of operation the operating personnel training and maintenance, etc. The analysis of the organization created for project implementation must consider the size of the physical work, entrepreneurship, and investor’s financial, technical, and administrative level that your operation demands, sources, and terms for financing. With the feasibility stage completes the process of successive approximations in the formulation and preparation of projects, a process that has significant importance and sequence analysis of tuning information.
Investment State
It is divided into two stages, they are designing and implementing an evaluation of monitoring. In this state, there are definite costs for the project as it proceeds to physically execute the project as specified in the state of pre-investment in order to realize the benefits estimated in the same net.
Monitoring or follow-up assessment evaluates the stage of design or implementation phase.
Stage Design
Completion of detailed engineering, architectural, development of various types of plans, etc.
Stage Performance
Construction phase of the project you want to deploy, install, construct, improve, and so on.
Operation State
This statement begins to produce the goods and/or services in the states defined above, using and applying the characteristics defined in the study and used, within reasonable margins, the minimum possible cost. It is divided into a stage that has the same name (operation stage), making an ex-post.
Ex-post: (Evaluation after completion of a project). This type of evaluation results to check if what had been estimated at the beginning actually occurs, or if there is a deviation, identify what were the sources of errors or deviations.
- Technical Feasibility Study: Seeks to determine if possible, physical or material, “making” a project, general expertise in the area where the project is situated.
- Market Study: Corresponds to the intentionality, to decide, want or not to implement a project, regardless of their profitability.
- Study Operational, Administrative-Legal: To determine the legal obstacles for installation and normal operation of the project and lack internal standards of the company that would run contrary to some aspect of the project.
- Organizational: Determining whether the internal management capacity in the company to achieve successful deployment and efficient management of the business.
- Financial Feasibility Study: To determine, by comparing the benefits and estimated costs of a project if the investment is profitable.
- Environmental Impact Study: Includes and involves all aspects mentioned above, related to the existing provisions regarding the protection of the environment.