Overview of

Feasibility Study
Tamiru Demeke
SPH, CHS-AAU
June 11, 2024
 What is feasibility study?
- Feasibility study is related to analyse the viability of the identified project to
support decision making of investment.
- As its name implies, it is a study to decide whether the identified project is
attractive enough to go for implementation
- The study needs inputs from many professional disciplines for various areas of
the study
• A feasibility study is part of the process of project identification, preparation and
selection
• It involve the process of appraising projects or group of projects and then
choosing to implement some of them
• This is an extremely important stage in project management
Feasibility Analysis: A Schematic Diagram
Generation of ideas
Initial Screening
Is the Idea Prima Facie
Yes Promising?
Plan Feasibility No Terminat
Preliminary
Analysis e
work Analysis
Conduct Market
Conduct Technical Analysis
Analysis
Conduct Financial Analysis
Conduct Economic and Ecological
analysis
Is the project Worthwhile?
Evaluation Yes Prepare Funding No
Terminate
Proposal
 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 answer if the project meets the environmental regulations and
priority of the nations
• To examine the project’s financial and economic viability
 Factors that affect Feasibility study
• Key factors looked at in a feasibility study:
• Availability of adequate market
• Growth potential of the project
• Investment, operation and distribution costs
• Demand and supply factors
• Social and environmental conditions
 Areas of Analysis in Feasibility study
• A feasibility study should contain the following analyses:
1. Demand/ commercial Need and Market Analysis
2. Technical Analysis
3. Management/ Organization/administrative Analysis
4. Financial Analysis
5. Economic Analysis
6. Environmental Analysis
7. Social Analysis
Market/Commercial and Demand Analysis
• The market/commercial aspects of a project include the arrangement for marketing
output produced by the project, and the arrangements for the supply of inputs
needed to built and operate the project
• On the output side, careful analysis of the proposed market for the projects
production is essential to ensure that there will be an effective demand at a
remunerative price e.g questions to be asked include:
➢Where will the products be sold?,
➢Is the market large enough to absorb the new production without affecting
the price?,
➢If the price is likely to be affected, by how much?,
➢What share of the total market will the proposed project supply?,
➢Are there appropriate facilities for handling the new production.
• The market/commercial aspects of the project also include arrangements for
Market/Commercial and Demand Analysis
• The questions to be asked include:
a) Are procurement procedures such that undue delays can be avoided ?
b) Are there procedures for competitive bidding to ensure fair prices?
c) Who will draw up the specifications for the procurement?
• The commercial aspects also include distribution arrangements including
warehousing and storage arrangements
• Market analysis can be achieved through: descriptive approach, price efficiency
technique or industrial organization technique.
• Thus, market/commercial and demand analysis look at the need of the project and
help to estimate demand.

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Market/Commercial and Demand Analysis
• 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.
The analysis cover mainly:
a) Aggregate demand for the product/service
b) The share of unfulfilled demand
c) Demand forecasting
d) Market price of product/service
e) Analysis of competitors, their strength weakness
f) Distribution mechanism
 Technical Analysis
• The technical analysis concern projects inputs (supplies) and outputs (production)
of real goods and services
• It is extremely important, and the project framework must be defined clearly
enough to permit the technical analysis to be thorough and precise
• The other aspects of project analysis can only proceed in light of the technical
analysis
• Good technical staff are essential for this work, they must be drawn from
consulting firms or technical assistance agencies abroad
• Technical analysis may identify gaps in information that must be filled either
before project planning or in early stages of project implementation.
• Technical analysis gives an indication of the capacity of operations within the
project
• It also include the quality of machinery and equipment's
There should be provision for maintenance of the machinery and equipment's
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 Technical Analysis
• The location and layout of the project is also part of the technical analysis
• This also include appropriateness of technology – this will depend on the level of
development in the community
• Thus, 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.
• Technical Aspects to be Considered
Technology:
• Choice of technological process and/ or appropriate technology,
• Is the technology proven or tested?
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 Technical Analysis
•
• Does the technology/ process/ equipment technically fit with the facility’s existing
technology/process/ equipment & machinery?
• Equipment capacity & whether it is as per requirement
• List of recommended equipment suppliers.
• Reputation of the suppliers and performance guarantees
• Investment cost and operational cost of different technology/process
• Environmental aspects of different technology
Location aspects of the project and availability of infrastructural facilities with
probable alternative locations
Inputs: Availability of electricity, water, fuel, raw materials
 Technical Analysis
Size and scale of operations: based on the demand, capital requirement,
and technology, inputs available
• Technology should be examined at two levels:
• The technology used must be suitable for the realization for a specific objective
of a given project
• The technology must also be examined for suitability according to the
prevailing socio-economical environment
 Management/ Organizational Analysis
• A whole range of issues in project preparation revolves around the overlapping
institutional, organizational, and managerial aspects of projects
• This factors clearly have an important effect on the project implementation
• Frequent questions asked is whether the institutional setting of the project is
appropriate and, whether the socio-cultural patterns and institutions of those
communities that the project will serve must be considered
• E.g does the project design take into account the customs and culture of the
farmers who will participate?
• Or will the project involve disruption of the ways in which farmers are
accustomed to working?
• For projects to be carried out successfully, they need to relate properly to the
institutional structure of the country and region
• This may include structure of companies, partnership and other organizational set
up 14
 Management/ Organizational Analysis
• Other factors may include the projects manpower requirements, transportation of
machinery, maintenance and commissioning e.g for the turn key projects
• Terms and conditions which are adhered to by contactors must be carefully
weighed to ensure that they are in line with the overall project objectives
• - 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.
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 Financial Analysis
• The financial aspects of project preparation and analysis include the financial
effects of a proposed project on each of its various participant.
• In agricultural projects, the participants include farmers, private sector firms,
public corporations, project agencies and perhaps the national treasury.
• A major objective of the financial analysis of farms is to judge how much farm
families who are participating in the project will have to live on.
• The analyst will need budget projections that estimate year by year future gross
receipts and expenditures, this should include the costs associated with production
and the credit repayments farm families must make to determine what remains to
compensate the family for its labour, management skills and capital.
• The analyst of farm income will also permit assessment of incentives for farmers
to participate in the project by asking the following question:
• What will be the probable change in health care service income?,
• What will be the timing of this change?,
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 Financial Analysis
• How likely are price changes or fluctuations that could affect farm income
severely enough that farmers will refuse to run the risk of participating in the
project?,
• What will be the effect of subsidies arrangements on farm income, and what
changes in government policy might affect the income earned by farmers?
• Will new subsidies be needed to provide sufficient incentives for the project
to proceed?
• An analysis of the financial aspect of the project administration will also be
needed. The questions to be asked include:
• What investment funds will the project need and when?
• What will be the operating expenses when the project is underway?,
• Will these expenses depend on budget allocations or will the project produce
sufficient revenue to cover for its administration costs? 17
 Financial Analysis
• There must be a clear evidence that the project will have a net gain if it has to be
feasible
• All the initial project costs as well as the operation costs should be carefully
considered
• 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 18
 Payback Analysis for a Project

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Net Present Value (NPV) Analysis
Net present value – analysis technique that compares
annual discounted costs and benefits of alternative
solutions.

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 Economic Analysis
• Economic analysis is basically concerned with the following:
• How to identify effects of a proposed project to the society
• Quantification of the effects of the proposed project
• Pricing of costs and benefits to reflect their values to the society
• In economic analysis, shadow prices are used while in financial analysis the
market prices are used.
• The economic aspects of project preparation and analysis require a determination
of the likelihood that a proposed project will contribute significantly to the
development of the total economy and that its contribution will be big enough to
justify using the scarce national resources it will need.
• The point of view taken by economic analysis is that of the society as a
whole
• The financial and economic analysis are thus complementary – the
financial analysis takes the viewpoint of the individual participants
while the economic analysis take the viewpoint of society 21
 Economic Analysis
• However, because the same discounted cash flow measures are used in financial
analysis to estimate returns to a project participant and in the economic analysis to
estimate returns to society, confusion between the two analysis always arises, but
there are three important distinctions between the two analyses approaches.
• First in economic analysis, taxes and subsidies are treated as transfer payments i.e
the new income generated by a project include taxes the project can bear during
production, and any sale taxes buyers are willing to pay when they purchase the
projects products.
• These taxes , which are part of the total projects benefit are transferred to the
government which acts on behalf of the society as a whole and are not treated as
costs
• Conversely, a government subsidy to the project is a cost to the society, since
subsidy is an expenditure of resources that the economy incurs to operate the
project
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 Economic Analysis
• In financial analysis, such adjustments are normally unnecessary, since taxes are
usually treated as a cost and subsidies as a return
• In financial analysis, market prices are normally used.
• These takes into account taxes and subsidies and from these market prices, comes
the data used in the economic analysis.
• In economic analysis, however, some market prices may be changed so that they
more accurately reflect the social or economic values
• These adjusted prices are called as shadow or accounting prices
• In economic analysis, interest on capital is never separated and deducted from the
gross return because it is part of the total return to the capital available to the
society as a whole, and additionally, it is this total return including interest that the
economic analysis is designed to estimate

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 Economic Analysis
• In financial analysis, interest paid to external suppliers of money may be deducted
to derive the benefit stream available to the owners of capital, but interest paid to
the entity from whose point of view the financial analysis is being done is not
treated as a cost, because the interest is part of the total return to the equity capital
contributed by the entity, and hence it is part of the financial return that entity
receives.
• 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.
• Estimation of Economic Costs of Projects
• Estimation of Economic Benefits of Projects
• Comparing Costs and Benefits
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 Economic Analysis
• 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
 Environmental Analysis
• A project may causes environmental impacts in many ways
• Identification and analysis of adverse effects on the environment such as Pollution
and environmental degradation
• Identification of positive impacts
• Required Mitigation measures
• Designing environmental management plan
• Provision of fund for environment management plan
• Main acts/guidelines in Nepal are Environment Protection Act 1996, the
Environment Protection Regulation 1997, National Environmental Impact
Assessment Guidelines, 1993. The analysis should meet the requirements
mentioned by these acts and regulations
 Social Analysis
• We have mentioned that projects should consider the social patterns and practices of
the clientele the project will serve
• More frequently, project analysts are expected to examine carefully the broader social
implications of proposed investments
• Social consideration should be carefully considered to determine is a proposed project
is responsive to national objectives e.g the case of creating employment opportunities ,
and also issues that are dealing with income distribution within the society
• For social reasons, when governments what to emphasize on growth in particular
regions, they would encourage projects that can be implemented in these areas.
• 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 27
 Initiating the Feasibility Study
• Appointment of an experienced manager and Selection of study team members
• Scope of the study
• External Advisers to support study team
• Plan and Schedule the Study
• Starting study as per plan and schedule
• Controlling study to complete as per per plan and schedule
 Completing the Feasibility 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 of Feasibility Study should therefore comprise a clear, concise
report, called Feasibility Study Report
Feasibility Analysis Matrix
Feasibility Analysis Matrix – a tool used to rank candidate
systems.

Weighting Candidate 1 Candidate 2 Candidate 3

Description
Operational Feasibility
Cultural Feasibility
Technical Feasibility

Schedule Feasibility
Economic Feasibility

Legal Feasibility
Ranking

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Sample Feasibility Analysis Matrix
Wt Candidate 1 Candidate 2 Candidate 3
Description Purchase commercial off- Write new application in- Rewrite current in-house
the-shelf package for house using new company application using
member services. standard VB.NET and SQL Powerbuilder.
Server database

Operational 15% Supports only Member Fully supports user-required Fully supports user-required
feasibility Services requirements. functionality. functionality.
Current business process
would have to be modified Score: 100 Score: 100
to take advantage of
software functionality. Also
there is concern about
security in the system.

Score: 60

Cultural 15% Possible user resistance to No foreseeable problems. No foreseeable problems.

Feasibility non-standard user interface
of proposed purchased Score: 100 Score: 100
package.

Score: 70
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Sample Feasibility Analysis Matrix (cont.)

Wt Candidate 1 Candidate 2 Candidate 3

Technical 20% Current production release Solution requires writing Although current technical staff
feasibility of Platinum Plus package is application in VB .NET. is comfortable with
version 1.0 and has been Although current technical Powerbuilder, management is
on the market for only 6 staff has only Powerbuilder concerned about acquisition of
weeks. Maturity of product experience, it should be Powerbuilder by Sybase Inc.
is a risk, and company relatively easy to find MS SQL Server is the current
charges and additional programmers with VB .NET company standard for
monthly fee for technical experience. database, which competes with
support. Sybase DBMS. We have no
Score: 95 guarantee that future versions
Required to hire or train of Powerbuilder will "play well"
Java J2EE expertise to with our current version of SQL
perform modifications for Server.
integration requirements.
Score: 60
Score: 50

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Sample Feasibility Analysis Matrix (cont.)

Wt Candidate 1 Candidate 2 Candidate 3

Economic 30%
feasibility

Cost to develop:
Approx. $350.000 Approx. $418.000 Approx. $400.000
Payback
(discounted):
Approx. 4.5 years Approx. 3.5 years Approx. 3.3 years
Net present
value: Approx. $210,000 Approx. $307,000 Approx. $325,000

Detailed
calculations:
See Attachment A See Attachment A See Attachment A

Score: 60 Score: 85 Score: 90

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Sample Feasibility Analysis Matrix (cont.)
Wt Candidate 1 Candidate 2 Candidate 3
Schedule 10% Less than 3 months 9-12 months 9 months
feasibility

Score: 95 Score: 80 Score: 85

Legal feasibility 10% No foreseeable problems No foreseeable problems No foreseeable problems

Score: 100 Score: 100 Score: 100

Weighted score 100% 67 92.5 87.5

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 Group Assignment
• Use the internet to download two feasibility studies conducted on the
establishment of private health facilities (hospitals) in Ethiopia and another
African country, and compare them.
1. If so, describe the components that are included, if no, which components have
been omitted?
2. What were the SWOT analysis of each project?
3. Which study was the most informative, followed the standards, included all the
necessary information, and why?
4. From these studies, what did you learn?
Thank you for your attention
Comments and questions