Viability is a measure of the likely success of a particular action or set of actions. An assessment of economic viability is an evaluation of the various economic effects that may result from the implementation of a particular project. This assessment will help decision makers decide whether a project is feasible or not.
Assessing economic viability is informed by financial analysis and the main tool which is usually used for this is cost benefit analysis (CBA). This involves expressing costs and benefits in monetary terms to allow comparisons to be made. But other non-financial benefits may also be explored. If at the end of the exercise the benefits exceed the costs, the project may be considered to be economically viable.
For example, assessing the economic viability of a stadium might include both direct and indirect considerations such as:
- The total cost of the project.
- Will the project secure adequate financing?
- Will profits cover operating costs over the project’s lifetime?
- Uplift in local land and property values.
- Potential new jobs created in the community.
- Impacts such as increased congestion, noise, dust and so on.
- Local opposition to the scheme and possible disruption.
- How sustainable is the project?
- Will climate change threaten the building?
- Will it be flexible enough to adjust to future changes, regulations, ownership, user needs?
Depending on the size of the project, the economic viability analyses may also examine regional, national or global implications.
Economic viability typically evaluates a project concept, ie, at the plan-making stage and before implementation. However, it may also assess the ongoing viability of an existing project / building etc.
Conducting EVA’s can:
- Help confirm a solid basis for investment.
- Fulfil regulatory requirements.
- Help justify a project to shareholders and other stakeholders.
- Allow comparison of alternative proposals.
The economic viability of a project has traditionally not been a consideration in the assessment of planning applications by local authorities. However, it is now considered in relation to the imposition of planning obligations, planning conditions and community infrastructure levy contributions.
Developers may commission viability assessments that appraise the economic case for a scheme. This will demonstrate whether after all the development costs (including those imposed by the local authority) have been met, there is an acceptable margin of profit relative to the level of risk associated with the development.
In addition, the NPPF introduced a viability test for local plans and for decision making. The NPPF states that ‘Pursuing sustainable development requires careful attention to viability and costs in plan-making and decision-taking. Plans should be deliverable. Therefore, the sites and the scale of development identified in the plan should not be subject to such a scale of obligations and policy burdens that their ability to be developed viably is threatened. To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable.’
For more information see: Viability test.
- The Community Infrastructure Levy (Amendment) Regulations 2014.
- Community infrastructure levy commencement notice.
- Contingent obligation.
- Developer contributions.
- Infrastructure.
- Microeconomics.
- Social Value Act.
- National Planning Policy Framework.
- Planning Act 2008.
- Planning permission.
- Planning conditions.
- Planning obligations.
- Review announced of the Community Infrastructure Levy.
- Section 106 agreement.
- Section 106 exemption.
- Viability test.
- What approvals are needed before construction begins.
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