The Components of a Feasibility Study (2024)

A project feasibility study is a report that investigates the viability of a project. It seeks to provide its stakeholders with an analysis that results in a go/no-go decision.

Feasibility studies are performed in a variety of industries. They are prominent in the oil & gas, mining, or renewable energy industries, or manufacturing industry for new plant investments. They are performed wherever a large capital expenditure for a project must be approved by the executive or board.

Feasibility studies are usually carried out by major engineering firms who have the multi-disciplinary expertise on all the major project issues like project design, economics, environmental, logistics, stakeholder, regulatory requirements, and so forth.

A project feasibility study involves performing the detailed project design to a level that can justify a final project decision. Although it varies by industry, this is usually around 80% – 100% complete. In terms of project cost, it varies from around 5% – 15%.

The contents of a project feasibility study are:

• Design Summary
• Economics
• Geopolitical
• Environmental
• Historical
• Social

Design Summary

The feasibility study must perform the project design to a minimum level that allows the executives or board to make a final decision to proceed with the project.

The project cost must be estimated to a level that:

• Is sufficient to obtain project financing
• Is sufficient to make a final project go/no-go decision

On the impact side, the design must be sufficiently complete to ensure that all of the project’s impacts are well known:

• Environmental
• Social
• Geopolitical

In most industries, many studies are produced prior to the final feasibility study. In major industrial projects, for example, a scoping study or pre-feasibility study will assess the economics of one or two major factors that are driving the project’s viability. However, they generally serve only as a guideline used to proceed to the next phase, rather than a definitive investigation of the viability of the project.

Typically, if there is a processing plant the size and throughput of the plant is finalized. If there is a production item like a solar farm the number and size of units are finalized. For a mine, the mining and processing rates are finalized.

The manpower and project schedule are analyzed, and the transportation and logistics are planned out. In short, every item that has a possibility of derailing the project is investigated to ensure it does not pose a risk to project success. Or if it does, the stakeholders are proceeding with full knowledge of that risk.

Although the project design is often completed as part of the feasibility study, the design details are usually not included in their entirety because they are not the main focus of the report. Rather, the project design is summarized within the feasibility study to give the readers context. Approval of the final design details comes after the feasibility decision phase.

Economics

The most important part of a feasibility study is the economics. Economics is the reason most projects are undertaken (with some exceptions for government and non-profit projects in which a cost benefit analysis is the primary tool).

Simply put, none of the other feasibility criteria matter if the project does not generate a return on investment.

The economic feasibility of a project is determined by:

• Estimating the project costs
  Because the design is mostly complete, each item is estimated using comparisons to previous projects (analogous estimating) or unit rate averages from various sources (parametric estimating). These project costs are agglomerated into an overall project estimate (bottom up estimating) to determine the overall capital cost of the project.
• Estimating revenue
  The revenue generated from the project is usually alot less certain than the capital cost of the plant. For that reason, feasibility studies usually evaluate several different scenarios, for example high-medium-low or optimistic/pessimistic scenarios. If there is an underlying commodity price, like the price of crude oil, a discount from the current price is usually applied to account for potential price volatility. Risk analysis is an important component of this step, since there are usually many risk events that could impact the project’s revenue stream.
• Estimating operations and maintenance costs
  The ongoing yearly costs of the facility once constructed are estimated and enter the analysis together with the capital (one-time) cost. Usually, but not always, this is known with a fairly strong degree of certainty and contingency factors are not necessary.
• Capital budgeting techniques
  The feasibility study considers all of the capital inflows and outflows accounting for the time value of money. Metrics such as the Net Present Value (NPV), Internal Rate of Return (IRR), and payback period are calculated to give the decision makers the necessary information to approve or cancel the project.

The first thing the decision makers usually look at are the three main capital budgeting figures:

1. Net Present Value
   The current value, in today’s currency, of the full stream of cash flows (positive and negative) assuming a discount rate that takes into account the time value of money and the organization’s opportunity cost.
2. Internal Rate of Return
   The percentage return generated by the project, which is comparable to a stock market return.
3. Payback Period
   The length of time it takes to recover the initial investment.

Geopolitical

Political considerations are a factor in the feasibility of many projects. Although it is rare that government regulation causes a project to be rejected outright, it is not uncommon that they cause project changes which increase the project budget or affect the completion date.

In addition, the geopolitical landscape can change very quickly, and should be assumed to change for projects that require more than a year of planning.

Project managers need to continually ask themselves what is the appetite for the project among the political class. Sensitive sectors include:

• Oil and gas
• Mining
• Renewable energy
• Electric vehicles

In these industries, change is a constant. But do not assume that change occurs only in one direction. A new government can, and has, wiped out many projects that are in a trendy niche.

Hence, a feasibility study should investigate the odds of obtaining regulatory approval for the project, and what the future changes to those regulations are anticipated to be.

Environmental

In this day and age, environmental regulations are integral to project feasibility. There are many environmental regulations that could derail a project if a project manager is not familiar with their project’s environmental footprint. Major projects must plan forstakeholder engagementsince any one stakeholder can revolt and stop the project.

In most jurisdictions, environmental reviews must be completed for any construction work that involves disturbing a site. These reviews require monitoring and establishing a baseline for a variety of ecosystem components, which include:

• Soils and erosion
• Vegetation (grasses, bushes, and trees)
• Wetlands
• Wildlife
• Fish
• Hydrology and stormwater
• Water quality
• Air quality
• Groundwater
• Noise
• Navigation
• Cultural resources

Historical

You might be surprised how many projects are commissioned without a proper idea of who tried the same thing, how long ago, and whether or not they were successful. Success is often relative – maybe they succeeded partially and there are good lessons learned for the current project manager.

Even if it doesn’t swing the project feasibility, the previous lessons learned could significantly reduce the cost or schedule of the project.

This is one of the most underrated areas of project feasibility because there is almost always someone who has done (or is doing) something nearby, or at an earlier time period, which provides tremendous insight into the project.

Most mining or oil and gas projects perform an extensive desktop investigation into the mining history at the site, taken from government records and files. This is an important component of the feasibility study as it gives the executives a context in which to make the decision to approve the project.

Likewise, solar and wind farms must measure and analyze the amount of resource at the site. Data from nearby existing operations, or monitoring stations that didn’t result in developments, are priceless information for project feasibility.

Social

Many projects have a societal impact that is an integral component of project feasibility. Even if the societal impacts are moderate and unlikely to be the determining factor in project feasibility, they can factor into project budgets and schedules.

Societal impacts are often difficult to quantify prior to a project decision. Although it is often not possible to get societal buy-in prior to approving the project, it should be addressed to the maximum extent possible to make a project decision.

Stakeholders who are opposed to the project should be identified and classified into five categories:

1. Unaware
2. Opposed
3. Neutral
4. Supportive
5. Leading (actively promoting the project)

When a stakeholder is in the first or second category (negative) but must be moved into the third or fourth category (positive) in order for the project to proceed, this is a situation that demands a high level of active management. A stakeholder engagement plan should be created which details the strategy used to convert the stakeholder. The project control phase must include an assessment of what stakeholder communications were completed in that period, how well they worked, and what adjustments to the plan are necessary for the next period.