feasibilty study and report

Lecture 1Diploma in Project Management

Project ManagementPart Two

Professional Diploma in Project Management”

By Dr Ali Sajid, PhD, TI

October 15, 2009


PROJECT Conception & PROJECT Conception & FEASIBILITYFEASIBILITY

Organizational ImportanceOrganizational Importance&&

Analysis TechniquesAnalysis Techniques

By Dr. Ali Sajid

By Dr. Ali Sajid


Identify problem oropportunity

Set up feasibility

study

Define scope and

objectives

Carry out different aspects

of the study

Recommend –proceed/shelve

Evaluatealternatives –develop/buy

Process of Project Analysis


1. Viability of Idea

2. Analyzing Feasibility -( Possibility) of Proj-• Possibility of Completion ? • Will it be Successful

3. Reasonable likelihood - constraints Will Not prevent as from meeting key Objective

4. Synonym: Achievability

5. “Plng & Orgzg Procedure”-To Ensure Proj is Effective -It will work”.

Feasibility


What is Feasibility Assessment?

Disciplined & documented Process of “Thinking through an idea”

from its “Logical beginning to its Logical end”.

- This is to determine its “Potential to be a viable business”

given realities of the “Economic & social environment”

in which it will operate”


WHAT IS A FEASIBILITY STUDY?

• Essentially A Process for:

Determining viability of a proposed initiative or

Service & Providing a framework & direction for its Development

& Delivery.


WHAT IS A FEASIBILITY STUDY?

A Process for making “Sound Decisions & Setting Direction” which is:

Driven by “Research & Analysis”• Involves some consultation with S/h, community,

users, etc.• Focuses on: “Analyzing, clarifying & resolving key

issues” & “areas of concern or uncertainty”• Very often involves:

“Basic Testing of Alternative Concepts & Approaches”


Purpose of a Feasibility Study

What is Feasibility?Capable of being done,

with “Means at Hand &

Circumstances, as they are”.

To help assess

“Viability of a business idea -

Technically, Operationally & Economically”


What FS Provides to Client:• A) Solid Foundation for Proj-

• B) Concept identifications, • C) Estimate of Supportable Mkt • D) Design p/m, • E) Revenue Projections, • F) Net Warranted Investment.

• Road map for your Proj


• Cost of FS Hi Yet, Minor Vs Proj-Cost.• FS Small Expanditure. Yet Protect Huge

Capital • FS objective Evaluation of Proj - Chance for

success. • Negative Results useful as Positive

• Perceived Objectivity of Evaluation –• Credibile document for Investors.


Feasibility Check List

• In feasibility study phase, it is necessary to define P- basic “approaches, boundaries or scope”.

A typical feasibility study checklist might include:• Summary level• Evaluate alternatives• Evaluate market potential• Evaluate cost effectiveness• Evaluate producibility• Evaluate technical base


Feasibility Check List

• A more specific determination of the Problem• Analysis of “state-of-the-art technology”• Assessment of in-house technical capabilities• Test validity of alternatives• Quantify weaknesses and unknowns• Conduct trade-off analysis on time, cost, and

performance• Prepare initial P- Goals & Objectives• Prepare preliminary cost estimates and development

plan


What a FS is Not

• FS -Conducted on “Real-World" Proj. • Not Academic or Research/Papers. • Simulations or Projection Models, Useful

on some Proj- but Not Replace F/S.• No "Cookie cutter" Approach to Proj.• No “Generic Source of Info”. • Not a Business Plan.


• Require “Study of Elements impacted by Proposed Solution”.• Guidelines for FA -Address Regulatory Constraints -

Know Industry or Govt Regulations

-Cultural Impact of Proposed Change. -Consult –S/Holders - Orgl Changes for Proj- Realistic?-Experts to Ensure - Sys impacted by Proj - Catalogued-Stability of Technology. -Technical Reqt Based Upon Technology –

-Operationally stable -Available -Affordable.

FS- Determines Likelihood of Proj Success.


Feasibility Study involves

• -Appraisal of Existing Sys • Risk Analysis & Assessment. • Risk Mgt. • C/B Analysis. • Impact Analysis. • Sys Integration (Existing & New). • Resource Requirement, Planning & Timings. • Implementation Strategy. • Infrastructure Assessment & Reqmt. • Dependencies & Req.• Support Requirements & Logistical Analysis


Types of Feasibility

Technical FeasibilityManagerial FeasibilityEconomic FeasibilityFinancial FeasibilityCultural FeasibilitySocial FeasibilitySafety FeasibilityPolitical FeasibilityEnvironmental FeasibilityMarket FeasibilitySchedule Feasibility


THE FEASIBILITY ASSESSMENT PROCESS:

It is often suggested: feasibility studies should encompass at least two assessments:

• Technical feasibility • Economic feasibility

• “Technical feasibility” embodies an assessment of :Physical, technical and technological dimensions of the proj• While “Economic feasibility assesses”:Project’s economic viability within its defined domain.


The Value Chain Approach to Feasibility Assessment


Value Chain Approach

• Allows two assessments to be embedded into a single initiative, which facilitate:

An increased “Understanding & appreciation of domain’s effects” on different stages from:Input sourcing & procurement to customer service &support. It also facilitates an appreciation of:“Resources, technology, customer expectations &

Infrastructure required for initiative to succeed, Allowing an assessment of their level depth at each

subsequent stage in Value Chain.


• Business Plan -Elaborated Later in Proj- Development Process

• F-S leads to BP• BP -Blueprint for Business Operations.BP Respond to Critical issues raised in F-S

FS Not for New ideas

• Not for New Concept for Proj

• Ideas identified before FS -Initiated.

• IMP-Not to Support for Success of –Proj .


Initial Feasibility Report

• Prepare feasibility report– Current situation

– Future expectations

– Favourable plan(s) of action

– Underlying rationale for management decision

Selected Plan, Prepare System Proposal– Project description

– Resource requirements

– Development schedule

– Acceptance criteria


Environment Plays -Critical in FS

External Factors Influence F-S

An initiative feasible in community A

with a rail line infeasible in B w/o Rail Line


Possible Outcomes of FS:

1.Feasible within Defined domain

( assumptions abt technology, location, mkt, financing, industry analysis, etc);

2. Feasible with changes to certain Domain Factors

3. Infeasible within the defined domain.


…Tech Feasibility- First systematic

investigation of Proj Design Viability.Foundation of all other FS .

- Assessment of a Prj- Capabilities.-Investigation of Technical & Physical P/mterTF Reviews:

-Technical Capability of HR -Capability of Available Technology

Foreign consultants Role -LDCs-”Too rigid, & Advanced Tech Spec” - Cannot be met by Country.

Question is “Can it be built?”


Technical Feasibility (TF)

Anticipate Broader Problems with Questions:

1. Adequate “Choice of Available Technologies for Alternative Design” & purposes, considering:

a. Physical layout

b. Engineering design

c. Availability of raw materials?

2. Costs of Constructing & Operating Proj-Facilities/Service

a) Machinery, b ) Equipment, c) Spare Parts ?

3. Manpower Req:

a) From professional to labor

b) locally available?

c) Responses vary – sector to sector


Technical Feasibility (TF) Contd..

Primary Task of TF is Blueprinting:

a) Manpower Needs

b) Resources, & Design

c) Provide Design Alternatives

d) Choice of:

“Available Technologies,

& Cost estimates” for each alternative.


Technical FeasibilityTechnical Feasibility

• Does System Stretch “State-of-the-Art Technology”?

• Does in-House expertise presently exist for development?

• Does an outside vendor need to be involved?

• Solutions include Training or hiring more experienced employees

Hiring consultants

Changing scope and project approach


Admin/Managerial Study (AM S)

Evaluates Strategy of Org in Crying/ Out Proj Activities.

Providing info & Guidelines -

Used to improve overall Proj. Admn.

Project mgr in investigating team.

Examines for Components:

A. External Linkages,

b. Internal org,

c. Personnel, and

d. Mgt plan


How Individuals Work, Live, and Achieve Together

Project Organizational Culture Project Organizational Culture


Precursor to Culture

• Until recently say, since the 1980s organizations Until recently say, since the 1980s organizations were simply thought of as:were simply thought of as:

“ “Rational means by which to coordinate & control a Rational means by which to coordinate & control a group of people”group of people”

• In essence they were: In essence they were:

““No more than an organizational chart with vertical No more than an organizational chart with vertical relationships”relationships”

• But organizations are more than thatBut organizations are more than that

• They have a personality of their ownThey have a personality of their own

• Until recently say, since the 1980s organizations Until recently say, since the 1980s organizations were simply thought of as:were simply thought of as:

“ “Rational means by which to coordinate & control a Rational means by which to coordinate & control a group of people”group of people”

• In essence they were: In essence they were:

““No more than an organizational chart with vertical No more than an organizational chart with vertical relationships”relationships”

• But organizations are more than thatBut organizations are more than that

• They have a personality of their ownThey have a personality of their own


What is Culture? “ Way we do things around here,” or System of shared meaning held by members of org.

What is Culture? “ Way we do things around here,” or System of shared meaning held by members of org.


What is Organizational Culture?

– The system of shared actions, values, and beliefs that:

– develops within an org & guides

– The behavior of

its members


Project Culture

• Common behavior & internalized codes of conduct that guide:

“People’s daily actions”. People in Projects

Quickly learn which

actions are

“Allowed &

Which are not”.


Cultural Feasibility.

Compatibility of “Proposed Proj vs Cultural Setup”

of Proj environment Labor-intensive Proj-

Integrated with Local Cultural Practices & Beliefs.

Religious Beliefs – Influence-

individual willingness


Cultural FeasibilityCultural Feasibility

• Each Project has own culture New system must fit into culture

• Evaluate related issues for potential risks

Low level of computer competency

Computer & Field Phobia

Perceived loss of control

Shift in power

Fear of job/Assignment change or employment loss

Reversal of established work procedures

• Positive steps should be undertaken to reduce the risks• E.g.: additional training can be held to teach new procedures & provide

increased computer skills


Examines a Proposed P-in terms of:

Net Contribution to:

Industry

Economy

To society”.

Address 3 Related Questions:

1. P-Responsive to “Urgent Present or Anticipated Econ/Social” need?

2. P-Planned Economic o/put Serve Intended Purpose?

3. Service Proposed to be Performed by P- Benefits - Justify P - Cost? (Mono Rail by CDA, Sub Way, Clean Drinking Water, Steel Mill, Suzuki Car

Economic Study (Econ S)


Economic FeasibilityEconomic Feasibility

• Cost/Benefit Analysis

Estimate Proj Development Costs

Estimate operational costs after proj

Estimate financial benefits based on:

“Annual savings & Increased revenues”

Calculate Costs & Benefits

• Uses net present value (NPV), payback period, return on investment (ROI) techniques


Reqs: Study of all of Economic Implications of Proj:

a) Demand & Supply of All Proj- O/P.

b) P- Ability to Increase employment

c) P- “Multiplier" Effects (-Inc Purchase of goods Effect)

d) Effect on increase Govt Revenue (income tax, sales tax),

e) Use of Locally Available Resources.

Assess P- Net Contribution to Econ/social welfare of community.

Comparison of Econ & Social Benefits-generated

From P-Vs Costs of Construction & Operations.

B > C Proj- Economically feasible.

Profitability analysis is conducted.

Economic Study (Econ S)


Social Feasibility

• Addresses influences –Prj- May hv on

” Social Sys in Proj Environment”

• Social Structure- Certain type of HR:

In short supply or non-existent. (weekend worker in USA, in Pakistan HR mgr, PhD faculty in Mmgt, Nurses)

• You need to Evaluate its Effect on Project and ensure “Social Status of HR to Ensure Compatibility”.

Certain Industry- hv Status Symbols within Society


…

Financial Feasibility- Capability of Proj Org –

To Raise Funds to: implement Proposed Proj(different from economic

feasibility)


Financial Study (Fin S) Questions.• 1. Capital & Operating Costs ? • 2. Sources of Funds & Draw-down schedules- sufficient to

Cover costs of activities/implementation?(shoukat Tareen case of IMF)

• Any alternative Financing Schemes • 3. Projected Cash flow (CF)? • Extent of necessary borrowings (L of Cr)? • When P- Revenues Paying back /cover Operating Costs? • 4. Formation of Acctg system:

– Balance Sheets – CF Statements – Debt Servicing Schedules– Other Financial Reports?

• 5. Source pf Proj Investment • 6. Means of Recovery investment

–


• 6. Financial FS: Total- Costs of Project (Implementation & design, Broken down separately).

• Chk (a)-Prj-Success with Amount of Money? • (b) Any Profit? • Financial Analysis To Determine R o I • 7. Chk (a) P-Financial Stability (mali Isstakaam)

– B) Debt Service Capacity

• 8. Assessing Financial Profit

• 9. Projection of Revenues & Expenses: a. Revenues. & - Transactions - Generate incom &

Receipts Cash Inflows b. Expenses. Transactions Reduce income &

Expenditures: Cash Out Flows


• Revenues/Expenses Affect P- Income,– so determine P- Profit

• Receipts/Expenditures affect Cash Position. – So determine Debt-Servicing Capacity

• For a/m following Financial Statements made:

• 1. PLS Statement (income statement) • 2. Balance Sheet • 3. Cash Flow Statement.

• Periods of P-Statements: From Few yrs Life of P-


Financial CalculationsFinancial CalculationsCompanies use a combination of methods:

First approach, called the net present value (NPV), has two concepts:

(1) all benefits and costs are calculated in terms of today’s Rupees (present value)

(2) Future streams of benefits /costs is netted together & then discounted by a certain factor for each year in future

Payback Period to determine whether investments will be beneficial also breakeven point. Point in time at which “Benefits becomes equal” to “Cost of development & operation”

Third Economic Measure “Return on investment (ROI). Shows a “Percentage return needed so that the costs & benefits exactly equal over specified time period”.


Safety Feasibility.

• At Project Planning stage.

• NIMBY Syndrome

• Analysis of whether:

– P- Capable of implementation

– Operated safely with minimal adverse effects on environment. Amonia Cylider ;Leakage

– Finis Fatory Lahore 1996, kala Shah Kaku Chemical

– Union Carbide Bohapal 1984, Kala Bagh

– Chernoybal USSR- Nuclear Powr Plant 1986

- Inadequate EIS-in Complex Proj

• NAFTA –1993- Due to Legal issue of Potential EIS of P- Under agreement.


Political Feasibility

Referred - “Politically Correct Proj."

Political considerations

often dictate direction

for a proposed proj

• More common in LDC


Political Feasibility. PF • Politically Feasible P -“Politically Correct P."

• PF Analysis: • An Evaluation of Compatibility of P-Goals with

Prevailing Goals of Political System. • Pol considerations dictate Direction of P-. • Political Necessity -Source of Support,• Regardless of P- Merits. • Pol Opposition Scarp Good P-

– Q1.Who Resist Migration to New System?– Q2.Measures To overcome this Inertia?

• P- with “National Visibility” Political Implications.–get Significant Govt I/Put

• Kala Bagh, Thar, Swat Girls School today •


Environmental Feasibility.

Killer of P- Due to:• A) Long Approval Processes • B) Green /Earth lover/nature Groups.

C) Attention - Early stages of P. Concern & action to address all envir concerns.• 1.Environment suitability for P? • 2. P- Impact on Environment?• 3. Whether or not a Given Environment can Support a

Disney Theme park in Va, adverse “EI” IssueAswan Dam, New Murree ProjTarbella affectees


Environmental Feasibility

Agricultural Project, Question as:a) Soil Quality appropriate for Proposed crops? b) Sufficient water? c) Adequate drainage? d) Adequate sunlight?e) Climate right?

-Concern must be shown -Action must be taken to address any & all environmental concerns raised or anticipated


Resource Feasibility

• Project Leaders• Team Members• Team Skill Levels• Equipment• Support staff• Allied Physical Facilities• Communication & Collaboration

facilities


Resource FeasibilityResource Feasibility

• Team member availability

• Team skill levels

• Computers, equipment, and supplies

• Support staff time and availability

• Physical facilities


Human-Factors Feasibility

• Ease of Use– System friendliness to use within

context of Daily Ops of Intended End-user?

• Perceived UsefulnessSystem support -Job of End-user needs?s

• Overall Satisfaction• End User Like Using System?


Legal FeasibilitySolution Violate:

• Contracts, • Licenses,• Copyrights, • Non-disclosures, • Laws or Regulations?

Policy & Procedures– Solution violate Corporate Policies or

Procedures?


Schedule FeasibilitySchedule Feasibility

• Estimates needed complete info• Management deadlines may not be realistic• Project managers must:

Drive realistic assumptions and estimates

Recommend completion date flexibility

Assign “Interim Milestones to Periodically Reassess”

completion dates

Involve experienced personnel

Manage proper allocation of resources


Market Feasibility-

Market Variability & impact on Proj

. Not confused with Econ/ F


• Market Feasibility. • Concerns Mkt Variability & Impact on P-.

Purpose: To view Potential impacts of :- A). Mkt demand, - B) Competitive Activities, etc. Nestle Yogurt- C) “Divertible" mkt share ? - Price War by Competitors, & China Factor- Local, Regional, National or Intl- Analyzed:


Elements of FA of a Proj

Need AnalysisProcess WorkEngineering & DesignCost EstimateFinancial AnalysisMarket for Product & SvcProject ImpactsConclusions & Recommendations


Final Caveats

• Little Experience for Estimates

• Bias toward underestimation

• No For a Bid, Not a Real Estimate