Feasibility Study

Techno-economic feasibility study is the next stage of the project development phase where the project scope is described, its size and methods determined; suitability of the site, the required natural resources and raw materials investigated  and more accurate estimates made of process and non-process equipment, buildings, offsite facilities and other assets, their costs, etc. and the total feasibility of the proposal studied in-depth and cleared. 

Several institutes have published feasibility study guidelines. These institutions include UNIDO Geneva, the World,Bank, Industrial Development Bank of India (IDBI), Planning Commission and so on. Thr~  important facets covered in project feasibility analysis are : 

• Market analysis 
• Technical anollysis 
• Financial analysis 
• Economic analysis 
• Ecological analysis  

Market Analysis 

It is concerned primarily with aggregate demand and market share. 

Technical Analysis 

It seeks to determine whether the prerequisites for the successful commissioning of the project have 'been considered and reasonably good choices have been made with respect to location, size, process, etc. The important questions considered in technical analysis are : 

• preliminary investigations, tests and studies done, 
• availability of manpower, raw materials, power, and other inputs, 
• construction methodology, 
• equipment and machines chosen, 
• necessary auxiliary equipment and supplementary works, 
• treatment of effluents, 
• layout of the site, buildings, and plant, and 
• work schedules. 

Financial Analysis 

It ascertains whether the proposed project will be financially viable in the sense of being able to meet the burden of servicing debt and whether the proposed project will satisfy the return expectations of those who provide the capital. The aspects which have to be looked into while conducting financial appraisal are : 

• Investment outlay and cost of project, 
• Cost of capital, 
• Projected profitability, 
• Break-even point, 
• Cash flows of the project, 
• Projected financial position, and 
• Level of risk. 

Economic analysis 

It refers to cost benefit analysis which may often be different from its monetary costs and benefits. 

Ecological Analysis 

It is particularly required for major projects which have significant ecological implications like power plants and irrigation schemes, and environmental-polluting industries. 

Feasibility Study Report 

Information generally contained in the report are as follows : 

• Project background and description, 
• Market and plant capacity, 
• Materials and input, 
• Location and sites, 
• Project engineering and investment cost, 
• Plant organisation and overhead cost, 
• Manpower, 
• Implementation schedule, and 
• Financial and economic evaluation, 

Estimating the project cost is an important activity for preparing the techno-economic feasibility report. Although the estimate at this stage is still preliminary or pre-definitive and subject to refinement of uncertainty by making the best use of process flow sheet and other available information sources. The useful practice to prepare capital cost estimate is as follows : 

• Prepare schedules for every cost component, listing item description, quantities, rate or prices assumed and total amounts, 
• Prepare a summary sheet for every component, and 
• Make a top sheet covering all components, providing separate columns for foreign exchange, local cost and total cost. 

Before deciding on investment, the total financial viability of the project is to be examined closely from the angles of profitability or rate of return (ROR), cash flow, and pay-back of investment. 

Profitability, cash flow and repayment capacity are computed and analysed from the angle of : 

• Net present value of cash flow (NPV), 
• Internal rate of return (ROR), 
• Payback period (PBP), 
• Simple rate of return (SRR), 
• Break-even point (BEP), and 
• Sensitivity analysis (SA). 

These aspects are covered in capital budgeting.