Feasibility study
What is a feasibility study?
As the name implies, a feasibility analysis is used to determine the viability of a project idea, ensuring that the project is legally and technically feasible as well as economically justifiable. The feasibility study answers the basic question whether the project is worth the investment. In some cases, a project may not be doable. There can be many reasons for this, including requiring too many resources, which not only prevents those resources from performing other tasks but also may cost more than the investing company/organization would earn by realising a project that isn’t profitable.
A well-designed feasibility study should offer a comprehensive review of the background of the project, the description of the manufacturing processes the quality and market of the final products, details of operations and management, estimated future market developments and policies, expected financial data, legal requirements, and tax obligations. Generally, the feasibility studies precede technical development, business planning and project implementation.
A feasibility analysis evaluates the project’s potential for success, its perceived objectivity is an essential factor in the credibility of the study both for potential investors and lending institutions.
A feasibility study is a study, which is performed by a company/organization in order to evaluate whether a specific action (investment, acquisition, etc.) makes sense from economic and/or operational standpoint. The objective of the study is to test the feasibility of the specific action and to determine and define any issues that would argue against realising it.
The question a feasibility study should answer is simple: “Should we proceed with the specific investment project?” In addition to determining whether the planned project is viable, organizations can use a feasibility study also for understanding the implied risks better.
Where can the feasibility study be used?
The primary purpose of a feasibility study is to provide a well-based information to the project developers about the conditions of the project. Subsequently, based upon this analysis the project developers can approach the potential investors and financing institutions.
The feasibility studies assist the project developers also in their communication with the respective authorities, politicians and impacted communities in securing their support for the project. for this purpose, the study must address in detail the potential risks and the expected concerns by the involved parties.
Core elements of feasibility study
1. Technical feasibility
The first element deals with technical feasibility of the proposed investment, the technical feasibility study will determine if it’s a technically viable action.
2. Market feasibility
The second element focuses on understanding the market environment for the proposed investment. It examines issues like whether the main product (biomethane) and the by-products can be placed on the market at reasonable prices or if there’s a marketplace for them at all. Regarding renewable energy projects (among them biomethane investment projects) the available national support schemes are of crucial importance.
3. Commercial feasibility
Commercial feasibility is an element of the study focused on the probability of commercial (economic) success. It’s mainly focused on studying whether the planned investment can be financed and whether it can generate enough income and profit.
4. Overall risk assesment
The fourth element focuses on the major risks the proposed investment plan can entail. The overall risk assessment part of a feasibility study examines the different ways the project company (the investor) can reduce the risk of embarking on the new venture.
The aim is to try to cover all the possibilities and create a risk assessment map, which deals with the probability of the risk and the impact it would have on the project. It’s aimed at recognizing the risks that can make or break the project from the smaller, more manageable risks.
What is the difference between a pre-feasibility study and the complex feasibility study?
Purpose of pre-feasibility study
The pre-feasibility study is produced primarily for the owner of the project to provide assistance in taking decisions on
launching the project development,allocating resources necessary for the preparatory work,
selecting (and securing) the site for the plant,
determining the targeted capacity of the plant,
securing future raw material supplies.
Important questions
Correspondingly, the pre-feasibility study must address the key issues, such as:
site selection,
substrate supply patterns,
capacity of producing installation,
selection of anaerobic digestion (and biogas upgrading) technology,
final products and their markets.
The project owner may use the pre-feasibility also for inviting potential co-investors into his project.
Complex feasibility study
The main function of the complex feasibility study is to provide the basis for the final investment decisions and for securing the financing of the project. In this sense the complex feasibility study should be detailed and convincing enough for the co-investors, the banks and other financing institutions to take a positive decision on financing the project.
Contrary to the pre-feasibility study, which is analysing and comparing different options the complex feasibility study is already performed in relation to the location, capacity, raw material composition and technology specified on the basis of the pre-feasibility study.
What is the difference between a feasibility study and a business plan
It’s to be noted that a feasibility study is not the same as a business plan.
A business plan has a planning function and defines the actions needed to take a business idea into reality, whereas a feasibility study provides an investigation into a specific investment project under consideration and whether the project is viable.
While it’s important to conduct both plans before realising the action, a business plan should only be conducted once the investment project has been deemed viable by a feasibility study.