CHAPTER FOUR

PROJECT PREPARATION

4.1. Pre-Feasibility Study

A pre-feasibility study is a general, not a detailed, assessment (or examination) of the basic
components of the industrial project. A detailed review of available alternatives and screening
out projects that are not eligible for further assessment, however, must take place at the stage of
the pre-feasibility study, since it would be too costly, time consuming, as well as not justifiable
to have this done at the feasibility study stage.
Objectives of Pre-Feasibility Study:
The basic objectives of pre-feasibility studies is to
 Examine possible project alternatives;
 Determine whether the project concept justifies further study and a more detailed
analysis; and
 Determine whether the project idea is promising or non-viable at initial screening.
4.2. Feasibility Study

A. Objectives:
 To define, in a more tangible form, the viability, quality, and dependability of project
ideas based on detailed and thorough analysis of the issue.
 To provide a basis for the final investment decision.
B. Considerations:
A major responsibility of the project analyst is to keep questioning all the technical specialists,
who are contributing to a project plan, to ensure that all relevant aspects have been explicitly
considered and allowed for. In this regard, feasibility studies:
 Require involvement of professionals in an interdisciplinary team process.
o Project planning is an interdisciplinary, interactive, and team based activity.
 Should arrive at definitive conclusions regarding the basic aspects of a project after
considering various alternatives.
 Should define all project features as precisely as possible.
o Define the scope of the project unequivocally so that not to omit important
aspects and associated costs.
o There is no uniform approach for all projects. The level of detail and emphasis on
the various aspects varies from project to project. [For example, big Vs small
projects; industrial Vs rehabilitation projects, etc].
o Carefully estimate and/or evaluate sensitive parameters like: sales (size of market
& quantity sales); production program and plant capacity; and selection of
technology, machinery, and equipment.

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 The outcomes should be detailed enough to provide the basis for and/or enable the
process of making subsequent decisions, for instance, financing/sponsoring decisions by
the concerned.
 The description of the project components should be well refined in order to permit
executing agencies to use the study as a guide for project implementation.
 Project planning is an interdisciplinary activity involving engineers, economists,
financial analysts, and specialists in areas such as agronomy, environmental health, soil
science, geology, hydrology, manufacturing, processing, extension, and management. It
is frequently becoming more important to consult sociologists too.

However, it is worth mentioning that feasibility studies are not always free from vested interests.
Those who commission studies, for example: governmental institutions, investment promotion
organizations, development banks, as well as private companies, are facing the problem of
receiving/obtaining objective, justifiable, and neutral expertise advice and feasibility reports.
These institutions also lack integrity some times in their practices.
Those supplying and offering feasibility studies, such as Consulting Firms, Industrial
Enterprises, Turnkey
Contractors, and Equipment Suppliers, rather have more strong self-interest sometimes. That is
why there are so many “White Elephant” projects, completely unprofitable and wasting away
scarce resources.
Therefore, one should have a sharp eye on the crucial aspects of a feasibility study as well as on
the participants thereto. Moreover, it is not only necessary to have a professional
interdisciplinary team work, but it is also indispensable to link all planning activities as early as
possible at the pre-feasibility study, and even at the identification stage, with all parties involving
in the project preparation.
4.2.1. Types of Feasibility study
In project preparation, the following areas of the project need feasibility study:
1. Technical Feasibility:
This area reviews the engineering feasibility of the project, including structural, civil and other
relevant engineering aspects necessitated by the project design. The technical capabilities of the
personnel as well as the capability of the projected technologies to be used in the project are
considered. In some instances, particularly when projects are in third world countries, technology
transfer between geographical areas and cultures needs to be analyzed to understand productivity
loss (or gain) and other implications due to differences in topography, geography, fuels
availability, infrastructure support and other issues.
2. Managerial Feasibility:
Demonstrated management capability and availability, employee involvement, and commitment
are key elements required to ascertain managerial feasibility. This addresses the management and
organizational structure of the project, ensuring that the proponent’s structure is as described in
the submittal and is well suited to the type of operation undertaken.
3. Economic Feasibility:
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This involves the feasibility of the proposed project to generate economic benefits. A benefit-
cost analysis (addressing a problem or need in the manner proposed by the project compared to
other, the cost of other approaches to the same or similar problem) is required. A breakeven
analysis when appropriate is also a required aspect of evaluating the economic feasibility of a
project. (This addresses fixed and variable costs and utilization/sales forecasts). The tangible and
intangible aspects of a project should be translated into economic terms to facilitate a consistent
basis for evaluation. Even when a project is non-profit in nature, economic feasibility is critical.
Financial feasibility should be distinguished from economic feasibility.
4. Financial feasibility
Financial feasibility involves the capability of the project organization to raise the appropriate
funds needed to implement the proposed project. In many instances, project proponents choose
to have additional investors or other sources of funds for their projects. In these cases, the
feasibility, soundness, sources and applications of these project funds can be an obstacle. As
appropriate, loan availability, credit worthiness, equity, and loan schedule still be reviewed as
aspects of financial feasibility analysis.
Also included in this area are the review of implications of land purchases, leases and other
estates in land.
5. Cultural Feasibility:
Cultural feasibility deals with the compatibility of the proposed project with the cultural
environment of the project. In labor-intensive projects, planned functions must be integrated with
the local cultural practices and beliefs. For example, religious beliefs may influence what an
individual is willing to do or not do.
6. Social Feasibility:
Social feasibility addresses the influences that a proposed project may have on the social system
in the project environment. The ambient social structure may be such that certain categories of
workers may be in short supply or nonexistent. The effect of the project on the social status of
the project participants must be assessed to ensure compatibility. It should be recognized that
workers in certain industries may have certain status symbols within the society.
7. Safety Feasibility:
Safety feasibility is another important aspect that should be considered in project planning.
Safety feasibility refers to an analysis of whether the project is capable of being implemented
and operated safely with minimal adverse effects on the environment. Unfortunately,
environmental impact assessment is often not adequately addressed in complex projects.
8. Political Feasibility:
Political considerations often dictate directions for a proposed project. This is particularly true
for large projects with significant visibility that may have significant government inputs and
political implications. For example, political necessity may be a source of support for a project
regardless of the project's merits. On the other hand, worthy projects may face insurmountable
opposition simply because of political factors.
Political feasibility analysis requires an evaluation of the compatibility of project goals with the
prevailing goals of the political system.
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9. Environmental Feasibility:
Often a killer of projects through long, drawn-out approval processes and outright active
opposition by those claiming environmental concerns. This is an aspect worthy of real attention
in the very early stages of a project. Concern must be shown and action must be taken to address
any and all environmental concerns raised or anticipated. This component also addresses the
ability of the project to timely obtain and at a reasonable cost, needed permits, licenses and
approvals.
10. Market Feasibility:
This area should not be confused with the Economic Feasibility. The market needs analysis to
view the potential impacts of market demand, competitive activities, etc. and market share
available. Possible competitive activities by competitors, whether local, regional, national or
international, must also be analyzed for early contingency funding