Feasibility study is concerned with the planning, analysis, selection and financing of the project . Project feasibility is a test where the prima facie viability of the investment project is evaluated in the context of internal and external constraints. Every project should be technically sound, financially feasible, economically beneficial, commercially dependable and organizationally adequate . It requires to elaborate tools and criteria for appraising and evaluating the technical, financial, economic, commercial and organizational worthiness of a project . All these aspects are not equally important and their importance varies considerably according to the nature of the project . But, the feasibility report must cover all these aspects of an investment project even the alternative solutions .
There may be three possibilities in the feasibility study . First, the project idea seems to be feasible, second, the project idea is not feasible and third, unable to arrive at a conclusion . If it is feasible, the entrepreneur proceeds to the next step, if not feasible, the project idea is dropped and in case of third case, sufficient data is collected to take the final decision.
Contents of Feasibility Study
(1) Scope of the project feasibility study – Before undertaking any industrial or social project, the scope and magnitude should be clearly spelled out based on which forecasts are made. It should include all activities which play important role in commissioning the project successfully and auxiliary activities related to production, extraction, off – site activities as housing and educational, training and recreational facilities.
(2) Procurement of data – Though the investment and production cost should be estimated as accurately as possible. Due to limitation of cost and time involved in obtaining data, the project team has to rely upon assumptions.
(3) Verification of alternatives and assumptions – Various alternatives with requirement of technology, equipment, capacity, location, finance, etc. are provided for the study. To arrive at a decision is really a difficult task.
(4) Proposed most structure – It would be ideal to label all the expenditure to be incurred during the project implementation. It includes material costs, research costs, labour costs. overhead costs, distribution costs, etc. These costs of which some may be explicit costs and some may be implicit to the production or operation process.
(5) Scheduling the operations – When the operations are much time consuming, Bar Charts for scheduling and timing the operations are used by many planners.
(6) Arranging local and foreign exchange – Arrangement should be made for local currency for convenient spending and foreign currency is needed for importing the required goods and services.
(7) Contingencies and inflation – Every project is confronted with inflationary pressures of the money market and physical shortage of the material in the market due to short supply.
(8) Project team – Feasibility study should be conducted under the supervision of team experts as they are well aware of the time constraints and other such requirements of the project.
(9) Cost studies – Costs are the main determinants of various types of pre-investment studies. Thus, it is preferable to indicate the order or magnitude of costs if such studies are conducted by outside agencies.
(10) Accuracy of costs – The estimates of investment cost of production would go on changing. The estimate should be as much accurate as possible.