What is the feasibility report?
Feasibility report is prepared at the initial stage of the project or we can say at the definition stage of the project. Updating and validation of the feasibility report are required for the implementation of the project. The project can be implemented as per the technical and economic aspects made in the feasibility report. It is prepared to present the in-depth technical and economic analysis carried out on the project and it contains results of technical as well as economical evaluation of the project so that the owner can make decisions regarding investment required to execute the project in a well-planned manner. Sometimes delay in implementation of the feasibility report needs to be updated.
List of the analysis of the project
The viability of any project mainly depends on the following analysis:
- Technical analysis.
- Financial analysis.
- Economic analysis.
- Ecological analysis.
1. Technical analysis:-
The technical part of the feasibility report identifies the best or alternative methods for the construction of the project and selecting the best available technology. It also includes the selection of the method for construction, location of a suitable site, specification and availability of various resources and raw material and also selection of types of equipment needed for construction according to the location of the construction site. The selection of suitable strategies of construction depends on the availability of assets and targeted financial assessment of various alternative techniques. The studies and improvement wing of a country can play a vital function in the development of new technology. Usually, the new era delivered in the creative field has the following capabilities:
(i) It is expensive.
(ii) It has a high degree of automation.
(iii) It requires highly trained personnel and sophisticated management culture.
Therefore, we should keep the above features in mind and examine the acceptability of new-era which relies upon the size of the project and also the duration of completion.
One of the maximum essential goals of the feasibility study is locating an appropriate site for construction. To meet the goal referring to time and price, it’s far essential that the site has been properly selected and implementation, as well as completion of the project, should be in time.
The site selection criteria vary from one project to another undertaking. Normally, undertaking sites are selected on the basis of following basic considerations: –
(i) Availability of land, soil characteristics, and cost of land.
(ii) Approach to site.
(iii) Transportation and availability of material.
(iv) Availability of manpower.
(v) Availability of other facilities such as water supply, electricity, drainage, etc.
(vi) Acceptance of the project by the local bodies.
We will now discuss each of the basic considerations separately:-
(i) Availability of land:-
The location of land available for the proposed site should be sufficiently large for the present requirements and additionally for future growth. The requirement of land for any assignment may be assessed from the construction place required with allowances for utilities and other off-site facilities, arterial roads, parking places, and open areas and so on. The real area to be acquired will also rely on local circumstances. Land should otherwise be Government-owned and available for development work. It must not contain the displacement of the population. The land has to be moderately flat in order that high-priced site development work can be prevented. It must have an adequate method of natural or artificial drainage. The site must no longer get flooded from river water or sea tides. It needs to be suitable for heavy construction work and no longer subject to subsidence or earthquake of significant magnitude. The load-bearing the capacity of land must be ascertained and it needs to be safe enough to carry out the development loads. Additionally, the price of land must be competitive with other alternative sites. Subsequently, these statistics are to be necessarily gathered at the feasibility stages.
(ii) Approach to site:-
The region of the project site should be such that it must be approachable by using rail or roadway. It should rather be nearby the railway and national toll road. Approach to the site should be such that the transportation of construction material or raw material required, may be done without any difficulty in all seasons of the year.
The cost or problem of transportation is one of the most critical elements in the selection of a site. If the raw material needed to run the site is bulky or difficult to transport, it is better to find those varieties of the project near the source of raw materials eg. Construction of cement manufacturing factory, steel factory and paper, and pulp industry. Similarly, if the quality of raw material is likely to deteriorate in transportation, it’s far better to find such kinds of projects close to the source of raw material eg. Sugar manufacturing unit. In different instances, the economic mode of delivery is classed, that’s related to the quantity and nature of the construction material to be transported. Ideally, preference will be in favor of a site that has ready access to the most affordable mode of transport. Comparative
ease and cost of transportation of the development material or raw materials from the alternative sources of the project site should be examined and then the affordable source of material can be selected.
Once in awhile, for big projects, it can be essential to develop rail connections with the site, development of roads and bridges, development of harbors, laying of pipelines or creation of aerial ropeways to make the maximum cost-effective transportation available.
(iv) Availability of manpower:-
In a country like India, manpower should not be a major constraint. However to get skilled or semi-professional workers may be hard to get to a particular area. If the project is positioned at a remote location, it’s very tough to attract professional manpower. In such conditions, provisions must be made to educate the local community. Additionally, required services including housing and other centers have to be increased to attract people from outside, if required professional manpower can not be acquired locally. The value of this will be added to the project cost. As a result, at the same time as selecting the site, the cost of manpower, the value of training, the value of facilities, etc. Must be taken into consideration when comparing alternative locations.
(v) Availability of other facilities:-
There are a few projects in which the intake of water and electricity is very high. In such instances, the selection of sites may be governed through the availability of such facilities. The cost of pumping water to the site and its treatment and additionally availability of power will constantly influence the choice of the project site. For this reason, at the same time selecting the site, those elements have to be considered on an economical basis.
(vi) Acceptability of local bodies:-
The area of a project needs to be such that it must not affect the surrounding regions by any means of a unique way of pollution. The agencies whose consents are required or which are to be consulted might rely on the type of the project. These days, a few state governments are presenting these clearances through a single-window however where this carrier isn’t available, acquiring the clearance for a project is a tough task and might take big time.
Except for the above, financial factors are an essential consideration for the site selection of the project. So, if the fundamental situations are met, potential sites may be evaluated on economic consideration and the selection can be taken in favor of the most economically feasible site.
2. Financial analysis:-
The financial analysis of a feasibility study are as follows:
(i) Estimation of capital cost requirement.
(ii) Source of financing.
(i) The capital cost of the project:
All the costs incurred during the course of completion of a project can be termed as capital costs. Estimation of the capital cost of a project presents the basic data required for identifying the pattern of financing and viability of the project. The amount of depreciation, interest, and many others, will change with the change in the capital cost of the project. An owner organizes his resources consistent with the anticipated cost of a project. If there’s enormous overrun within the price of a project, it is able to be tough to arrange for extra assets and it may delay the implementation of the project. The delay will result in further overrun inside the capital cost. Overestimation of the cost of the undertaking is likewise no longer ideal. If the cost of the project is overestimated, the monetary institutions will have to make an unnecessarily better commitment and the promoters may additionally divert sources for other purposes.
The primary elements of a capital price estimates as a fund plan are as follows:
This list of objects noted above may alternate from project to project. The total fund is required only in levels according to the requirement of the work schedule. Summation of the capital cost of all of the items, operating value, and operating prices will set up the whole fund required for the project. For preserving diverse inventories within the form of construction material or raw material, operating supplies and meeting cash requirements for preservation requires a fund that’s termed as the working cost. The fund which is allotted for raw material or construction material, labour utilities, repair and maintenance, and every other charge to be incurred year after year after the project is finished and in operation, is termed as an operating cost.
(ii) Source of financing:
Basically, there are two sources to be had for financing the fund necessities of a project i.e. Internal source and external source. For small projects, internal sources are used and for big projects, external sources of financing are used. The capital cost of the project would require to be financed essentially through equity and long-term debts.
3. Economic analysis:-
Economic analysis is required at the time of the feasibility level of the project. It checks the financial viability of the project. Sometimes, projects are, technically feasible but economically unviable.
The economic feasibility of a project can be assessed by the following methods:
(i) Payback period method.
(ii) Return on investment method.
(iii) Net present value method.
(iv) Internal rate of return method.
(v) Benefit-cost ratio method.
With the help of the above strategies, we can pick the best alternative which offers decent results in terms of the economic system. Also, financial analysis is called a social cost-benefit analysis. It’s concerned with judging a project from the larger social point of view. In such an evaluation, the focus is on the social cost and benefits of a project which may be distinctive from its financial cost and benefits. It is by and largely used for evaluating public sector projects.
4. Ecological analysis:-
In the latest years, environmental concerns have assumed an excellent deal of significance. Ecological evaluation needs to be finished mainly for predominant projects that have vast ecological implications like electricity plant and irrigation schemes, and environmentally polluting industries which include drug, chemical, and leather processing industries. Pollution control law has become stringent compelling the process industries to make investments of an enormous percentage of their overall capital in effluent remedy and disposal. The problem of effluent disposal differs from industry to industry depending on the character and quality of effluents. Throughout the feasibility study, the guidelines of the central or state pollution manage forums are to be taken into consideration and the cost of appropriate treatment schemes has to be taken into consideration for numerous prospective locations.