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Methods of Feasibility Studies

Feasibility studies. Methods to use when doing feasibility studies

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45 views

Methods of Feasibility Studies

Feasibility studies. Methods to use when doing feasibility studies

Uploaded by

tariromt50
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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QUESTION 1

1.a) What is feasibility Study

The evaluation of a plan or project's viability is known as a feasibility study. To determine the
project's chances of success, a feasibility study assesses a project's viability. Finding potential
problems and challenges that could surface during project pursuit is another goal of the
investigation (Drury, 2024).
Part of the feasibility assessment process is for project managers to determine whether they have
sufficient resources, finance, staff, and technology. In the case of a nonprofit organization, the
study's return on investment should take into account the value to society rather than a financial
gain.

Ways of conducting Feasibility Studies in Real Estate:

A variety of techniques are used in feasibility studies to examine the many facets of a project
proposal. These techniques guarantee a thorough assessment of all relevant commercial,
financial, technological, legal, and operational aspects (Matt, 2022). Feasibility studies can be
conducted using both the traditional and realistic approaches;

Traditional Approach

Focuses on formal, organized approaches with typical market research, financial estimates, and
historical data. Estimates are made with a realistic static economy and market. Making
predictions about the future is not a good idea. The only rent used is actual market rent.

Methods

1. Discounted Cash Flow (DCF) analysis.


2. Comparative Market Analysis (CMA).
3. SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.
4. Scenario Planning.

Realistic/Modern Approach

Incorporates technology, more adaptable approaches, and real-time data. It can only be applied in
situations where it is fairly anticipated that development costs will rise, borrowing rates will
fluctuate, rents will probably rise or fall, and outgoings will probably rise. This can display
scenarios that are grounded in market trends and are realistic.

Methods:

1. Use of Geographic Information Systems (GIS) for spatial analysis.


2. Big Data and Predictive Analytics to forecast market demand and trends.
3. Crowdsourcing and stakeholder engagement to assess community needs.
4. Sensitivity Analysis to understand how changes in variables affect outcomes.

Feasibility studies employ a mix of qualitative and quantitative methods to comprehensively


evaluate the viability of real estate projects. The key is to use the most appropriate methods
based on the size, complexity, and objectives of the project. These methods provide valuable
insights that guide stakeholders in making informed decisions about moving forward with
development or investment (Anon., n.d.).

Quantitative Methods

 Cost Benefit Analysis (CBA) – Evaluates projects costs vs benefits


 Break-Even Analysis (BEA): Determines when project revenues equal costs.
 Net Present Value (NPV) Analysis: Calculates project value in today's dollars.
 Internal Rate of Return (IRR) Analysis: Measures project return on investment.
 Return on Investment (ROI) Analysis: Evaluates project profitability.
 Discounted Cash Flow (DCF) Analysis: Values project future cash flows.

Qualitative Methods

 SWOT Analysis: Identifies project strengths, weaknesses, opportunities, and threats.


 Market Research: Assesses demand, competition, and market trends.
 Risk Assessment: Identifies potential risks and mitigation strategies.
 Sensitivity Analysis: Tests project performance under varying conditions.
 Scenarios Analysis: Evaluates project outcomes under different scenarios.

Data Collection Methods:


 Surveys and questionnaires
 Focus groups and interviews
 Market analysis reports
 Government data and statistics
 Site visits and observations
 Review of existing literature and research

Financial Modeling Methods:

 Pro Forma Analysis: Creates financial projections (e.g., income statements, balance
sheets).
 Cash Flow Modeling: Estimates project cash inflows and outflows.
 Financial Ratio Analysis: Evaluates project performance metrics (e.g., debt-to-equity
ratio).

Key Components of a Feasibility Study:


 Executive Summary: This is a concise synopsis of the project that outlines its goals and
purposes.
 Project Description: a thorough rundown of the project's objectives, idea, and target
market.
 Market Analysis: Determine supply, demand, and market completion in the intended
market. Among them are:
1. Overview of the Industry: Examine the sector that the project will work in.
2. Target Market: Determine the requirements of possible clients.
3. Market Trends: Analyze existing and projected trends that might have an
impact on the project.
4. Analyze rivals' advantages and disadvantages in the fourth step.
 Technical Feasibility: Assess the project's technological needs, including the materials,
equipment, and resources required.
 Financial Feasibility
1. Analyze the project's overall expenditures, taking into account both launch
and ongoing expenses.
2. Funding Sources: Determine possible sources of capital or grants.
3. Revenue Projections- Forecast expected revenues based on market analysis.
4. Profitability Analysis- Determine the project's break-even point and expected
profit margins.
 Operational Feasibility: Evaluate the organization's ability to manage the project, taking
into account logistical and human resources.
 Legal and Regulatory Feasibility: Examine any applicable zoning laws, rules, and
regulations that might have an effect on the project.
 Risk Analysis: Determine any risks related to the project and create plans for reducing
them.
 Conclusion and Recommendations - Give an overview of the results and suggest whether
to move forward with the project (Jawaid, 2023).

Steps to Conduct a Feasibility Study:

1. Preliminary Analysis:

 Define the project scope and objectives – Clearly outline what you want to study
 Identify key stakeholders.
 Conduct a basic evaluation of potential challenges.

2. Detailed Research and Analysis:

 Perform in-depth market research.


 Conduct site analysis and technical assessments.
 Develop detailed financial projections.

3. Prepare a Feasibility Report:

 Summarize findings from all components.


 Include recommendations on whether the project should proceed.
 Present alternatives or modifications to the project if necessary.

4. Review and Decision:


 Present the feasibility report to stakeholders.
 Making the final decision based on data-driven conclusions i.e. deciding
whether to move forward, modify, or abandon the project.

Purpose of a Feasibility Study:

 To reduce risks and uncertainties;


 To base decisions on reliable information.
 To offer a project implementation road plan.

Who conducts Feasibility Studies

 Developers
 Investors
 Lenders
 Government Agencies
 Consulting firm e.g. Real estate

Benefits of conducting a feasibility study;


 Before allocating large resources, market prospects and the target market are confirmed.
 Potential problems and risks are identified early.
 Comprehensive information is provided to facilitate better decision-making regarding the
suggested feasibility of projects.
 Produces financial analysis and documentation on projected costs and benefits.
 Improved Resource Distribution. (Martins, 2024)

Disadvantages of a Feasibility Study

 Cost: Because a thorough feasibility study necessitates market research, technical


assessments, and expert consultations, it may be costly, particularly for smaller projects.
 Time-Consuming - When extensive research is needed, feasibility studies can be
laborious to finish and postpone the project's commencement.
 Uncertain Accuracy - Even with extensive study, feasibility studies might not always be
able to forecast how the market will develop in the future or how unanticipated changes
in rules would effect the project.

A feasibility study helps to reduce risks and guarantee success by offering crucial information
about a project's viability. But it may be expensive, time-consuming, and it might not always
take future developments in the market into consideration. To maximize the project's advantages,
the level of investigation and project size must be balanced (Omar, 2016).
REFERENCES

Anon., n.d. Groundbreaking Feasibility: A Comprehensive Real Estate Study. [Online]


Available at: https://insightss.co/blogs/feasibility-comprehensive-real-estate-study/
[Accessed 27 September 2024].

Drury, A., 2024. Investopedia : Feasibility Study. [Online]


Available at: https://www.investopedia.com/terms/f/feasibility-study.asp
[Accessed 27 September 2024].

Jawaid, N., 2023. Feasibility Study – 12 Key Benefits and Components. [Online]
Available at: https://www.feasibility.pro/feasibility-study-benefits-components/
[Accessed 27 September 2024].

Martins, J., 2024. How to conduct a feasibility study: Templates and examples. [Online]
Available at: https://asana.com/resources/feasibility-study
[Accessed 27 September 2024].

Matt, M., 2022. The Guide to a Real Estate Development Feasibility Study. [Online]
Available at: https://marsh-partners.com/blog/the-guide-to-a-real-estate-development-feasibility-study
[Accessed 27 September 2024].

O., 2016. Pros & Cons of Conducting Feasibility Study For Startups. [Online]
Available at: https://smecastle.com/2016/01/22/feasibility-study-pros-cons/
[Accessed 27 September 2024].

PropertyGuruEditorialTeam, 2019. Exploring The Investment Method For House Valuation. [Online]
Available at: https://www.propertyguru.com.my/property-guides/exploring-the-investment-method-
for-house-valuation-14617
[Accessed 3 March 2022].

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