Economic Feasibility Study - The 5 Steps of the Feasibility Study

Economic Feasibility Study - Introduction:

Careful planning for any successful project includes studying its economic feasibility, as it is the basic foundation upon which any project depends to achieve the expected profits from it, through conducting a cost-benefit analysis and analyzing all aspects of the project to determine the probability of its completion.

The Article Content Provides You with An Overview Of:

1. The Importance of The Economic Feasibility Study.
2. The 5 Steps of The Feasibility Study.
3. Objective Of the Feasibility Study.
4. What Comes After the Feasibility Study?
5. Does The Economic Feasibility Study Provide Accurate Forecasts for The Project?

First: The Importance of The Economic Feasibility Study:

When it comes to starting a new project, an economic feasibility study must be prepared because it is a crucial step to determine whether the project will be profitable and successful or not. Below is the importance of this study.

1. 1. Evaluating financial feasibility: The study helps determine whether the project can be financially profitable or not.

   The expected costs and revenues of the project are analyzed over a specific period of time, and the rate of return and the capital recovery period are estimated. This information helps you decide whether to invest or not.

2. 2. Evaluation of opportunities and risks: The analysis helps determine the opportunities available in the market and the availability of demand for the product or service provided by the project. It also helps in analyzing potential risks associated with the project and evaluating how to deal with them.
3. 3. Providing information to investors and financiers: The economic feasibility study is an important document for potential investors and financiers, because it provides comprehensive information about the project, including financial and economic expectations and potential risks.

   This information helps investors and financiers evaluate the feasibility of the project and make a decision to provide the required financing or move to another project.

4. 4. Improving planning and implementation processes: Planning helps in determining financial requirements, timing of implementation, identifying potential risks, and preparing for future challenges. Thus, project management can be improved, decision-making can be improved, and potential risks can be reduced.
5. 5. Attracting investors and partners: When a comprehensive analysis of economic feasibility and financial projections is provided, the project becomes more attractive to investors and increases the chances of obtaining the necessary financing for implementation.

This study is an in-depth analysis of the potential returns and costs associated with the project, and helps in making an informed decision about the feasibility of investing resources in the project.

Second: Steps of the Feasibility Study:

1. 1. Financial analysis: includes estimating the expected costs of the project, including capital, operating, and maintenance costs. It also includes estimating the expected revenues from the project, and analyzing the cash flows associated with it.
2. 2. Evaluating the financial return: It aims to calculate and analyze the expected financial return from the project. This includes calculating return indicators such as the Internal Rate of Return (IRR), Payback Period and Net Present Return Value (NPV).
3. 3. Economic analysis: It includes assessing the economic impact of the project on the community and local economy, such as providing new job opportunities, increasing productivity, improving infrastructure or public services, and its impact on current and future prices.
4. 4. Risk analysis: includes identifying and evaluating risks related to project implementation and their impact on economic aspects. Potential risks are analyzed and their impact on the financial return and sustainability of the project is estimated.
5. 5. Environmental and social assessment: includes an assessment of the environmental and social impact of the project, including an environmental impact assessment and analysis of the associated social aspects. This assessment aims to ensure that the project complies with recognized environmental and social standards.

The economic feasibility study of a project is crucial to ensure the feasibility of investing resources and achieving the desired financial return.

Third: The Objective of The Feasibility Study:

The feasibility study for any project aims to analyze and evaluate the economic aspects associated with project implementation, in order to determine whether the project is economically sustainable and profitable, and whether it is worth investing in from a financial standpoint, and is considered an important tool for making informed investment decisions.

Fourth: What Comes After the Feasibility Study:

After conducting the feasibility study and analyzing the results, an informed decision can be made about implementing the project. If the results indicate economic feasibility and positive financial returns, the project can be considered as a good investment option.

Conversely, if the results indicate economic infeasibility or negative returns, then investing in the project may not be advisable.

The study should include an assessment of non-financial factors related to the project, such as legal, political, regulatory and technological factors, and these factors should be evaluated to identify potential risks and opportunities associated with project implementation.

This study is a crucial tool for evaluating the economic aspects of any project. It helps to make informed investment decisions and achieve economically sustainable goals.

Does the economic feasibility study provide accurate forecasts for the project?

The feasibility study aims to estimate the expected financial return of the project, but it does not provide 100% accurate forecasts. Estimating the financial return depends on many different factors and variables that can affect the project results, including:

1. 1. Economic stability: The project’s financial return depends on the state and stability of the general economy in the country, and on changes in the economy, such as inflation and interest rates, and government policies can also affect the project’s performance.
2. 2. Market forecasts: The expected demand for the product or service provided by the project must be analyzed. Changes in consumer preferences, technology or competition can affect market size and financial returns.
3. 3. Financial risks: Potential financial risks associated with the project must also be analyzed, such as inflation, changes in raw material prices, legislative or tax changes, and others. These risks can affect financial returns.
4. 4. Market competition: The financial success of the project depends on its ability to compete in the market. If there is intense competition or difficulties in entering the market, the financial return may be less than expected.

Despite these changing factors, the feasibility study provides a reasonable estimate of the expected financial return for the project based on available data and analysis, and must be updated regularly to take into account changes in the economic and market environment.

Conclusion: When completing the economic feasibility study and estimating the current and future costs and expected profits from the project, it is good to have a contingency plan that you test to ensure that it is applicable in the event that anything happens that was not taken into account, and so you can make informed decisions.