WHAT IS A FEASIBILITY STUDY ?
The most important thing to understand about this plan is that it is not static but totally dynamic and one that is continuously changed and updated until it is either abandoned or complete.
As the plan is based on continuous change and development it is always carried out in Stages. The GOLDEN Rule is that each and every stage must be 100% complete before proceeding to the next Stage. Whenever this GOLDEN rule is broken the project will be out of control and probably be a disaster.
The Stages are given different names - depending on the Industry - but any difference are semantic as the same basic process is repeated - no matter whether it is Construction, Finance, IT or Oil and Gas.
HOW MANY STAGES ARE THERE IN THE PLAN?
They are all called different names - depending on the Industry - but there are always 5 Stages:-
Oil and Gas
Front End Eng. Dev. (FEED)
Detailed design and Construction
Asset Creation and Operation
Construction and Operation
WHAT SHOULD BE INCLUDED IN Stage 1 ?
This document is always produced at the start of any Project Development Process it is called many different names depending on the industry involved - as shown in the table above - You can see why confusion reigns!
There should be 3 primary elements in Stage 1 and these are:-
1.1) The Identification of the Problem or Oppportunity
Just remember that if the Concept is difficult to explain or describe YOU do not understand what the real problem or opoortunity is!
1.2) The Identification of the Project Objectives and the Scope that will Solve the Problem or provide Profit from the Opportunity
1.3) Why it makes Sense for the Project Promoter to pursue the Objective (Strategic Fit in Corporate Speak!)
WHAT SHOULD BE INCLUDED IN Stage 2 ?
This is the most important Stage of all because if the different Options for achieving the Project Objectives laid down in Stage 1 are not examined in detail then it is much more likely that the Project will be a disaster.
There are two primary elements in this Stage:-
2.1) The Indentification of the Different Ways or Options that will achieve the Objective
The Main reason why so many Projects are only partly successful is that all the best ways of achieving the Objective are not thoroughly Explored and Tested
2.2) The identification of the Pros and Cons and the Net Present Value of each Option
2.3) Selection of the Best Option
WHAT SHOULD BE INCLUDED IN Stage 3 ?
3.1) Detailed Appraisal and Financial Analysis of the Best Option
This Stage just concentrates on the refinement of the Best Option.
The mistake that most Feasibility Study Sponsors make is that they jump straight into Stage 3 from Stage 1 and never undertake Stage 2 - and that is why the majority of all project fail.
Projects also fail because the Managers get obsessed with one idea and even though they undertake Stage 2 they never do it properly because they think they know the answer before they start - and they never ever do.
CEEVEX HELPS to SET UP AND MANAGE Project Stages 1,2 and 3 SO THAT PROJECTS DO NOT GET OUT OF CONTROL?
CeeVex also provides the best software tools around to help shortcut the vast amount of work involved in this process:-
OK - You have just read a slightly tongue-in-cheek description of the Feasibility Study Process but Please Remember:-
"Fail to Plan You are Planning to Fail"
SO if You want to avoid wasting a ton of Time and Money - This Webpage will be the most important one that you will ever read
Every Project or New Business must be based on a Plan that will work!
These Plans are called Feasibility Studies and they must prove that the "How we are going to do it" is the "Best Way to do it!".
There is all kinds of horse...t talked about what a Feasibility Study should do -
so let me spell this out in a way that cannot be misunderstood
THE PURPOSE OF A FEASIBILITY STUDY IS TO REDUCE THE RISK OF PROJECT FAILURE
Every single organisation that frequently carries out major successful projects has a refined project development system that identifies precisely how Project Studies and Business Planning should be carried out
These systems are often based on at least 50 years of corporate experience - and have been steadily refined as that experience has grown.
Every Major Oil Company has their own system that requires all the viable Options to be explored in detail - they would not survive without them!
But even they get ot wrong from time to time!
Every one of these project development systems has rigorous procedures that ensure that all the Options for the Implementation of the Project are examined, costed out and properly considered.
Put it like this - If your Study does not include consideration of at least three viable methods of achieving the same objective your go - nogo decision will be nothing more then a guess.
So Feasibility Studies must be Plans that include in-depth Comparative Reviews of the Options
- Just like the Reviews that You look for on the Internet when you are wondering what Car or Camera to buy!
Our motto at CeeVex is "Comparare Valorem" - this is Latin for "Compare Value" and we help Clients do just that and pass on to them the knowledge gained from the 50 year learning curves of the managers of the largest projects on the planet.
CeeVex is a UK based Organisation that supplies Project Evaluation Software and through its Project Services provides Experience and Expertise in the Execution of Feasibility Studies to provide these Comparative Reviews anywhere in the World.
Why are Successful Projects so Rare?
It is often difficult to assess of whether a project has been a success or not but everyone knows that totally successful projects are very rare outside the oil and gas industry - although some organisations like airport and port operators have also established very successful track records.
Defence projects have always gone wrong! - Do you remember "A Bridge To Far" - this operation was planned over 6 months to the n'th degree - and when the paras got down on the ground the radios did not work!
The most recent fiasco that has come out of the UK Ministry of Defence has resulted in the production of two massive aircraft carriers and no suitable aircraft to fly off them!
And every month or so we hear about guns that will not fire in the dust or the cold or overspend on defence projects.
Partially successful projects are common and Total Failures are also common - especially when it is central or local government that has squandered the taxpayers money to buy votes from a specific sector of the community
But private industry also gets it wrong - what about these startups?
|Solyndra - Solar panel maker based in Fremont California||
Launched in early 2009 - Received $535m in loan guarantees from the Obama administration and filed for bankruptcy in September 2011 and was raided by the FBI
|Aptera Motors - based in Carlsbad California||
Launched in 2006 - Closed in December 2011 after taking orders in 2009 for the futuristic 3 wheeler called the 2e and after getting a promise of $150m funding from the US government. The directors are reputed to have physically destroyed the 2e propotypes themselves - self flagellation?
|Foodme - based in Pasadena||
Launched in 2010 - Closed in June 2011.Based on the idea that you could broker deals between diners and restaurants
|Goodmail Systems - based in Mountain View California||
Launched in 2007 - Closed early 2011.Based on an Email certification system and raised around $45m in venture capital
|Beluga - Group messaging business||
Launched in December 2010 - Bought by Facebook in March 2011 - Closed by Facebook in November 2011
|Collecta - realtime search engine||
Launched in June 2009 - Closed in January 2011 after raising $5m in funding
Just Remember that 85% of start-ups fail in 6months and that most people that fail do so again and again and again - the concept that you have to have a few failures before you succeed is bull...t!
Why do so many projects fail?
Because the following questions are never answered in the Study or Internal Politics force the project team to produce the wrong answers:-
- What are we trying to achieve?
- Where is the best place to do it?
- When is the best time to do it?
- Who is going to do it?
and last but Most importantly:-
- How are we going to do it?
How Do you know when a Project is successful?
It should be easy to gauge whether a Project has been Successful because:-
1) The project will be fulfilling the purposes for which it was intended as described in the Feasibility Study
2) The project will be meeting all the financial targets prescribed by the Feasibiilty Study
And so If the Feasibility Study has not been done properly you cannot tell whether the project has been successful or not!
If the numbers do not work - forget it!
Project Studies are predominantly carried out in order to assess whether a project will yield any economic benefits. This is the most important thing about every project – if the numbers do not stack up – the project should be ditched.
No matter how attractive the idea is! no matter how glittering the presentation is! - if the numbers do not stack up than forget it. Dragons Den on British TV is not just a Reality TV show - that is how it is!
CeeVeX and RoiVex can give you all the tools and help that you need to identify all the right numbers.
Back to the Term "Feasibility Study"
Many large organisations do not even use the term "Feasibility Study" because the actual name is a misnomer in itself. After all - more or less any project is do-able if enough resources are used in its execution.
The term “Feasibility Study” is now generically used to describe more or less any type of project study and has now become the term that is used in English to describe any study into project or business development.
You may also not aware that the term “Feasibility Study” has only been relatively recently become an inherent part of Anglo-Saxon business terminology
The term was unheard of before the Second World war when studies were referred to as “Projects” or “Experiments”. The term Feasibility Study first came into common usage in the 1960’s and became commonplace in the 1970’s.
Even now, there is a tendency to carry out pilot trials instead of undertaking feasibility studies and in many instances pilot trials are a much better way of gauging the economic benefits that might be gained from the project under consideration.
This is particularly true where the manufacturing industry is concerned because it is often cheaper and more economic to simply make a few widgets in an existing factory and to sell them to test real profitability, before building a whole new factory!!
Honda does not do Feasibility Studies
Firms like Honda do not do Feasibility Studies – they design a car, build some test cars, refine the design and then install a production line!
The important thing about this type of development is that it includes continuous refinement and testing of the product - in effect they study 100's of Options - not just three!
What was the most successful project of the 20th Century? - there are an awful lot of them
The destruction of the German dams in the Ruhr during the Second World War has to be one of them:-
The OBJECTIVE was clear - attack and destroy 3 massive dams in a one-off attack in order reduce the arms output from the Ruhr industrial complex
HOW could the objective be achieved - by exploding a bomb 10 metres down from the surface of the water and right against the face of the dam.
The primary CONSTRAINT was that the maximum bomb size was 5 tons because that was all that the Lancaster bombers could carry.
The Eventual Solution depended on flying the aircraft at exactly 240knots, at exactly 60 feet high and dropping the bomb a precise distance away from the dam so that it bounced over the torpedo nets, was stopped by the dam wall and then sunk so that it exploded at the required depth.
The fact that this was successful at the first and only attempt is simply staggering - but the point is that it took about 3 years of intensive testing and practice to get it to work - and that is what Project Studies are about - the better the Study the less likely the project is to fail in practice.
In practice, Feasibility Studies are often the only way that a reasonably economic analysis of Project Options can be carried out
There are many projects such as bridges, power stations, new roads, new railways, new hotels restaurant projects etc that cannot be modelled and refined using the pilot testing approach that car and aircraft manufacturers adopt.
A Feasibility Study is then absolutely necessary to identify the economic benefits that might accrue and such studies do indeed often do answer the Question "Is it Feasible?"
OK - How should You answer the Questions - What? - Where? - When? - Who? and HOW?
By doing the Feasibility Study in Stages as follows:-
Stage 1 - The Project Framing Document or "Shell" as I prefer to call it.
Stage 2 - The generation and selection of alternatives ways of the "HOW" - "Optionology" is a new word that CeeVex has invented for this. To optimise this process you will need our CeeVex software.
Stage 3 - The development of the preferred alternative into a fully detailed project - Refinement is the best way to describe this process. You will need Profit and Loss and Balance Sheet Forecasts for this stage and the only software that will provide these is RoiVex.
The reason why all the best project development systems are set up like this is that every subsequent Stage costs at least 10 x the cost of the previous stage - yes that is right Stage 3 will always cost at least 100 x the cost of Stage 1!
In other words every project development system must be set up so that all projects are abandoned as quickly as poosible if they are not going to work.
Yes you read that right - every project development system should be designed to ensure that projects get abandoned as quickly as possible to minimise the Money and Resources that are wasted on poor ideas!
Lets look at these Stages in more detail.
Stage 1 - The Project Framing Document or "Shell"
The project framing document is the most important document in every project.
It should be short and concise and should include the following sections:-
- Identification of the opportunity or problem - you should be able to describe the objective of the project simply and accurately in two or three lines - if you cannot do this project is too complicated and needs to be broken down into smaller parts
- The strategic case - this should describe how the problem or opportunity fits in with the existing business or experience of the project promoter and how it will provide benefits in the long term
- The business case - this should include the rates of return, the net present value and the return on investment of the capital that will need to be invested
- The commercial benefits - this should include a description of how the project will enhance the long-term growth and improvement of both the existing and new business
- A preliminary assessment of the project -this should include the project objectives, a brief description of the project itself, the known alternatives, capital cost estimates, operating cost estimates and profitability
- A preliminary project development plan - this should include a development schedule and construction programme
- A project study plan-this should include the project schedule and milestone targets
- A cost estimate for the next study stage - should include a detailed estimate of what the next study stage will cost including an assessment of the cost of the internal resources required
It may take weeks for any organisation to get agreement on every one of these aspects but once they have been agreed the document should be frozen for the project duration-that is why I prefer to call it the project “Shell” rather than a frame - and I will do so from now on.
Stage 2 - Optionology
As we have seen above the most important issue in every project study is to determine that the "HOW" or best way of carrying out the project has been considered and selected.
Why is Optionology so Important?
Unless YOU have been through an Optionology process on a live project you will never understand how the thought process required to identify THREE viable, practicable and do-able alternatives actually lifts a veil from your eyes and provides extraordinairly deep insights into the disadvantages in a project that was probably already a slam dunk certain success in your view.
But the process of identification of these drawbacks always provokes ideas on how to overcome then.
Do you see how the process systematically reduces the Risk of Project Failure?
So if a project study does not include viable, practicable, do-able, alternatives then the study will be worthless.
For instant in a bridge project the alternatives would include:-
- Other crossing points and alignments
- A Tunnel option
- The Different bridge structure options
The assessment of these alternatives and the reasons for discarding any alternative and the selection of a favoured alternative should form the major part of the analysis in any project study.
There are thousands of examples of Projects that could have been a lot more successful if the do-able alternatives had been examined in a great deal more depth.
The big oil companies do not set up and impose these complex project sytems on their employees for fun!
Stage 3 - The Refinement of the Preferred Option
This stage has been included because it is a vital part of the Project Development process but CeeVex believes that conventional consultants are best suited for this stage but it is essential that they are rigorously managed or the Schedule and Budget will be blown very very quickly. Consultants are in business to make money - at the end of the day they will tell you anything if they think that it will produce additional fees!
In the bad old days people use to jump straight to this Stage - one of the reasons why so many projects were and often still are failures!
- Definition of project structure and strategy
- Development and Refinement of the Business Case
- Identification of the source of funds and cost
- The execution of the studies and investigations required for the Detailed Design Stage
- Application for all consents and licences
- Preparation of the concept design
- Preparation of the project plan
Organisation that do not have a refined project development procedure will often spend millions of dollars on a project Undertaking this Stage and then decide to cancel it because it is the first time that the directors have seen the true cost - Has your firm done that in the Past?
If you want advice or help on any aspect of a Feasibility Study get in touch by filling in the Bronze Membership form here