Feasibility Studies – what they are really all about

Published in The Freeman (Philippine Star), Jan. 26, 2012

Nowadays, people talk about feasibility studies when starting major development projects. That is good – people are more aware of the need to ensure that money spent are not wasted. There are misconceptions, though, on what these studies really are. Many think that these are mere “requirements” in order to get what they wanted, like a biodata or a transcript of record in applying for a job, or some other clearances also usually required like police clearance, NBI clearance, barangay clearance, etc.

That’s also true – FS’es are needed when asking for funding for a big government projects. NEDA will not approve major infrastructure projects foreign funding if they don’t have a Feasibility Study. It is also needed when one asked for a loan from the bank for a specific project involved. The bank has to protect its money, too, and ensure that borrowers really have a sensible projects which can generate “returns” (revenue) to pay the ammortization of the loan. If small banks requires such “FS’es” to approve a loan, how much more for the national government when billions of pesos are asked to finance a huge project.

But what is really a feasibility study? The most common understanding of an FS is that it studies whether a project “can be done.” Someone says, “let’s build a bridge!” Another asks, “Can it be done?,” … considering the width/depth of the river, water flow, soil material, etc. We often answer, “Let’s do a feasibility study!” In fact, the word “feasible” in the dictionary simply means, “capable of being done or carried out; possible …” This is just the physical feasibility, or what we call the “technical feasibility.” It means that the project can be technically carried out using the current technology. By this definition, a time travel machine is not feasible, because there is presently no machine or technology which allows us to travel through time. Unless you know something I don’t …

The feasibility in FS’es is actually more related to the “money” aspect of things, not whether it can be done. That’s why banks require it. The better questions to ask are: will it make money?, … will if be profitable? In the case of government projects, NEDA will ask, will the project generate the necessary benefits which should be more than the costs? It doesn’t matter how well you justify a certain activity, the bottom line is the “feasibility” indicators. Will the benefits (or revenues) exceed the costs (or expenditures)? And by how much?.

Thus, an FS, when seriously done can either result is showing a project to be feasible, or NOT feasible. Yet, it is seldom that one encounters an FS that is “not feasible.” Of course, because nobody wants to spend on something that may result in a project being dropped. Usually, what is being done is to review and revise the project, more often than not, by downscaling it’s scope – making it smaller and with a lesser cost. Then, it might become “feasible.” This will also make planning more realistic so that we will not end up doing big extravagant projects which are not really warranted with the current level of development.

Oh by the way, we also have what we call Pre-Feasibility Studies. An FS will cost you something – usually a certain percentage of the total project cost. If a project is very big, the cost of FS might be considerable. So what we do first is a Pre-FS. A Pre-FS is done to determine an initial indication whether a full-blown FS is worth doing. It might not be, so we save the cost of doing a full-blown FS. (Email: streetlife@villarete.com)

http://www.philstar.com/Article.aspx?articleId=771427&publicationSubCategoryId=109

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