Conducting a feasibility study is a vital step in the preconstruction phase of a large project. Feasibility studies are essential because they enable project owners to determine whether their desired outcomes are achievable and realistic.
Another important element of a feasibility study is that it provides contractors with options or alternatives to ensure their desired outcomes are met.
Advantages of a feasibility study
There are several advantages of having a feasibility study done. The first is that project managers can identify new opportunities that can help them successfully implement the project. In addition, the study will enable project owners to know whether the project will yield a positive return on investment.
Some of the benefits of conducting a feasibility study are:
- It enhances the success rate of a project by identifying and mitigating risks
- It provides valuable technical information about the project
- It narrows the scope of work
- It enables estimators to know if the project is viable or not
Key areas targeted by a feasibility study
For a feasibility study to be successful, it must target five key areas. These areas are:
The technical aspect of the project
Technical feasibility enables construction companies to know whether they have the resources required to implement a project. The resources can be in the form of money, labor, or licenses.
The economic aspect of the project
The economic aspect of a project is gauged using a cost-benefit analysis. The purpose of this analysis is to determine whether the project’s benefits supersede the cost involved. The project is not viable if the price is higher than the benefits.
This study measures how well a proposed construction project solves an identified problem. If the solution only solves 20% of the problem, it is not feasible to implement.
This feasibility study helps construction companies determine whether the proposed project conflicts with the local and national laws. Some laws to be considered are zoning, environmental, and data protection. The project automatically becomes unviable if these laws can not be mitigated.
A schedule feasibility study helps contractors determine how much time will be required for the project to be completed.
Feasibility studies can be conducted with the help of modern AI technology. An example of this is the construction optioneering platform ALICE (https://www.alicetechnologies.com/solutions/for-general-contractors), which is used to facilitate the planning and scheduling of large construction projects by running simulations of different scenarios.
Guide for conducting a feasibility construction study
Start with a preliminary analysis
A preliminary analysis is a project plan of the problem you intend to solve. It includes risk management strategies, the scope of work, and factors such as the schedule baselines. At this stage, you will also have to determine factors to be investigated as part of the feasibility study. Once you have the preliminary analysis, prepare an income statement.
Prepare an income statement
An income statement is a statement that shows a company’s financial position over a period of time. It includes factors such as expenses, revenue, and projected profitability. To accurately prepare the report, you should start your calculations with the expected income and then factor in fees, taxes, building costs, and reimbursements.
An income statement is important because it will allow you to determine whether the construction project will be profitable to implement or not.
Do your market research
This is one of the most important steps of conducting a feasibility study. Contractors should take advantage of this study to validate or invalidate their assumptions. If the construction company does not have enough resources to do this research, they should hire independent researchers.
Through market research, contractors will know whether there is a need for the project and whether the projected revenues are realistic. Some factors to be considered when conducting market research are the target demographics, competitors, market value, and risks likely to affect the construction project.
Create an organization and operational plan
The organization and operational plan you make should be based on the five critical areas of a feasibility study. The plan should also include the amount the company will invest in the project. Ensure you use a work schedule to create this plan and understand whether it is viable.
Create a balance sheet
With the above information, you should now be able to create a balance sheet. A balance sheet is a financial statement that determines the assets and liabilities of a company. With a balance sheet, it will become easy for senior managers to decide whether or not they have the financial ability to execute a construction project.
Review and make a decision
The last step of creating a feasibility plan is to review all the completed documents and make a decision as to whether the project is viable or not. Review all the records and ensure that all costs and estimates are accurate to the best of your ability. Compare the projected income of the project with the expenses and liabilities.
It is not a viable project if the expenses exceed the projected income. If you are breaking even, you need to ask yourself whether the time and effort you will invest in the project is worth the hustle.
Tips to consider when conducting a feasibility study
When conducting a feasibility study, it is beneficial to use an AI-based construction optioneering platform. This will help you get accurate estimates and create efficient work schedules. Another tip you should follow is that experts should be involved in the entire feasibility process. If you are preparing an income statement, let your cost estimator and accountant prepare that for you.
Also, do not forget that costs and designs should be peer-reviewed to minimize design errors and over-budgeting.