Feasibility and cost planning - Simply Put!

Introduction

In the Marstan Guide Introduction to Project Management, we said that Feasibility and Cost Planning is the second of seven stages of a capital project.

The content of this stage will vary considerably depending on the scale and complexity of the project and the type of organisation. For example, a public sector organisation may have to produce more detailed information to justify the proposed expenditure. Similarly, a company may have to produce very detailed financial information if it is applying for a loan to finance the project.

The main purposes of Feasibility and Cost Planning

In the Marstan Guide Project Inception - Simply Put! we said that there were four outcomes required of the Project Inception stage:

1. A more detailed brief
2. A budget cost statement
3. A short list of options
4. A outline programme

The main purposes of the Feasibility and Cost Planning stage are therefore:

1. To look in detail at the shortlist of options to compare them in detail in practical terms, quality of outcome, cost and programme and make a final decision on the preferred option.
2. To firm up the costs of the preferred option.
3. To develop the brief further in preparation for the design stage.
4. To agree a firm programme.
5. To prepare a business case for financial approval.
6. To prepare a funding submission to acquire the finance.

Case Study

Throughout this guide we will continue to illustrate the concepts by relating to a small family business which publishes management information. They have 20 people but now need to expand by employing 10 more people.

Appointing a small team of key advisers for the Feasibility and Cost Planning stage

If our small family business decides to pursue only the options relating to new buildings, they will appoint a small team to carry out the feasibility and cost planning stage. This will probably be a Project Manager, Architect and Cost Adviser.

If they choose to look at alterations to their existing building they will also need a Structural Engineer and Mechanical & Electrical Services Engineer.

The key factor when assembling a team for this stage of the project is to keep the team as small as possible whilst making sure that you have all of the detailed advice that you need for decision making at this early stage.

Bear in mind that everybody will go into a lot more detail in subsequent stages, but you do not want to miss anything fundamental during the early stages.

Preparing a business case

The purpose of preparing a business case is to ensure that the proposed project is “grounded in reality”. There is often a tendency for over-enthusiasm or misguided thinking that leads to a project brief which is too extensive and unaffordable.

A business case should “tell a story” about the evolution of the project. It starts with the current position and the difficulties that have arisen or will arise in the future. It details the options that have been considered and why the preferred option has been chosen. Finally, it describes the facts which have been considered and provides as much detail as possible about the content of the scheme, the quality, costs, revenue, the predicted implications of implementing the project and a detailed programme.

Preparing a funding submission

The content and format of a funding submission will vary according to the nature of the organisation. In the public sector a Business Case is more likely to incorporate a funding submission. In other words, it will describe the feasibility and cost planning work, describe the preferred option and ask for the funds to carry it out.

In the private sector, there is often a greater separation between the two, which is related to how the project is to be financed.

As a result, the Business Case will explain to the Board what needs to be done, why, how much it will cost and when it can be done. The Board may then approve (or amend the proposal) and make a decision to proceed. In doing so, they will look at options as to how it might be financed, including the following:

1. Finance from existing reserves.
2. Loan finance.
3. A combination of existing reserves and loan finance.

A separate funding submission might then be required for a bank to apply for loan finance. The funding submission might include either the full Business Case or perhaps a summary of it. It will also include details of how much money is required as a loan, the payback period and how the organisation proposes to pay it back.

The “deliverables” of the Feasibility and Cost Planning stage

At the end of this stage you should have the following:

1. A single option with which to proceed to detailed design.
2. A Business Case submission which contains details of the brief and which should form the basis of the final, detailed brief to be used for subsequent stages of the work.
3. A Cost Plan.
4. A detailed programme.