The Difference between Pre-feasibility Study and Feasibility Study

In this post I want to share a little my knowledge and understanding regarding the difference between Pre-feasibility study and feasibility study. Most people who are working in business field are more familiar with feasibility study than pre-feasibility study. Actually, the principle of both study are similar. The difference is how deep the analysis will be.

What is pre-feasibility study?

Pre-feasibility study is a preliminary study undertaken to determine, analyze, and select the best business scenarios. In this study, we assume we have more than one business scenarios, then we want to know which one is the best, both technically and financially. In pre-feasibility we select the best idea among several ideas. It will be hard and takes time if we explore each scenario deeply. Therefore, shortcut method deem acceptable in this early stage and can be used to determine minor components of investment and production cost.

If the selected scenario is considered feasible, it is recommended to continue the study to feasibility to get deeper analysis of the selected project scenario.

What is feasibility study?

Feasibility study is an engineering study based on test work and engineering analysis, which presents enough information to determine whether or not the project should be advanced to be final engineering and construction stage. This is a “go/no-go” decision point, thereby implying that sometimes the answer is NO. However, once a project is advanced to the feasibility study stage, companies often have committed considerable capital and professional reputation and therefore assume the answer will be that the project is feasible. That is also the second difference between feasibility study and pre-feasibility study. We first consider to arrange pre-feasibility study if we still don’t have idea how to get financial resource to execute the project. Unlike pre-feasibility study, we must be ready for financial resources if we move to feasibility study.

Sometimes, we put term bankable before feasibility study. Adding this term simply means that the level of effort that has been incorporated into the study is sufficient for outsourcing financing, provided the project is feasible. Typically “bankable” means an overall accuracy level of +/- 15% on the feasibility study.

To some industry, the act of commissioning a “bankable” feasibility study has come to mean that the project is feasible. As a result, they assume if they ask for a “bankable” feasibility study, they will get the study which shows the project is feasible.

The Accuracy

It is obvious that feasibility study will be more accurate than feasibility both in technical aspect or financial analysis aspect. Association for the Advancement of Cost Engineering (AACE International) has made the classification of capital cost estimates.

Based on the table above, the accuracy of pre-feasibility study may be Class 5. On the other hand, the accuracy of feasibility study should be class 3. The highest the class of capital cost estimates, the more accurate the determination of capital cost.

References:

1. Pincock Perspective, “Feasibility Study does not means Feasible”, issue No. 57 – August 2004
2. “Evaluating Capital Cost Estimation Programs”, Chemical Engineering – August 2011