An economic feasibility study plays a decisive role in a project's success: it helps you assess the financial and economic aspects before you start and make informed investment decisions.
How it relates to success
Determining financial viability
It decides whether the project is financially profitable by estimating fixed and variable costs and expected returns. If returns exceed costs, that signals potential financial success.
Analyzing and controlling risk
It helps assess risks — market, regulatory and financial — and set strategies to control and reduce them.
Projecting future returns
It helps forecast returns and the potential for sustainable long-term profit.
Informed decisions
A key tool to analyze financial data and weigh opportunities and challenges, giving a full view of the project.
Worked example: a residential city
- Market analysis: demand and supply, market size, required housing models, demographics and competition.
- Cost and financing: land, development and infrastructure costs and self/external funding sources.
- Revenue estimation: sales, rental and service income after setting prices and occupancy rates.
- Profitability: NPV, IRR and payback period.
- Risk assessment: economic, regulatory, environmental and social risks.
Risk types the study analyzes
- Operational risks: production capacity, resource availability and equipment/technology reliability.
- Market risks: shifts in demand, supply, competition and prices.
- Financial risks: interest-rate and exchange-rate volatility and economic policy.
- Legal and regulatory risks: compliance with tax, environmental and health regulations.
In short, a comprehensive, precise economic study boosts success and reduces risk — and remains an ongoing effort throughout the project's life cycle.