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View the document Project assumptions

Session 5: Importance of feasibility/viability analysis

TIME: 3 HOURS

 

RATIONALE:

 

One of the dangers at the start of new projects and businesses is that Volunteers and communities may become so enthusiastic about the initial idea that there will be little attention given to the analysis of short-term and long-term likelihood of project success. Without sufficient information-gathering, adequate assessment of local resources, and coherent analysis of this data, projects begin with an already high probability of failure. Volunteers can contribute greatly to the chances of project success by ensuring that relevant information is obtained at the outset. This session will focus on the identification of the key elements of feasibility/viability analysis and their importance in project selection.

 

OBJECTIVES:

 

1. To determine the critical assumptions needed to test the feasibility of an income-generation project.

 

2. To identify the key elements in feasibility/viability assessment of a new or ongoing project.

 

TRAINER PREPARATION:

 

1. Read the attached articles "Project Assumptions'' and "A Management Approach to Feasibility Study,' before the session for background information.

 

2. Prepare newsprint for the following items:

- session objectives

- key points in project assumptions lecturette

- small group exercise instructions

- analyzing assumptions chart

- feasibility checklist

 

3. Copy the participant handouts.

 

MATERIALS:

 

1. Newsprint and markers

 

2. Paper and pens for the participants

 

PARTICIPANT HANDOUTS:

 

1. Project Assumptions

 

2. A Management Approach to Feasibility

 

3. Analyzing Assumptions

 

PROCEDURES:

 

Introduction:

(5 Min)

1a. Introduce the session by explaining to the participants that project ideas are often rushed through the system because they "seem" to be what is needed, without taking into account all of the potential problems which could interfere with their success. Go over the rationale for the session, as written.

 

1b. Review the objectives for the session (already on newsprint) and clarify any questions the participants may have regarding them.

 

Lecturette on Feasibility/Viability:

(10 Min)

2a. Deliver a short lecturette on feasibility/viability analysis, stressing the following points:

 

Feasibility: describes the short-term success potential of a project. If the project works HERE and NOW technically and economically, it is feasible.

 

Viability: deals with the long-term aspects of the project. This means that there will be a sufficient profit to allow reinvestment and that repairs and business decisions will be made by group members to allow long-term sustainability.

 

analysis: means that the information collected is reviewed in a detailed, systematic and timely fashion-not accepted at face value.

 

2b. Ask the participants now the concepts are related to each other and why it is important to clarify each before the onset of a new project.

 

Identification of Project Assumptions:

(30 Min)

3a. Prepare and deliver a lecturette based on the "Project Assumptions" article and covering the following points:

- the necessity of making assumptions in projects

- the categories of assumptions (social, political, technical, economic, physical, etc.)

- the importance of examining the project assumptions carefully before beginning the project

- the importance of "assumptions" to answer the following:

 

This project will succeed, assuming that:

 

a. __________________________________

 

b. __________________________________

 

c. ___________________________________

 

3b. Put one of the assumptions categories on newsprint. Select one of the projects already discussed in the previous session on goals/objectives, and have the participants generate a-6 specific examples of items to be included in each category. Challenge any examples which seem inappropriate or vague.

 

3c. Point out to the group that testing all the assumptions in a project before implementation would be a time consuming and potentially expensive task. Stress that it is, therefore, important to decide which assumptions are the most important for success and to focus on them in feasibility testing.

 

3d. Have the participants look at the list just generated and rank the assumptions according to their importance. Lead a large-group discussion of any questions/comments regarding the rankings.

 

Individual Work:

(20 Min)

4a. Explain to the participants that this process of identifying and ranking assumptions for feasibility testing is important for all projects, large or small. Assign the following task for the participants to complete individually (already on newsprint):

 

- refer to your project/activity objectives developed in the previous session on Setting Goals and Objectives.

 

- develop and rank a list of important assumptions for the objectives, using the categories developed above.

 

4b. Ask for a volunteer to read one of his/her objectives and the assumptions developed. Have the large group critique it and make any necessary improvements.

 

Work in Pairs:

(15 Min)

5a. Divide the participants into pairs to critique each other's assumptions. After 5 minutes, have the reviewers explain their critiques to the writers. Allow sufficient time for the participants to complete any necessary rewrites.

 

Closing:

(10 Min)

6a. Close this portion of the session by leading a large group discussion of the following questions:

 

- Considering the kinds of assumptions we have identified, what does this tell you about the role of the Volunteer in project development? About the role of the community?

 

- What do you see as the possible consequences of a Volunteer proceeding with a project that has made wrong assumptions?

 

TRAINER NOTES

 

Ensure that information about the danger of the PCV acting as a "Lone Ranger" in project design comes out here, sod that the community's knowledge of its own problems and historical interventions is acknowledged.

 

BREAK

 

TESTING PROJECT FEASIBILITY

 

Lecturette:

(15 Min)

7a. Deliver a lecturette on sensitivity analysis and project assumptions, stressing the following points:

 

- a feasibility study does not have to be extremely complex and time-consuming, but it should contain enough information to indicate that the best solution to the community problem has been selected.

 

-the project assumptions and the resource needs identified earlier will become the basis for the project feasibility study.

 

- one way of analyzing the projects assumptions is through a sensitivity analysis, which asks the question, "What if?" For example:

 

If a chicken-raising project assumes that 10 % of the chickens vaccinated will die......

 

What if 20% die instead of 10%? (Will the project still be economically feasible?)

 

What if 15% die? (Will the project still be economically feasible?)

 

The project also assumes that the price for a healthy 3-pound chicken is $. 50......

 

What if the price goes down to $.40? To $.30? (How far down can the price go, given our other assumptions, and the project still remain feasible?)

 

Through the analysis of a project's critical assumptions, one should be able to ascertain how much variability there can be without endangering feasibility. The information gathered from the sensitivity analysis may force a redesign or cancellation of the project.

 

Analyzing Assumptions:

(5 Min)

8a. Introduce the "Analyzing Assumptions" chart by explaining to the participants that it offers one way to identify the critical questions about a project:

- Is it essential for project success?

- How certain is it that the assumption will hold true?

 

8b. Point out that, when assumptions are uncertain, it becomes necessary to test their feasibility, and it is very important to know the types of questions which need to be asked.

 

Individual Exercise:

(20 Min)

9a. Instruct the participants to look at their project assumptions according to the steps of the "Analyzing Assumptions" chart and choose one assumption that they feel is uncertain. Ask them to develop a written checklist of feasibility questions they would want to ask for that assumption.

 

TRAINER NOTES

 

Included in the list of questions should be:

 

- How much risk or uncertainty is involved in the assumption?

 

- How crucial is the assumption to the overall success of the project?

 

- What is the impact on the project if the assumption does not hold true?

 

- What alterations can be made in the project while still maintaining its likelihood of success?

 

- If outside resources are required, what is the likelihood of obtaining them? From what source?

 

- Have projects with similar assumptions succeeded in the past? What data is there to support this?

 

Individual Presentations:

(20 Min)

10a. Reconvene the participants, and have volunteers present their assumption and list of critical questions they would ask about it. As the individuals are presenting, make a generic list of the items included. Ask the large group to review the list and add any other items they have thought of during the presentations. Copy the list for the participants to take with them for future use.

 

Large Group Discussion:

(15 Min)

11a. Lead a large group discussion of the following questions:

 

- What methods can project designers use to get more information on the feasibility of the assumptions they have made?

 

- To whom would they talk?

 

- What data sources would they use? How long would they take to complete the feasibility study?

 

TRAINER NOTES

 

Included in the list should be the following:

 

Examine official records (country and PC)

- statistics collected by government.

- records on projects, money spent, etc.

- needs assessment data, if collected.

- monitoring forms, if used.

 

Discussions

- individual interviews (community and elsewhere.)

- group meetings.

- experts.

 

Observation

- visiting a similar project

- observing existing situations

 

11b. Review 4 -5 questions on the list just developed and have the large group recommend methods for studying them. Challenge the group specifically on the type of information they would expect to learn through the study. Also focus on what timeframe they would anticipate would be sufficient to obtain enough information to either move forward or cancel the project.

(10 Min)

Closing:

(5 Min)

12a. Summarize the work of the session by pointing out that thorough feasibility testing can help to avoid unanticipated problems during the implementation of a project by pointing out the key issues which the PCV and community need to consider. Some of the issues identified will cause the project to be cancelled; others will necessitate redesigning it on more realistic terms. Each of these courses of action can help to conserve scarce human, material, and financial resources for the community.

 

12b. Pass out the handouts for the participants to keep as reference material.

 

 

Project assumptions

Every project has uncertainties. The nature of the uncertainties can be expressed in the form of assumptions which must be valid but which cannot be directly controlled. Assumptions can be the most critical factors in a development project. Many projects fail because planners make unrealistic assumptions or forget to define and examine the implicit assumptions they are making.

It is impossible for a project manager to control all the factors which can affect a project. There are always social, political, technical, economic, physical, and other factors beyond the project manager's control that are necessary for successful achievement of project objectives.

To have confidence in the design of a project, one must define, at each level, all the conditions necessary to reach the next level of objectives. These conditions include hypotheses (predictions), which are internal to the project, and assumptions (conditions), which are external to the project. After identifying the assumptions affecting the project, one can deal with them in a way that increases the probability of success.

Development projects involve important objectives and scarce resources, so we must examine whether our predictions in the project design are valid. Before we begin the project, we want to be confident that we can achieve our objectives. We must, therefore, carefully examine what we are assuming about factors outside our control that could be detrimental to achieving our objectives. We identify those factors in the "assumption column" of the Project Design Chart at the same level as the objective they influence.

After identifying as many critical assumptions as possible with the information at hand, they can be looked at more closely and defined more specifically.

In a rice production project, for example, "adequate rainfall" is obviously necessary. Project planners and managers need more guidance, however, if they are to assess the validity of this assumption. How much rainfall is adequate? We must know how much rain is required and when it should fall. If we find that the rains must begin in May and last through October, with a monthly average of 12 inches, the next step is to find out if it is reasonable to expect this level and pattern of rainfall. If review of the climate records in the region shows that for eight of the last twenty years rainfall was less than 8 inches for the months of June and July, our assumption of adequate rainfall would not be valid.

If our assumptions are likely to be invalid, we have several options to consider. First, we could continue with the project "as is" and accept the lower probability of success. Second, we could examine if there is some way to modify the project to overcome the weak assumption. In the rice production example, perhaps an irrigation system could be included in this (or another) project to bring a sufficient supply of water to the crops. Finally, if there are insufficient resources to develop an irrigation system, the project could be abandoned because it is unworkable - thus averting project failure before large amounts of time and resources are expended.

A MANAGEMENT APPROACH TO FEASIBILITY STUDY

In recent years, project feasibility study has become an increasingly detailed and technical set of procedures practiced by highly trained economists and engineers. And yet very often these procedures seem irrelevant to the practical people designing and managing projects. Why? Perhaps it is because these procedures ignore some of the most important questions.

What do practical project designers need to know in order to have confidence in potential projects? Essentially they need to know (1) if the proposed project will really achieve its objectives; (2) how they can improve the likelihood and level of its impact; (3) whether there is a less expensive way to achieve the same results; and (4) whether, all things considered, the benefits justify the costs.

I. WILL THE PROJECT SUCCEED? HOW C AN IT BE IMPROVED?

The most important question concerns the plausibility of the suggested project design. Managerially useful feasibility studies begin with this question. And the most effective of these studies treat project plausibility not merely as a question but as a challenge. In other words, such studies don't simply ask "Will it succeed?", they ask "How can we make it succeed?" They take an active, not a passive, role in project design.

Feasibility study, by itself, cannot increase a project's likelihood of success. What it can do is substitute risk (known probability of failure) for uncertainty (lack of information) and suggest practical measures for reducing the risk by modifications to the project design. In other words, it can provide us with information on how likely our project is to succeed and how we can increase that likelihood. As managers, we must learn to demand nothing less of feasibility analysts.

Projects are theories about the world. If we do certain things, we expect certain results will occur. And if these results do occur, we believe they will have certain impacts.

A. ANALYSIS OF ASSUMPTIONS

Potential feasibility questions exist wherever there are sources of uncertainty - i. e., wherever we are unsure of "facts" or "effects". These "facts" are the assumptions and the "effects" are the hypotheses.

How do we go about analyzing assumptions?

Most importantly, make sure all of the important assumptions are identified. To do this, ask yourself, skeptics, and as many others as possible, to describe the factors which could prevent the project from reaching its objectives. In essence, the question is "What, beyond my direct control, could cause this project to fail?" The answers to that question are the assumptions.

It may be helpful to group the assumptions by type:

- market factors

- cost factors

- financial factors

- political factors

- technical factors

- cultural and social factors

- geological/climatic factors

- managerial factors

To gain a clearer idea of what these factors include, consider how some of the following questions might come out of an investigation into these factors.

Market Factors - Do people have disposable income available at the time when the product is for sale? Is there a MARKET that can be reached and served profitably? What is the likely price (considering seasonal swings) ? What are the quality and quantity dimensions?

Cost Factors - What are all the major initial costs involved in production? What are the important recurring costs? How much is the labor cost likely to be?

Financial Factors - Are there sources of affordable credit in the community? Is there a plan for control of group money? Is the cash flow sufficient?

Political Factors - Does the mayor support the general idea? What are the licenses and inspections needed? Is the activity legal?

Technical Factors - Is the technology easy to maintain? Are spare parts available? Is the scale appropriate? Is the level of risk appropriate? Are the inputs readily available?

Cultural and Social Factors - Does it help one group by hurting another? Does the project "fit" the culture? Is the level of risk acceptable?

Climatic Factors - Does the project hurt the environment? Does it use already dwindling natural resources?

Managerial Factors - What are the training requirements? Is there a sufficient, available labor force?

The type of assumptions chosen for analysis will determine the type of feasibility study needed to investigate them.

Then, identify the assumptions most appropriate for analysis. Out of the long list of assumptions, how do you choose the correct ones to study? We suggest a simple two criteria basis for selection-importance and uncertainty.

To begin, ask of each assumption whether it seems truly essential for achieving project success. If its influence seems more or less incidental, forget about it. If the assumption is judged to have high potential influence, then ask yourself how uncertain project designers are about the likely performance of that assumption. Only where assumptions are important and insufficiently understood is detailed investigation worthwhile.

Arrange data collection efforts to provide the information you need. The data collected on assumptions should reduce the uncertainty of project designers about the following:

- whether key assumptions are likely to hold true or not;

- what the effects on project success would be if any of the key assumptions did not hold true;

- what means are available to managers to influence or avoid dangerous assumptions.

If assumptions are unimportant (i.e., low impact) or very probable, they should not affect project design or selection. When assumptions have high impact and low probability, we have a danger signal. If we can redesign the project to affect the assumption, we may wish to go ahead. Otherwise, we would be well advised to suggest that the project be abandoned in favor of something more promising.


ANALYZING ASSUMPTIONS