Feasibility Study

What is a feasibility study?

A feasibility study is the drafting of an articulate and complex document that gives clear unequivocal answers for the definition of a business venture.

In the field of industrial construction and building in general, a feasibility project is based on a multitude of factors. Below are some of the most significant.

CUSTOMER NEEDS

As each customer has unique needs, it is difficult to copy one feasibility study and offer it to another client. The analysis of a customer’s needs is the element upon which the general Contractor’s whole approach is based, and the closer the analysis of the input data is to the truth, the easier it will be to transform that information (output) into preliminary data to show the client. Based on customers’ needs, whether they be simple or complex, the feasibility study may be offered for a fee or for free. This aspect also depends on the relational level intended.

LAND

At the outset it is necessary to research the site and the plot we would like to propose to the client. This choice should take into consideration the purchasing price, the geographical position, the distance from or vicinity to residential areas and transport access as well as any other industries in the area which may belong to the same product marketplace as the final customer.

INCENTIVE

The search for incentives is a parallel activity when looking for a site and plot, as in Italy and in Europe, and generally in many areas of the continent, all new structural investments with an impact on employment are often supported by state government and/or regional incentives.

ENGINEERING & AUTHORITIES

The design steps must be made in compliance with current building regulations applied in the area the new plant will be built. Public authorizations are issued by the state, municipality or region. A good knowledge of regulations is certainly an essential requirement.

TIMING

The element of timing is as important as the final cost of investment. A practical example to illustrate the importance of timing can be taken from the automotive field. Car manufacturers sign multiannual contracts with their primary OEM suppliers for the delivery of parts they will assemble in their production sector. Faced with these new contracts, suppliers need to organise their production centres to guarantee that deadlines are respected when manufacturing components for car manufacturers. General contractors must therefore guarantee a clear precise deadline both for the build itself and for the authorization process. The monthly value of deliveries from suppliers to car manufacturers often exceeds millions of euro, so the importance and reliability of meeting the deadline is one of the foremost pieces of information to include in a feasibility study.

COST

The definition of costs is the procedure that allows a contractor to start the process of securing customer loyalty. In this phase the contractor has to employ all his experience and intellectual and organizational technical resources, and needs to be able to identify the specific solutions that coincide with his client’s overall requirements. According to this approach there is no such thing as a feasibility study that is ‘too expensive’ because formally no business proposal is on offer, but rather a variety of engineering solutions that the end user has to evaluate. The wider the range of solutions, the more options the final customer will get to choose from in the executive phase, having prior knowledge of the cost of every single option.

Feasibility projects for General Contractors

General contractors specialised in building industrial plants do not sell products but provide the final client with a turnkey service, taking on the entire contract.

General contractors prefer to call their clients partners because the level of trust they establish with their clients is more than a business relationship. Essentially a client relies on his contractor right from the preliminary phase, which we will call feasibility study, and he then goes on to formalize the assignment of the planning and engineering activities, granting the contractor proxy to precede with the public administration. Finally he will draw up the procured contract for the actual construction of the new plant.

Foundations for a relationship of trust

Underpinning each relationship of trust is the reputation and respect of one or more parties.

You do not build a relationship of trust from one day to the next, but the relational process must rest on solid foundations construed over time.

When you draft a feasibility study for a new customer, you need to be mindful of two very important things:

• The first relational step essentially coincides with the handing over of the feasibility study
• The information you pass to your customer has to be ‘true’, ‘punctual’ and ‘precise’.

In our field, drafting a feasibility study often becomes the key element to defining a business because the information it contains reveals all the critical issues that arise during the whole process of building the new plant and indeed the entire investment.

In recent years this value has become tangible as companies that invest money and resources in new structural operations, both green-field and brown-field projects, need quick, precise answers.

During a first meeting, clients often ask: ‘How much will the whole project cost me?’

We can only give a precise and truthful answer after drafting a real feasibility study. Initially we can give our client some benchmarks (euro/m²). It is definitely not professional to give an exact quantification of the proposed building.

During the first meetings, the contractor’s skill is to sell his own experience and references, and to establish a serious professional relationship.

Before making a business proposal, recommending a feasibility study is certainly the right way to create a real relationship of trust.

Feasibility study: project phases

Feasibility studies follow a precise pattern and layout. Working on this assumption, when contractors draft a feasibility study they necessarily need to consider the following phases:

• DESCRIPTIVE PHASE: highlight all the information required to describe and illustrate the various steps of the feasibility study. Take care not to over-complicate, but rather prefer pragmatism.
• PROJECT PHASE: draft a preliminary architectural project with details on structure and installations, and also a dedicated work specification so the client can get an idea of what the final offer will look like.
• ANALYTIC PHASE: create ad hoc sections with the first charts using macro-item entries to illustrate cost analysis, divided in engineering, civil, structural, and installation areas. It is very important to emphasize project management and technical management of the building site as well as including a small contingency of 3-5% according to the type of project. The analytic phase may be complemented with intuitive diagrams explaining the percentages of costs to be incurred and/or the evidence of the benchmark (euro/m²).
• TARGETS: set intermediate deadlines, for example to use the initial weeks of work to identify production requirements; to analyze the complexity (or the ease) of the general process of obtaining authorizations; to develop a system of worst and best case scenarios; to set operational targets, planning outplacements and/or technical site visits to quantify the work. One of the most important points is to establish budget targets, inviting the client to think about a preliminary quantification of the structural investment. This last element is essential as the client himself will have to define his overall investment budget, which will include the structural part of the new plant, specific production machinery, company start-up costs, hiring staff, and so on.

Inveco Group’s approach for feasibility projects

Ever since our first assignment in 1995, we have always placed feasibility studies before business activities.

Our most successful case to date saw us working alongside Dayco and Dytech (the latter has since become SumiRiko Italy SpA, Sumitomo Group) in the fifteen years from 1995 to 2010.

In those days Datco and Dytech were part of the same industrial family. In time firstly the division of their business units (fluid & fuel) and (power and transmission), and then strategic market choices helped these single industrial situations to gain independence from each other. During this process, Inveco always assisted its business partners both as technical advisor and referential general contractor, building many of their industrial plants all over the world. Any investments our business partners decided to make were always preceded by our feasibility studies, which gave our clients a good idea of the market conditions in the various countries they had planned on building a new plant.

After 25 years’ activity, Inveco remains traditional and closely linked with the approach that allowed us to grow and to acquire knowledge about the diverse market conditions and building regulations of many countries around the world.

Costs of a feasibility study

It is difficult to speak in general terms about the costs of a feasibility study.

We have already said that each feasibility study is unique, and therefore a case unto itself, and the same goes for the costs we propose to our clients.

The main costs that characterize our offers are initially those determined by the geographical location for which the feasibility study is carried out. For example, if an Italian client commissioned a feasibility study somewhere in Europe and/or another continent, the main costs would be to cover the actual journey there, flights and weeks of working in a foreign country. Obviously these costs would be considerably lower if our client were to commission a similar study in Italy.

Ultimately Inveco’s aim is not to sell feasibility studies as its main line of business, in fact our main objective is to be able to offer turnkey services as general contractors. Therefore on a strategic level, each feasibility study is offered to our clients at its actual cost, that is taking into account just the live costs and the hours of work put in to draft the study.

In other cases, for strategic, marketplace and relational reasons some feasibility studies are carried out for free.

Conclusions

In order to be able to assist every client involved in the manufacturing industry, Inveco always insists on drafting a feasibility study during the first meeting prior to taking on any project.

Clear rules, clear deadline, clear budget – shared goals

Our model has allowed us to consolidate our experience and relationships over time, and today this embodies our true company values.