Originally Posted by realiukas
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The need for feasibility studies
According to the preliminary feasibility study commisssioned by the national committee responsible for preparing Hungary‘s bid for the 2012 Olympic Games, the country will have to invest somewhere around $US16 million on the bidding procedure. In addition, the report, which cost $US1.6 million to produce, highlights the developmental requirements in order to meet Olympic standards. For example, Budapest would need to construct about nine new covered stadiums, each with a capacity of 15 000 spectators. Locations would have to be found for 22 ‘special’ sport events like mountain biking and sailing, each of which with their own specific needs, equipment and viewing configurations. An Olympic village capable of supporting 16 000 athletes and officials is also required, along with hotel accommodation for another 18 000 people. All of this will have to be built on a site of no less than 600 hectares. The report further speculates on the economic impact of the Games on the city. It is proposed that the Olympic could increase Hungary’s GDP by up to 0.5 per cent. Final calculations are still needed to reach more definitive estimates of the economic costs and benefits of hosting the Games. The feasibility study results should help determine whether Hungary will pursue the Game at a development cost of billions in the hope that its investment will yield substantial returns.
Performed correctly, there is no more useful tool for the prospective facility or events manager than a feasibility study. Up to 5 per cent of the total budget allocated to a new project should be invested in its planning activities, the first of which is the feasibility study. This may account for as much as 20 per cent of the budget allocated to planning activities, as it yields the critical information concerning whether the project should proceed and, if a state-of-the-art stadium, it is much better to ‘waste’ a few million on a feasibility study than spend a few hundred million on a stadium that can never pay for itself or on an event that requires enormous capital investment. This approach is succinctly captured in the commentary of a recent report by the UK Culture, Media and Sport Parliamentary Committee (2001, p. 15):
The standing of international sporting events must be seen as a means, not an end. Public support for the staging of events must be justified by proper analysis of the extent to which events are an effective means towards other ends, both sporting and non-sporting. The staging of events cannot be justified simply by vague assertions about national prestige.
There has always been one problem with great new ideas for both sport and recreation events and facilities: more often than not, what people want to buy is not the same as what is being sold. Any product, including events and facilities, is only as good as its ability to provide a recognisably useful addition to an individual’s experience. It is easy to assign usefulness, but the harsh reality is that useful means that someone is prepared to pay for it. Naturally, in some cases this ‘someone’ is the public sector, such as local, state or federal government. However, these bodies also expect a bang for their buck. Each facility and events must return at least as much as it costs, either in financial terms or in its utility to the community. This is tempered by the realities of the Western world. Few facilities or events are so important to communities that they warrant full funding without any user-pays component.
The demand for new facilities is driven primarily by growth in the number, type, size and attendance at sports and entertainment events. The need for a redeveloped sport facility is often a function of a region’s physical suitability and the nature of its usage. This means that those undertaking a feasibility study need to be aware of the complexities to be juggled in coming to a determination about the properties of a proposed facility or event, its location and what its potential users might want. Often, these is not as much overlap as might be hoped. In other words, feasibility studies often find that the needs of the users, the broad expectations of public authorities and the profit hopes of private partners are not the same. The pivotal dimension in any decision making remains consistent, however. Planning is predicated on sound information, which must be acquired through careful market analysis and the collection of consumer data. A clear link may be observed between the aspects of strategy, planning, market analysis and research, and feasibility. A feasibility study is a critical beginning to the planning process, because of the following factors (Government of Western Australia 1995):
• It determines whether a community or owner can afford to build and operate over a period of time.
• It radically decreases the risk of failure.
• It specifies the best fit of features of the facility or event to its prospective users.
• It is the first stage of balancing competing demands on facilities in an objective way.
• It identifies the revenue and expenditure opportunities and burdens that need to be factored into the capital and operational phases of the project.
• It begins to highlight the most appropriate management structures and marketing strategies required for the facility or event.
The feasibility study is the first serious stage of activity in the development of a sport facility or event project. It provides a comprehensive analysis of the cost and benefits of the proposed project, including a full consideration of its economic, social, cultural and political implications. The results of the feasibility study should determine the fate of the project. However, a positive result in a feasibility study is not a guarantee of success; it is merely a statement of risk: the more positive the results of a feasibility study are, the less the risk in proceeding with the facility or event. In the event that the project is deemed an acceptable risk, the feasibility study should provide much of the background information and analysis that is essential to the full planning of the project. Feasibility studies are decision-making tools, but they still require some interpretation. In addition, they can rarely be completed in less that several months. It is worth taking the time to complete them properly, however, because although they contribute only 5 per cent of a project’s total cost, the results of the feasibility study and planning process can determine as much as 65 per cent of those cost, as illustrated in Figure 3.1.
A feasibility study is the first time in a project’s development that all the pieces are put together to see whether they can perform in unison technically and with anticipated economic outcomes. Another way of looking at it is that feasibility is concerned with the fit of alternative solutions to a clear set of problems. Almost every facility or event disaster has been preceded by a feasibility study that assured its success. How can this be the case? The answer is simple: many studies are not undertaken correctly or are unduly influence by the political agendas of stakeholders. This chapter provides the information needed in order to understand the feasibility process and to make informed judgements about the veracity of studies. We first outline the necessary strategic scoping that begins the study process. We then explain how to go about stakeholder analysis and market research and analysis. The chapter culminates in sections concerning the geographic, legal and financial aspects of feasibility.
Strategic scoping of the event or facility project
The essential first task of the forthcoming facility or event project is in the determination of its scope. This requires a statement of exactly what the project entails, its objectives and how it is to be achieved. Fundamental agreement on the philosophical foundations of the project is therefore paramount. For example, is it driven by a community need or is it simply an opportunity to be seized by a private provider seeking a profitable return? Subsequently, the industry or marketplace in which the project will compete needs to be considered, along with the products and services to be offered and the potential users of the project. Ultimately, these uncertainties must be resolved in a project ‘charter’ that reflects the mission and objectives of the stakeholders involved.
The size of the required task comes to light during this scoping process. More often that not the project is larger that anticipated. For example, consider the magnitude of constructing a new 18-hole golf course. Going from dirt to sculptured land is a massive task. It is not unusual for up to 500 000 cubic metres of dirt to be moved, including the excavation of a lake or several bunkers and the planting of hundreds of trees.
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