As a result of a disagreement between concepts from PMBoK and MPS.BR, the idea of this post arose, mainly to clarify once again that practice is a little different from theory (or vice versa). In addition, to show what economic and financial feasibility studies are like in reality.
The disagreement
The question that generated the conflict: “Who does the Economic and Financial Feasibility Study (EVEF) of a project?”
My answer: “The client.”
The counter-argument: “So does that mean you, as a supplier, will accept all projects without doing the EVEF?”
My reply: “I, as a supplier, do not do the EVEF, but rather provide values, dates, conditions, data, information, and subsidies for the client to do their own study, since I did this stage before offering my services or even in the conception of my company or project.”
Concepts
Before we continue, let’s have a quick explanation of what an Economic and Financial Feasibility Study (EVEF) of a project is, according to Sebrae:
“… The EVEF aims to evaluate the investment plan to be carried out, demonstrating the viability or non-viability of the project.”
Now let’s clarify what PMBoK® 4th Edition says about the EVEF:
“… an organization can treat a feasibility study as a routine task in the pre-project phase, another may treat the same study as the first phase of a project…”
And lastly, what MPS.BR says in the item Level F, in item GPR11:
“… The feasibility study considers the scope of the project and examines technical aspects (requirements and resources), financial (organizational capacity), and human (availability of people with the necessary skills). The business objectives of the organization can also be considered…”
Let’s suppose a bank has the strategic objective of increasing the amount of loans for low-income customers in its portfolio in the southeast of the country. That is, they hire a service provider company to implement a Business Intelligence (BI) system for the extraction and consolidation of information from their customer database.
Different objectives
The supplier’s goal is to implement the BI. Therefore, the bank’s goal is to increase the number of loans.
Often the supplier cannot have the same vision of the client’s objectives, especially when the client institution does not aim for a profit from its project, for example:
- There are companies that need to get rid of their cash quickly with projects, often unnecessary, to ensure the budget for the next year;
- Some companies value the final quality of the product generated much more than the project’s cost, as they want to stay ahead of their competitors;
- There are non-profit organizations (Third Sector), which focus on social development and not profit, reaching a specific community or population.
It is not appropriate to give examples of the types of objectives here, but it is a fact that the client, most of the time, will have different objectives than the supplier, consequently, a different Business Case.
The client performs the Financial Viability Study, the supplier does not!
Once it is clear that the objectives of the suppliers and clients are different, let us analyze what MPS.BR affirms, still in item GRP11:
Now, if the supplier has already informed their costs, the expected date, the expected quality, the risks to be managed, if the entire project has been planned, I see no reason to do the EVEF during the project. If there is a deviation from what was estimated, it is up to the supplier to request a change.
In summary, the Supplier must provide inputs to the Customer so that they can perform their own EVEF. Moreover, this should come from the Customer and not from the Supplier!
Now, some important information about what Business Case is, according to PMBoK:
“… The Business Case or similar document provides necessary information from a business perspective to determine whether the project justifies the investment or not. Typically, business need and cost-benefit analysis are contained in the Business Case to justify the project…”
Now, if the EVEF, according to PMBoK, is carried out through a document called Business Case, which according to best practices, should be done in the pre-project phase, how will the Supplier perform the EVEF if the project has not yet been approved and formalized through the Project Charter?
In practice
To make it clearer, let me give an example of a Language School:
I am going to open a School and for that, I need to hire instructors, develop material, see physical space and partners for the coffee break, with all administrative work being done only by me, from sales to billing.
I will do my EVEF:
- Evaluate by the criterion of NPV – Net Present Value;
- Observe the IRR – Internal Rate of Return;
- Pay attention to Pay-Back;
- Analyze the opportunity cost;
- Assess market potential;
- Conduct a SWOT analysis;
- Among other studies.
OK! In summary, according to the result obtained from my EVEF, the project is viable and will give me a good profit, as long as I have a minimum class of 10 students and the monthly fee is at least R$ 300.00.
When a customer comes to my school, asking for classes to be taught only to him, I will not refuse! And here’s the difference between theorists and practitioners. I try not to refuse as a Supplier, but I will also not do the EVEF, as the client will be the one to do the feasibility study based on my response:
OK customer, you can have individual classes, but the cost will be R$ 3,000.00 per month.
Conclusion
It is clear that I do not accept all projects in any way? Thus, as mentioned at the beginning of this post.
So, as a Supplier, I will not do the EVEF for all projects, products or services that I sell, I will only pass on the new conditions to my customer, which in this case is the new monthly fee.
The same would happen if I asked a printing company to print only 1 item at the cost informed for the printing of 50 items.
At this point, it is up to the Customer to perform their own Economic and Financial Feasibility Study.
Thus, I repeat: I am only the Supplier, so it is you, the Customer, who will perform the Economic and Financial Feasibility Study. I will do the EVEF, but only for each launch of a new product or service, not for each sale of them.
However, I hope I have clearly demonstrated how to use the concepts applied in MPB.BR and PMBoK appropriately.
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