Viability and sustainability

Assessing the viability of the project

Projects that are not viable are simply those that cannot meet all their costs over a specified period. In a land and building project that means that the finance cannot be raised to acquire and develop the asset or enable the asset to be used by the project target market at a price that will cover the costs to provide the service.

It is perfectly possible to have a project which will take some time to become viable. In that case ­there may be a need for some grant subsidy or other sources of funding to cover this gap until income levels grow. This must be shown clearly in the assessment and outline how the risks of the funding are necessary to bridge the gap and cover the repayments of any loans etc that have been addressed.

If income is greater than costs then the project is potentially viable (given that this is an initial assessment).

Use the information that has been gathered from the initial assessment Feasibility Checklists below to consider whether there is evidence that:

• The capital funds can be raised to acquire and develop the land and buildings that form part of the project objectives. A key element of this is any subsidy available to the project from paying less than market value for the land and buildings or from grants to meet the costs of development or improvement.
• There is sufficient demand for use of the project that it will generate revenue from sales or lettings to cover all the costs of running and maintaining the project when it is complete. This is particularly important if all the capital costs cannot be met from grants and subsidies and there is a need to borrow and commit to loan repayments.

Checking the sustainability of the project

The initial assessment of the project may show that it is viable in financial terms. For example a project involves the building of 10 houses which are to be owned by a Trust and let to tenants at intermediate rents. All the capital costs of acquiring and building the housing can be met with a loan and grant. The revenue costs of managing the houses and the loan repayments will be met by the rents.

How sustainable this arrangement will be depends on whether all the operational implications of maintaining and managing the housing and administering the Trust that owns and manages it have been considered in sufficient detail. If the financial assessment of viability does not include all these implications both viability and sustainability is undermined.

The initial assessment will need to convince all stakeholders that any obstacles to the project can be overcome and that in the end a viable and sustainable asset will emerge from the process. The assumptions in the assessment about costs and income will be tested by potential funders and if the project requires revenue subsidy initially to work towards viability, it will be necessary to be clear about the particular community benefits and impacts that the project will offer in the long term.

If your group is satisfied that the project is viable on the basis of the initial assessment, it may be necessary to undertake a detailed feasibility study of the project.  Alternatively, you may proceed with developing your business plan, which will incorporate elements of your initial assessment and further investigate the viability of your proposal. How you decide will be dependent on the scale of the project and the risks involved.