Guest post by Julie Zavon
Thirty years ago when I went to work for a management consulting company I learned feasibility studies can rubber stamp a decision that’s already been made. Most of the studies I worked on were honest inquiries set up with the same spirit of discovery as my scientific research had been in graduate school, but I hated the projects that weren’t, the studies whose outcomes were pre-ordained. Working on them felt like intellectual prostitution and put a spotlight on what goes into a credible economic feasibility study.
A good feasibility study not only determines whether a project is economically viable, it identifies risk—risk that the feasibility study’s conclusion might be wrong. Yet in our city that risk is not usually mentioned. Our feasibility studies justify building a stadium or a streetcar or a parking garage, but we don’t hear about the assumptions, data, or methodology used. That’s a mistake because that’s where problems often occur.
Feasibility studies examine what might happen over 20–30 years. To make those projections, assumptions are made about multiple factors—economic cycles, interest rates, the labor market, the competitive landscape of local businesses, etc. People doing feasibility studies made assumptions about increases in real estate values and the resulting tax revenues that would be generated to pay for the stadium. They made assumptions to estimate the dollar-value increase in local business that would result from a refurbished Music Hall. They made assumptions about how many people would ride the street car daily. Yet no one can reliably predict the future. Everyone knows that. That’s the risk. So what happens if the feasibility study’s projections are wrong? How much more money does it cost taxpayers when the scenario that justified publicly subsidized financing doesn’t materialize?
Good feasibility studies identify risk factors clearly—which key assumptions, if incorrect, put the project in the lurch and leave the public holding the bag. How much risk is the City willing to subject taxpayers to? Before giving the nod to a project, the City should do more than refer to a feasibility study for justification; it should examine the study, kick the tires, and look under the hood. Here are a few points that should be considered to make sure our city’s feasibility studies are as robust and intellectually honest as possible.
Who supplied the data and assumptions used in the feasibility study? Did they come from an interested party or from an independent source?
Who was permitted to give input and feedback on the quality of the data, assumptions, etc., to ensure they were realistic, not overly optimistic or simplified, and that nothing was overlooked? Did the public have an opportunity to vet or comment on them?
Did the party who outlined the study’s parameters or paid for it stand to gain from the outcome?
Who did the feasibility study? Were they selected in a competitive process? What criteria were used to select them?