Consolidating the roles of financial feasibility studies: Property developers vs quantity surveyors

A financial feasibility study evaluates a proposed project if it adheres to the financial requirements of the developer. It provides clarity on whether the investment will generate enough cash flow to counter the debt service and provide an acceptable return to the investors (Costello & Preller 2010). The financial feasibility (Willemse 2019) is also referred to as the economic feasibility (Mukherjee & Roy 2017). For the purpose of this study, the term ‘feasibility(ies)’ is used to refer to financial feasibility studies.

Feasibilities are specifically used by the private sector concerned with commercial and economic success, while the public sector is rather motivated by social benefits (Rwelamila & Ogunlana 2015). Hence, this study focuses on the private sector where feasibilities have been identified as a critical success factor (Mudi 2016).

The quality and success of feasibilities are in question. Studies found that feasibilities are inconsistent in contents in China (Shen et al. 2010), inadequate in Nigeria (Oso Sunday 2020) and neglected and problematic in Iraq, leading to the abuse of feasibilities (Mohammed et al. 2019). Furthermore, only 40% of the feasibilities in Iceland adhere to the best practice elements and the rest 60% are incomplete (Stefánsdóttir 2015). In South Africa, the feasibilities are similarly incomplete (Willemse 2019). In a study conducted by Huxham (2010) in South Africa, the rental income was forecasted incorrectly in 58% of the feasibilities and 42% had an incorrect estimation of the profitability. Kgaka (2018) also found that the rental income is often overestimated in South Africa. Furthermore, it is a complex document that involves a substantial amount of factors, including communication, that influence the success of the document, investment decision and construction project (Terblanche et al. 2021). One way to improve feasibility studies is to align the perspectives of the key stakeholders.

The ability to see other people’s perspectives is integral to communication and effective interaction with other individuals (Clark & Brennan 1991; Samuel et al. 2020). If misalignments in perspectives are not resolved, then feasibilities will remain inadequate, incomplete and misleading to investment decisions. According to the perspective theories, individuals, both children and adults, generally have trouble appreciating that other individuals perceive the world in a different manner (Epley et al. 2004). These difficulties are often attributed to the tendency to be biased by one’s own perspective, due to an effect known as the ‘curse of expertise’ (Hinds 1999), the ‘curse of knowledge’ (Birch & Bloom 2007), egocentrism/ egocentric bias (Apperly et al. 2010) or the ‘false consensus effect’ (Ross et al. 1977), among other terms.

Quantity surveyors prepare and communicate financial communication via cost estimates, budgets, financial feasibility studies, cash flows, etc. (Maritz & Siglé 2016). They have been recognised as the professionals who primarily manage construction costs as well as the financial consultants in the property development industry who advise clients on the optimal expenditure of capital (Cruywagen & Llale 2017). The architects and engineers are part of the design team (Van Eck & Burger 2016), while the project managers manage the team. Often, the engineers (e.g. electrical engineers) will prepare and manage the budget of their specific discipline. However, all the separate disciplines (including real estate agents and market analysts) will feed the information to the quantity surveyor who will consolidate it into the feasibility and communicate it to the developer (Terblanche et al. 2021). It is also important to note that the composition of the team may vary depending on the scale and complexity of the project. Some projects may involve additional specialists such as environmental consultants, urban planners or sustainability experts to contribute to specific aspects of the development’s feasibility.

While the quantity surveyor prepares and communicates feasibilities to the developer as part of their professional services (Maritz & Siglé 2016), the property developer must make an investment decision based on this communication (Sudhana 2016). This means that the Quantity Surveyor (QS) and the property developer (private sector) are the two key stakeholders. Understanding the comprehensive roles of these feasibilities will thus benefit the QS’s professionals as well as their clients (real estate developers). Without a clear understanding of the roles of these feasibilities, the correct end goal cannot be prepared, leaving it incomplete and of poor quality. For the QS to prepare the feasibilities in order to fulfil the desired roles required by the real estate developers, they should be aware of the other perspectives in addition to the roles they perceive themselves.

Feasibility problems have been investigated. For instance, Willemse (2019) investigated the occurrence of best practice elements of feasibilities in South Africa and found that most feasibilities do not fulfil their roles according to these practices; however, only one stakeholder’s (QS) view was represented. In addition, Perera et al. (2016) adopted a questionnaire survey and business case analysis to evaluate three cost and commercial management practices from China and the UK. Another study did a questionnaire survey in Pakistan and listed some roles of feasibilities (Anees et al. 2018); however, there was no theory building approach. Nonetheless, these studies did not take multiple key stakeholders’ perspectives into account. The gaps highlighted in the literature above underpin this study.

The above two perspectives must be investigated to gain an understanding of the differences in the perceived roles of the feasibilities. The current study therefore identified the roles of the feasibilities as perceived by two key stakeholders – the real estate developer and the quantity surveyor in the private sector. A comprehensive view on the roles of these feasibilities from more than one perspective could contribute to improved feasibilities by creating clear end goals by means of consolidating the differing perspectives. This knowledge can be used to bridge gaps in communication and misunderstanding by aligning the roles of feasibilities. The rest of the paper presents an overview of literature on the feasibility studies and its applicable areas.

An overall feasibility study encompasses various aspects, including technical feasibility, legal feasibility, operational feasibility, scheduling feasibility and the financial feasibility (Costello & Preller 2010; Mukherjee & Roy 2017). A financial feasibility study specifically produces the overall project cost and projected income that indicates the profitability (Anees et al. 2018). A poor quality feasibility study will therefore compromise the profitability by turning the project into an undesirable investment (Huxham 2010).

A financial feasibility study has been identified as a ‘critical success factor’ of construction projects that cause failure of projects if not executed or communicated correctly (Mudi 2016; Mukherjee & Roy 2017). The failure of a feasibility study will reflect poorly on the QS’s reputation and, more importantly, the investment will have been a waste of time and money. While the obvious role of a feasibility study has been presented, feasibilities have many roles. The aim of the literature review is to present the known roles of feasibility studies as comprehensive as possible.

The following roles emerged from the above mentioned studies indicated in Table 1. First, it informs key project dates (Anees et al. 2018). A feasibility study also forms the basis for the project budget (Anees et al. 2018; Kimaru 2018; Willemse 2019), cash flow (Anees et al. 2018; Syed Alwee et al. 2019), value engineering (Kwaku Osei 2016; Anees et al. 2018; Syed Alwee et al. 2019), life cycle costing (Syed Alwee et al. 2019) and negotiations with contractors and the professional team (Anees et al. 2018; Kimaru 2018). It becomes a tool to manage costs of the project effectively (Perera et al. 2016; Anees et al. 2018; Kgaka 2018; Willemse 2019), to manage project quality (Anees et al. 2018) and to acquire financing (Kimaru 2018). The feasibility study is also used to provide clarity on investment risk (Mukherjee & Roy 2017), to achieve maximum profit, to analyse problem areas and the solutions, to ensure most of the client’s requirements are fulfilled (Syed Alwee et al. 2019) and to act as a sound financial turnover mechanism (Anees et al. 2018). It is a document that becomes the business plan as well as a guide to the facility manager during the functional period of the proposed project (Syed Alwee et al. 2019).

Only two of the studies (Kgaka 2018; Willemse 2019) were done in South Africa. There are various studies which comprised interviews, questionnaires and literature reviews. The aim of this study is to expand on the existing knowledge; hence the studies, which comprised literature reviews or questionnaires, do not address the gap explored for this study. Three studies did interviews. Two of these studies (Kgaka 2018; Kimaru 2018) interviewed one of the key stakeholders – the developer; however, they did not address the developers’ perspective on the role of a feasibility study directly. The third study (Willemse 2019) interviewed the other key stakeholder – the QS. However, only two QSs were interviewed, which is deemed insufficient. However, in this study, they did not address the QS’s perspective on the roles of a feasibility study directly. While the consolidated literature did provide a comprehensive list on the roles of feasibility studies, none of the studies expanded on the existing knowledge regarding these roles, nor did they consider differing perspectives. It is, however, clear from the findings that feasibility studies have multiple roles.

Given that the QS and the developer are central to the feasibility process and that this study requires the opposing perspectives on the roles of the feasibilities, a qualitative research approach was followed. Qualitative research is an approach that typically draws on opinions and perspectives of people (Bryman 2016). Furthermore, qualitative research is a suitable method for exploring and understanding problems related to humans (Creswell & Creswell 2017).

The interview technique was followed, which is a purposeful conversation between two or more people and provides an opportunity to collect in-depth data (Saunders et al. 2016). More specifically, semi-structured interviews were conducted. This means predetermined open-ended questions based on a list of topics and main questions that needed to be discussed, thus creating an opportunity to gather the individual’s perspectives, preferences and experiences of the key stakeholders (Leedy & Ormrod 2019). The questions sought to find what the role of the feasibility study is to them (each perspective). The interview questions are listed in Appendix A.

Two heterogeneous samples were used to purposively target the QS and developer as the populations that formed part of this study. In this approach, the key variations were identified and the cases differed from each other to a feasible extent (Shaheen & Pradhan 2019). The criteria for the QS’s target population included QSs with >5 years of experience in the private commercial sector in South Africa (commercial, retail, industrial, hospitality and bulk residential). The criteria for the developers to be deemed adequate for this research included private developers investing in the commercial, retail, industrial and residential sectors in South Africa, with the main goal of generating a profit. The participants were identified by using a combination of the non-probability purposive sampling method and snowballing. The participants were chosen and not left to chance (Leedy & Ormrod 2019). The size of each heterogeneous sample was guided by Saunders et al. (2016) who recommended the sample size between 5 and 25 and Marshall et al. (2013) who recommended the sample size between 15 and 30. A total of 23 quantity surveyors and 23 developers in South Africa were interviewed online over a period of 5 months in 2020. The sample sizes allowed saturation to be achieved.

Figure 1 designates the QS participant’s roles at the company for which they work on the left, and the pie chart on the right indicates the years of experience of each participant. Nine of the participants are either the founder of the company or the sole owner; four participants are in an upper management position; three are associates of a company; six are senior quantity surveyors (including the role of mentor) and only one participant’s role is limited to a junior quantity surveying role.

Fig. 1:

The junior quantity surveyor, however, has 6 years of experience as a quantity surveyor, and eight of the participants have >25 years of experience in the industry. The total experience gained by the participants is 457 years.

Most of the developer participants (nine) are either the sole owner or founder and CEO of a property development company. Four of the participants are in upper management and six are development managers. There is one commercial manager, one project manager and two participants who fulfilled a partial QS role from the developer’s perspective. The distribution thereof is displayed in the pie chart in Figure 2.

Fig. 2:

The interviewer asked short, neutral, open-ended questions; however, no personal identification questions were asked. The interviews were online and recorded, and then transcribed verbatim using ‘Otter.ai’. It is an AI-powered transcription and note-taking tool that uses artificial intelligence to automatically transcribe audio and generate accurate, searchable and editable transcripts in real-time. It is designed to enhance productivity and collaboration in meetings, lectures, interviews and other spoken contents. On average, an interview session lasted about 30 min. The recorded files were saved under a pseudonym. The file uploaded to Otter.ai had thus no personal information, while the login details to Otter.ai remained confidential, ensuring the protection of the participants’ identity.

A reflexive thematic analysis was followed with the aid of the ‘NVivo Software’ program. This program is used for qualitative data analysis, aiding researchers in organising, analysing and gaining insights from interviews, surveys, focus groups, audio, video, documents and social media. Through the reflexive thematic analysis of the qualitative data, themes developed at a later stage from the codes while the theme development required considerable interpretive work from the researcher (Braun & Clarke 2021). This follows an unstructured coding process as suggested by Braun and Clarke (2006): The transcripts were coded from beginning to end, while each was systematically and thoroughly read. As each new element arose, a new code was created. As new information emerged, some existing codes were changed and adapted. Themes were developed only after the coding was done. Therefore, no codebook or code framework was followed.

From the developer’s point of view, an abundance of roles emerged that did not appear from the QS interviews.

From both key stakeholders, the following seven roles emerged:

From the roles that emerged during the interviews, it became clear that the developers use feasibilities for a much wider range than what QSs do. The Venn diagram in Figure 3 illustrates the difference in roles as well as where the roles overlap.

Fig. 3:

Importantly, since the QS is the consultant and the one compiling the feasibility, the intended roles of the feasibility by the developer should be known to the QS to ensure compatibility. It is the QS’s responsibility to ensure that the views are aligned, although it seems that the QSs do not engage in this. The feasibility also plays a role in the success of QS firms in terms of their reputation and income. The feasibility forms the basis of many aspects, for example, a business plan, progress measurement, value engineering and negotiations. Furthermore, the developer is concerned with operational matters like using it for ‘as-built’ purposes and performance management. A prominent QS role is to secure income and the ability to create early involvement of the QS. The QS’s concerns are much more directed at what the feasibility can provide them with. This misalignment in perspectives of the quantity surveyor who prepares and communicates feasibilities to the developer, who in turn makes the investment decision based on this communication, could cause miscommunication and ineffective feasibilities.

The main objective of this study was to present the roles of feasibilities from the two key perspectives, i.e., QS and real estate developers, to gain an understanding of the differences in the perceived roles. Data were collected through semi-structured interviews from both key stakeholders, followed by a reflexive thematic analysis and interpretation.

The findings suggest that the feasibility plays a much bigger role to the developer than the QS in terms of functionality. The developer makes use of the feasibility from the beginning of the project to gain financing and to do negotiations in terms of land acquisition, who then uses the feasibility for operational purposes and even after construction is completed. On the contrary, the QS is mostly concerned about what the feasibility can do for them in terms of income and job opportunities. The aligned roles that emerge are the mainstream ideas of what the feasibility study’s role is and that includes investment decision-making, budget and cost control. This clear misalignment in perspectives could contribute to the existing issues of feasibility studies.