Pre-feasibility study – solid foundation for hospitality investment projects

Linh Ngan
Linh Ngan
04:43:36 - October 20, 2020

In the hospitality industry, the initial preparation is the most important step. Therefore, in these periods, it is necessary to have objective and comprehensive assessments to make a strong foundation for the hotel in the future. For hospitality investment projects, a pre-feasibility study provides a practical base for this.

What is a pre-feasibility study?

A pre-feasibility study is a study that helps investors get an overview of the market, and analyze the business market of the region as well as competitors before proceeding to the feasibility study. In short, the pre-feasibility study is the very first evaluation on a comprehensive and objective basis in the hospitality investment project. After assessing the results of the pre-feasibility study, the investor will be able to decide on the appropriate investment levels as well as potential segments for the investment project.

Based on the results of the pre-feasibility study, the investment project will continue to be specifically planned to prepare for construction and operation, from the architectural design concept to branding and communication strategies, etc.

Which hospitality investment projects should conduct pre-feasibility studies?

A pre-feasibility study is generally applied for selected investment opportunities which are usually on large scale, having many prospects but requiring complicated technical solutions, long ROI with many uncertain influences.

Usually, luxury or 5-star hotel projects have a large total investment and a rather small customer segment. Therefore, making the right decisions has a vital impact on the profitability of the project in the future, so it must be accurate and aim to the target market, which provided by the pre-feasibility study, right from the very early stages of the project.

Why should investors concentrate on pre-feasibility studies?

The implementation of pre-feasibility studies will help investors reduce the subjective factor in market perception and analysis. Thanks to the results of the pre-feasibility study based on actual data of the current market context, the investor can create a more reasonable investment plan for the future which is highly adhesive to reality.

Once having grasped the overall market picture after the pre-feasibility study, the investors are more likely to develop specific business and operating strategies that are suitable to the target market, which means they will be able to not only optimize their investment efficiency but also minimize risks in implementation as well as in operation. Since these investment projects often vary from large to very large scale and also long ROI, they will be severely affected if any risk arises. With pre-feasibility studies, investors will be able to make well-informed and more market-oriented decisions while avoiding undesirable risks.

With the pre-feasibility study, the probability of investment projects targeting the right target customers in the segment will be higher than those that start construction when investors are still in vague about the market in the area or have no specific orientation and segment. Once the investors figure out the position of their project in the overall picture of the industry, it is going to take less time and money for them to set up construction and operation plans in the following steps of the project.

 

In addition, the pre-feasibility study will improve the latter performance of a project like resorts with large capital and targeting a high-end market segment. With this huge total investment, the cost of conducting a pre-feasibility study is not really considerable, especially compared to its ability to optimize investment efficiency.

Conclusion

The pre-feasibility study is not a master key that can open the door to success immediately. It can only provide investors with information and data to help them make informed and clever decisions. However, the role of the pre-feasibility study remains undeniable in the success of a hospitality investment project. Just like painting, the pre-feasibility study is the overall layout of the whole picture so that the artists – the investors – can easily imagine which colors they need and which materials they should use to make a perfect picture.

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