Last week, Brian Sands, Vice President and Principal of Economics at AECOM, begain to lift the veil of the process of economic feasilbility analysis. We learned why a feasibility consultant was important, the right questions for you to ask them, and the questions you should be ready for them to ask you.
Today, we delve into the process itself, and how it can keep your project (and your capital in developing that project) on the path to success.
JRA: Without giving away any trade secrets, what is your process for determining whether a project is feasible?
Brian Sands: The general process of determining a project’s demand potential and financial feasibility is not a secret, as shown by the simplified approach which I outline below. However, that does not make it easy for anyone to complete – even experts like us can find it a challenge sometimes. What is needed is disciplined adherence to the process, but also creativity to ensure that the best can be made of the available information (which may be limited in some markets, or regarding the performance of a new concept) as well as the time and resources available to complete the study (which similarly may be limited). When I say creativity, I don’t mean simply making things up, but rather combining the best available information within the time available, together with strong experience evaluating similar projects in other locations, and with good knowledge of the characteristics and performance of comparable projects. Under ideal circumstances, the eventual answer becomes apparent during the study, but under less than ideal circumstances an experienced economic consultant eventually determines the boundaries of probable performance.
JRA and AECOM teamed up on The Henry Ford in Dearborn, Michigan.
As to the process for a market and feasibility study, also sometimes known as a business plan, it is relatively straightforward and typically includes the following tasks:
· Project initiation and client team consultation
· Concept and location evaluation
· Review of general markets, such as residents and tourists
· Comparable and competitive projects analysis
· Demand potential evaluation and client consultation
· Preliminary physical planning guidelines
· Ticket pricing and financial feasibility
· Client consultation and report finalization
Frequently, we are asked to provide some additional tasks, which may include one or more of the following:
· Design/planning team workshop(s) participation
· Survey, focus group, or other primary research
· Economic impact analysis
· Discussions with public sector entities regarding public benefits for the project
· Detailed temporal and/or physical capacity analysis
· Pricing alternatives evaluation
· Warranted investment analysis
· Land/lease deal negotiation
· Developer/operator solicitation and evaluation
· Multi-location evaluation and roll-out strategy
· Acquisition target analysis
· Financing request evaluation
· Ongoing monitoring
We also are oftentimes asked to provide suggestions regarding potential other consultants for the project, such as the following:
· Branding and marketing
· Operations and management
· Intellectual properties
· Specialized operations, such as retail, foodservice, events, traveling exhibits, ticketing, etc.
The AECOM One World Trade Center Team.
JRA: What happens if you (AECOM) determine that a project is a bad idea?
Brian Sands: We certainly don’t like for this to occur. When we first start discussing a potential economic study with a client, we try hard to quickly identify those projects that seem highly unlikely to reach the level of demand, scale, or performance that the client has in mind, so that we can then discuss with them as diplomatically as possible our initial thoughts and for both sides to consider what might be necessary for the project to succeed in its initially proposed form, or perhaps how the initial concept might be modified to increase its likely performance and success. This is important since we, as an independent consultant with a track record of success that is over 50-years long in the industry, we need to ensure that we are able to maintain our integrity within the industry, and that we don’t waste a client’s money.
Despite taking the steps noted above, it does happen that sometimes we get some ways through an assignment and reach a point where we realize that the client’s expectations are significantly out of alignment with what the market and comparables are indicating is possible without some sort of extreme measure (such as a quality, scale, and/or investment level that is well beyond a precedence in the industry or available market). In those situations, we complete documentation of our research and analysis as well as our conclusions, and then setup a discussion with the client about our findings and also are ready to talk about potential alternatives for the project, be it in terms of concept, scale, or even location. Such conversations are never easy, but when given clear information, most clients will after some time accept the findings and eventually go on to be very appreciative of our candid assessment and advice. Ultimately, our job is to ensure that the client and everyone involved with the project is not wasting their time or money, and they are grateful for useful advice that helps them to succeed in a very competitive and ever changing marketplace.
Another AECOM/TEA collaboration – Volkswagen’s Autostadt in Wolfsburg, Germany.
Fortunately, the importance of integrity was instilled in me early in my family life and then continued in my work life. Early in my career, after moving from GE Capital to the legacy Economics Research Associates (ERA) in London, I had an experience dealing with a client who was very disappointed with our findings, and despite the clarity of our findings, resisted accepting our results and recommendations. However, in the room with me was Keith James, JRA’s CEO/Owner, whose support of me and our views helped convince the client that our findings and recommendations were not only reasonable, but would help the client from making a big mistake in oversizing (and hence overinvesting in) a potential project, even though this meant a likely lower fee for JRA to design/plan the project. This kind of integrity is good for everyone involved, and is critical to the success of an individual attraction and our industry as a whole.
JRA: Once you’ve determined that a project is a “go”, what is your continued role in the project, if any?
Brian Sands: After substantially completing our market and feasibility study, we are sometimes asked to provide ongoing services to the client, which may range from updating our study due to change in the market’s characteristics or competitive landscape, to evaluation of the potential for the use of new technologies, to comparison of the project’s actual performance versus what we had forecast and consideration of the reasons for variations. We are also oftentimes asked to work again on projects years after they open as consideration is given to changing or repositioning. Finally, successful attraction projects are oftentimes rolled out in new locations, and we may be asked to conduct studies to evaluate the potential for a project in one or more new locations.
JRA: Any other points you think our readers should be aware of?
Brian Sands: One of the best parts of the job is working with a broad range of other specialists in the industry, including designers/planners, architects/engineers, operations/management consultants and many others. We look forward to continuing to help our clients and colleagues in the industry to develop and operate successful projects, and we are always available to discuss projects and the industry more generally.
JRA offers a big thanks to Brian Sands and the entire AECOM team for this blog and for helping us on projects around the globe. We’ll continue our feasibility month with a three-part series on determining capacity. How many people do you plan on entertaining with your theme park or museum? And how do you ensure that you have the right combination of amenities to accommodate them all? We’ll answer these questions starting Friday, so stay tuned, and thanks for reading the JRA Blog.
AECOM celebrates at the Themed Entertainment Association’s Thea Awards Gala, considered the “Academy Awards” of the themed entertainment industry.