TECHNO ECONOMIC FEASIBILITY STUDIES

Introduction:

Objective of Techno-Economic Feasibility Studies/ Detailed Project Reports is to

determine the technical feasibility and financial viability of the project; assess the risks
associated with the project and enumerate imminent actions that are required to be taken.
It helps a client get a detailed evaluation of a project.

Techno-economic assessment or Techno-economic analysis (abbreviated TEA) is a

methodology framework to analyze the technical and economic performance of a process,
product or service. TEA normally combines process modeling, engineering design and
economic evaluation.

The purpose of Techno Economic Feasibility study is to aid the sanctioning

authority to arrive at an informed judgment as regards acceptability of the project
for lending (or investment) purpose.

Coverage:

Techno-Economic Feasibility Studies/ Detailed Project Reports cover the following

based on the clients requirement:

 Markets: It covers estimated future sales revenue of the project based on

estimated sales volumes and price.
 Raw Materials & Fuel: It estimates the adequacy of the quality and quantity of
the raw materials and fuel for the project, make an estimate of its cost.
 Plant Siting, Location & Infrastructure: It assesses the existing infrastructure
and actions required to develop the infrastructure necessary to set up the project.
 Project Technical Concept: This is core deliverable of the project and covers
plant capacity, equipment sizing, storages, plant auxiliaries, system engineering,
electrical engineering, civil engineering, Control & Automation engineering,
Quality Control & Assurance, Captive Power Plant and Waste Heat recovery
system (WHR) based on the project requirement.
 Logistics: Inbound and outbound logistics and logistics planning.
 Environment: Applicable Regulatory Framework and Environmental Impact of
Project.
 Implementation Planning.
 Human Resources: Requirement and cost.
 Investment Cost: Fund requirement.
 Operating Cost: It covers cost of raw material, utilities, overheads, etc.
 Financial Appraisal: It covers project profitability, IRR (internal rate of return),
NPV (Net present value), payback, etc.
 Risks & Mitigation.

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The internal rate of return (IRR) is a metric used in capital budgeting to estimate the
profitability of potential investments. The internal rate of return is a discount rate that
makes the net present value (NPV) of all cash flows from a particular project equal to
zero.
Net present value (NPV) is the difference between the present value of cash inflows and
the present value of cash outflows over a period of time. NPV is used in capital budgeting
and investment planning to analyze the profitability of a projected investment or project.

Methodology:

Broad methodology of execution involves:

 Data collection
 Data analysis
 Report and Project formulation

Benefits:

It helps a client make an investment decision based on:

 Technical feasibility of the project.

 Financial viability of the project.
 The risks associated with the project.
 Actions required for risk mitigation.

MULTIPLE CRITERIA DECISION ANALYSIS (MCDA)

Multi-criteria decision making (MCDM) refers to making choice of the best alternative
from among a finite set of decision alternatives in terms of multiple, usually conflicting
criteria.

A Multiple Criteria Decision Analysis (MCDA) resembles a cost-benefit analysis, but

with the notable advantage of not being solely limited to monetary units for its
comparisons. When making comprehensive or important decisions, multiple criteria and
levels of scale need to be accounted for. Comparing conflicting sets of criteria, such as
quality and costs, can sometimes lead to confusion and lack of clarity. Taking decisions
based on multiple different criteria with help from the Multiple Criteria Decision
Analysis (MCDA) tool can then make things clear. By structuring complex problems and
analyzing multiple sets of criteria, informed, more justifiable decisions can be made.

MCDA is an “umbrella term to describe a collection of formal approaches which seek to

take explicit account of multiple criteria in helping individuals or groups explore
decisions that matter” (Belton and Stewart, 2002, p. 2). It is rooted in operational research
and support for single decision-makers (Mendoza and Martins, 2006). Recently the
emphasis has shifted towards multi-stakeholder processes to structure decision
alternatives and their consequences, to facilitate dialogue on the relative merits of

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alternative courses of action, thereby enhancing procedural quality in the decision-
making process (Fish et al., 2011).

The MCDM model is an effective tool for solving complex selection problems, including
qualitative and quantitative criteria with many alternatives. Qualitative criteria are often
vague and difficult qualitative and quantitative criteria with many alternatives.
Qualitative criteria are often vague and to identify accurately, thus making it difficult to
synthesize assessment results according to criteria difficult to identify accurately, thus
making it difficult to synthesize assessment results according to and decision making.
The MCDM method quantifies these criteria, calculates the total scores of each
decision-making unit (DMU) and helps decision-makers find an optimal alternative.

Multi-criteria decision making techniques are useful tools to help decision maker(s) to
select options in the case of discrete problems. Especially, with the help of computers,
those methods have become easier for the users, so they have found great acceptance in
many areas of decision-making processes in economy or management.

The main steps in multi-criteria decision-making are the following:

 Establish system evaluation criteria that relate system capabilities to goals,

 Develop alternative systems for attaining the goals (generating alternatives),
 Evaluate alternatives in terms of criteria,
 Apply one of the normative multiple criteria analysis methods,
 Accept one alternative as “optimal” (preferred),
 If the final solution is not accepted, gather new information and go to the next
iteration of multiple criteria optimization.

Multiple Criteria Decision Analysis (MCDA) advantages

The use of a Multi-criteria analysis comes with various advantages when compared to a
decision-making tool not based on specific criteria:

 It’s open and explicit

 The chosen criteria can be adjusted
 Many different actors can be compared with one another
 A Multiple Criteria Decision Analysis (MCDA) grants insight into different
judgments of value
 Performance measurements can be left to experts
 Scores and weights can be used as reference
 It’s an important means of communication between the different parties involved
in the decision-making process

Among many multi-criteria techniques, MAXMIN, MAXMAX, SAW, AHP, ANP,

FANP, FAHP, data envelopment analysis (DEA), and Fuzzy DEA, TOPSIS, SMART,
ELECTRE are the most frequently used methods [Chen, Hwang, 1992]. The nature of the

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recommendations of one of those methods depends on the problem being addressed:
choosing, ranking or sorting.

Utilizing any decision-making technique involving the numerical analysis of alternatives

requires three steps:

Step 1: Determine the relevant criteria and alternatives.

Step 2: Attach numerical measures to the relative importance of the criteria and to the
impacts alternatives on these criteria.
Step3: Process the numerical values to determine a ranking of each alternative.

The selection of models/techniques can be also based on such evaluation criteria as:
 Internal consistency and logical soundness,
 Transparency,
 Ease of use,
 Data requirements are consistent with the importance of the issue being
considered,
 Realistic time and manpower resource requirements for the analytical process,
 Ability to provide an audit trail,
 Software availability, where needed.

The classification methods can be categorized by the type of information from the
decision maker (no information, information on attributes or information on alternatives),
data type or by solution aimed at [Chen, Hwang, 1992, p.16-25].

ANALYTIC HIERARCHY PROCESS

The Analytic Hierarchy Process (AHP) one of Multi Criteria decision-making method,
is a structured technique for organizing and analyzing complex decisions, based on
mathematics and psychology. It was developed by Thomas L. Saaty in the 1970s and has
been extensively studied and refined since then. AHP organizes the decision-making
criteria as a hierarchy and aims quantifying relative priorities for a given set of
alternatives based on the decision makers’ pairwise judgments. Individual experts’
experiences are utilized to estimate the relative magnitudes of factors through pair-wise
comparisons. Each of the respondents has to compare the relative importance between the
two items under special designed questionnaire. It also stresses the consistency of the
comparison of alternatives and has the ability to detect and incorporate inconsistencies
inherent in the decision making process.

In short, it is a method to derive ratio scales from paired comparisons. The input can be
obtained from actual measurement such as price, weight etc., or from subjective opinion
such as satisfaction feelings and preference. AHP allow some small inconsistency in
judgment because human is not always consistent. The ratio scales are derived from the

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principal Eigen vectors and the consistency index is derived from the principal Eigen
value.

Analytical Hierarchy Process uses a hierarchical structure and pairwise comparisons. An

AHP hierarchy has at least three levels: the main objective of the problem at the top,
multiple criteria that define alternatives in the middle and competing alternatives at the
bottom.

The Logic behind AHP

The AHP method looks at the problem in three parts. The first part is the issue that needs
to be resolved, the second part are the alternate solutions that are available to solve the
problem. The third and the most important part as far as the AHP method is concerned is
the criteria used to evaluate the alternative solutions.

How to Use the Analytical Hierarchy Process (AHP)

Although the AHP is one of the most advanced methods available in the field of
management science and operations research, the complexity involved in using this tool
makes it difficult to apply. Thankfully software tools have been built which automate the
mathematics intensive part. The user has to follow a simple methodology of data
collection, which is then fed into the tool to get the results.

Here is the procedure for doing the same:

In general a hierarchical model of some societal problem might be one that descends
from a focus (an overall objective), down to criteria, down further to sub criteria which
are subdivisions of the criteria and finally to the alternatives from which the choice is to
be made.
1. Model the problem as a hierarchy containing the decision goal, the alternatives for
reaching it, and the criteria for evaluating the alternatives.
2. Establish priorities among the elements of the hierarchy by making a series of
judgments based on pairwise comparisons of the elements. For example, when
comparing potential purchases of commercial real estate, the investors might say
they prefer location over price and price over timing.
3. Synthesize these judgments to yield a set of overall priorities for the hierarchy.
This would combine the investors' judgments about location, price and timing for
properties A, B, C, and D into overall priorities for each property.
4. Check the consistency of the judgments.
5. Come to a final decision based on the results of this process

Drawbacks of AHP

The AHP method has its own issues.

 The method involves higher-level mathematics.
 It is based on the concept of Eigen vectors. It is for this reason that performing the
calculations pertaining to AHP on an Excel sheet is an ordeal. However, of late
software tools have been developed that can perform the calculations. The

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 managers, therefore just need to be aware of the AHP process, the calculations are
automated.

FUZZY MULTI-CRITERIA DECISION-MAKING

Multi-criteria decision-making (MCDM) refers to making decisions in the presence of

multiple and usually conflicting criteria. Fuzzy decision-making is used where vague
and incomplete data exist for the solution

Lotfi Zadeh, a professor at the University of California at Berkeley, first presented fuzzy
logic in the mid-1960's. Zadeh developed fuzzy logic as a way of processing data; instead
of requiring a data element to be either a member or non-member of a set, he introduced
the idea of partial set membership.

The fusion of MCDM and fuzzy set theory strengthen a new decision theory, which
was later being known as Fuzzy MCDM.

In order to explain the concepts of fuzzy sets, the basic idea in classical set theory must
be understood. In mathematics, the concept of classical set is very simple. A set is a
collection of well-defined objects. These objects that cover almost anything can either
belong in the set or not.

Ragin, had a very simple explanation about fuzzy sets. He iterated that the basic idea
behind fuzzy sets is to permit the scaling of membership scores and this allows partial or
fuzzy membership. A membership score of 1 indicates full membership in set; a score
close to 1 (e.g., 0.8 or 0.9) indicates strong but partial membership in a set; scores less
than 0.5 but greater than 0 (e.g. 0.2 and 0.3) indicate that the objects are more “out”
than “in” a set, but still weak members of the set; a score of 0 indicates full non

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membership of the set. Thus, fuzzy sets combine qualitative and quantitative assessment.
The gradation of memberships in fuzzy sets provide vast opportunities to this theory to be
seamlessly infiltrated in various knowledge domains including multi criteria decision
making.

When fuzzy set theory was introduced into MCDM research the methods were basically
developed along the same lines.

 The first category of fuzzy MCDM contains a number of ways to find a

ranking. This includes of degree of optimality, Hamming distance, comparison
function, fuzzy mean and spread, proportion to the ideal, left and right scores,
centroid index, area measurement, and linguistic ranking methods.

 The second category is built around methods, which utilize various ways to
assess the relative importance of multiple attributes and alternatives. Under
this category, most of the methods were concentrated on weight determination. It
comprises fuzzy simple additive weighting methods, fuzzy analytic hierarchy
process, fuzzy conjunctive / disjunctive methods, fuzzy outranking methods and
max-min methods.

 The third category and with the most frequent contributions is fuzzy
mathematical programming. Flexible programming, possibilistic programming,
possibilistic linear programming using fuzzy max, robust programming,
possibilistic programming with fuzzy preference relations, possibilistic linear
programming with fuzzy goals are among the popular methods under this
category.

Methodology Used In Model:

 Consider an event of decision-making.

 Consider all factors affecting the choices.
 Gradation rules are decided for every factor.
 Fuzzy Logic and fuzzy sets are used to prepare Model.
 Output is crisp value, which provides conclusion.

Some Earliest Applications

One of the earliest practical applications of fuzzy MCDM was a commercial

application for the evaluation of the credit-worthiness of credit card applicants. This
was developed more than twenty years ago in Germany.

The application of fuzzy MCDM in biotechnology management is presented as

second example. Chang and Chen [9] discuss the potential application of fuzzy MCDM
techniques to the selection of technology transfer strategies in the area of biotechnology
management. The transfer of technology from its source to the development of
commercial applications is a very complex process. It is clearly a multi-person multi-

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criteria problem in an ill- structured situation. One should make a careful analysis among
criteria, alternatives, weight, and decision makers before making a decision. If we want to
use conventional crisp decision methods we will always have to find precise data. The
assessments of alternatives on relation to various criteria, and the importance weights of
these criteria have to rely on judgment or approximation. Linguistic variables and fuzzy
numbers are used to aggregate the decision makers' subjective assessments of the
weighting of criteria. Their method is based on using data input for computing the total
index of optimism in a multi-person decision-making problem, instead of having a
decision maker to give the index of optimism independently. This new approach used the
index of optimism to rectify the pooled risk-bearing attitude of several decision makers.
The index of optimism is determined by the evaluation data conveyed by the decision
makers at the beginning of the data input stage. Finally, a novel method is introduced to
rank the fuzzy appropriateness indices for choosing the best technology transfer strategy.

The third earliest example about the application of fuzzy MCDM is the consumer
purchasing selection. Forecasting consumer purchases of homes, cars, consumer
electronics and appliances, and vacations is of great importance to many sectors of the
world economy. To address this concern, studies of consumer perception of business
conditions are continuously being conducted to help predict these purchases. In Yager et
al. [10] suggest a methodology for using information obtained by market surveys to
predict the values of other related (linguistic) variables of interest to market research
analysts.

Some recent practical applications of fuzzy MCDM

 Under the category of finding a ranking, Abdullah and Jamal [13] conducted an
experiment to elicit linguistic judgment over the health related problematic status
of elderly people.

 Under the category of the comparative importance of multi-attributes,

Abdullah et al proposed a new Fuzzy MCDM model by hybridizing Intuitionistic
Fuzzy Set (IFS) with the Analytic Hierarchy Process (AHP). The AHP is
inherently a subjective process, which involves uncertainties in the evaluation and
affects the process of decision-making. Meanwhile the notion IFS can handle
vagueness type of uncertainties. As to this, Abdullah et al., [14] has proposed a
new decision making method in Fuzzy MCDM by considering the uniqueness of
pair-wise comparison in AHP and the complementary of memberships in IFS. The
concept of IFS in AHP has been introduced through pair-wise comparisons. A
ranking order has been obtained via IFS-AHP evaluation process by using
positive and negative components of IFS in the concept of AHP. The application
of IFS-AHP certainly can help decision makers to make more realistic and
informed decisions based on available information. Under the same category of
the comparative importance of multi-attributes, Abdullah and Jamal [15]
investigate the weights for health-related quality of life indicators among
chronic kidney diseases patients. Patients' perceptions of the impact of disease

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 and treatment and the indicators such as physical, psychological, social function
and well being are normally investigated.

 The third category presents an example of the applications of fuzzy linear

regression in road accident problems.

OTHER METHODS

 The MAXMIN technique assumed that the overall performance of an alternative

is determined by its weakest attribute, in the MAXMAX technique an alternative
is selected by its best attribute value.

 The SAW (Simple Additive Weighting) method multiplies the normalized value
of the criteria for the alternatives with the importance of the criteria and the
alternative with the highest score is selected as the preferred one.

 SMART (The Simple Multi Attribute Rating Technique) is similar to AHP, a

hierarchical structure is created to assist in defining a problem and in organizing
criteria. However, there are some significant differences between those
techniques: SMART uses a different terminology. For example, in SMART the
lowest level of criteria in the value tree (or objective hierarchy) are called
attributes rather than sub-criteria and the values of the standardized scores
assigned to the attributes derived from value functions are called ratings.

The difference between a value tree in SMART and a hierarchy in AHP is that the value
tree has a true tree structure, allowing one attribute or sub-criterion to be connected to
only one higher level criterion. SMART does not use a relative method for standardizing
raw scores to a normalized scale. Instead, a value function explicitly defines how each
value is transformed to the common model scale. The value function mathematically
transforms ratings into a consistent internal scale with lower limit 0 and upper limit 1.

 The ELECTRE (Elimination and Choice Expressing Reality) method was to

choose the best action(s) from a given set of actions, but it can also be applied to
three main problems: choosing, ranking and sorting. There are two main parts to
an ELECTRE application: first, the construction of one or several outranking
relations, which aims at comparing in a comprehensive way each pair of actions;
second, an exploitation procedure that elaborates on the re- commendations
obtained in the first phase.

 The TOPSIS (Technique for Order Preference by Similarity to the Ideal

Solution) presented by Hwang and Yoon [1981] and developed later by many
authors [Jahanshahloo, Lofti, Izadikhah, 2006a; 2006b; Zavadskas,Turskis,
Tamosaitiene, 2008; Hung, Chen, 2009], selects the alternative closest to the ideal
solution and farthest from the negative ideal alternative. The classical TOPSIS
method is based on information on attribute from decision maker, numerical data;

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 the solution is aimed at evaluating, prioritizing and selecting and the only
subjective inputs are weights.

The main advantages of this method are the following [Hung, Cheng, 2009]:

 Simple, rational, comprehensible concept,

 Intuitive and clear logic that represent the rationale of human choice,
 Ease of computation and good computational efficiency,
 A scalar value that accounts for both the best and worst alternatives ability to
measure the relative performance for each alternative in a simple mathematical
form,
 Possibility for visualization.

In general, the process for the TOPSIS algorithm starts with forming the decision matrix
representing the satisfaction value of each criterion with each alternative. Next, the
matrix is normalized with a desired normalizing scheme, and the values are multiplied by
the criteria weights. Subsequently, the positive-ideal and negative-ideal solutions are
calculated, and the distance of each alternative to these solutions is calculated with a
distance measure. Finally, the alternatives are ranked based on their relative closeness to
the ideal solution. The TOPSIS technique is helpful for decision makers to structure the
problems to be solved, conduct analyses, comparisons and ranking of the alternatives.
The classical TOPSIS method solves problems in which all decision data are known and
represented by crisp numbers. Most real-world problems, however, have a more
complicated structure. Based on the original TOPSIS method, many other extensions
have been proposed, providing support for interval or fuzzy criteria, interval or fuzzy
weights to modeled imprecision, uncertainty, lack of information or vagueness.

The major weaknesses of TOPSIS are:

 That it does not provide for weight elicitation, and consistency checking for
judgments; on the other hand, the use of AHP has been significantly restrained by
the human capacity for the information process. From this point of view, TOPSIS
alleviates the requirement of paired comparisons and the capacity limitation might
not significantly dominate the process. Hence, it would be suitable for cases with
a large number of criteria and alternatives, and especially where objective or
quantitative data are given [Shih, Shyur, Lee, 2007].

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