2.1 project management

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PROJECTMANAGEMENT

ANDAPPRAISAL

PGDM

III Sem

Chandra Mohan Sumra


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UNIT 2: Project Feasibility Study

Project Plan: Planning is an ongoing processthat is conducted throughout the PLC. Initial

planning may relate to overall organizational

efforts. Subsequent planning is may relate to

specific objectives of the selected projects Framework for project plan:

For coordination rather than control

Scheduled Frequent revisions of project plan

Empower workers to estimate their work

Describe value creating tasks rather than activities

Describe tangible and specific benefits


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Project Planning

Factors that influence project plan are Internaland External:

Internal Factors:

Labor relations

Project scope

Infrastructure

Location

LeadershipOrganizational goal;

Management approach

Technical and manpower supply

Resources and capital availability


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Project Planning

External factors:Public needs

Market needs

National goals

Industry stability

State of technology

Industrial competitors

Government regulations


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Project Plan

General components of a Project Plan:Project Master Plan: It is an instrument to guide theprocess of project development. It outlines:

Critical constraints

Type of resources required for the project

Budget size and milestones

Objectives of the Project: What the project is expected to achieve

Performance measures for evaluating the achievement of theobjectives should be specified

Approach: Managerial and Technical methodologies of implementing the

project should be specified. (Hierarchy, Responsibility,Experience on similar projects, development models, etc)


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Project Plan

Project Schedule: Broadly speaking it specifies thetime of project initiation and completion.

Major phases of project should be identified and calibratedagainst schedule

Appropriate time estimates (based on experts knowledge,

past records, forecasting etc) of project tasks should beincluded

Resource requirements:

Project resources, capital and costs are documented in thissection

Capital and resource requirement are specified by tasks andactivities.

Budget size and source should be presented

Basis of resource and budget estimation should be justified


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Project Plan

Performance measures: To evaluate the progress ofthe project

It should mention method of monitoring, collecting, andanalyzing the facts to measure the performance

Corrective actions for specific undesirable events should be

mentionedContingency Plans: Course of action in event of

certain undesirable events should be predetermined

and mentioned

Tracking, Reporting and Auditing: A neutral (non-influenceable) team or method to track, report and

audit the project should be planned


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Feasibility Analysis

Feasibility study or analysis is a preliminary studyundertaken to determine a projects viability. It

guides in taking the decision whether or not to

proceed with the given project. If it leads to project

being approved, it will also be used to find the areasof concern (problem area) in the project and the

solution alternatives for the given problem.

Report prepared after Feasibility analysis is called

as TEFR (Techno Economic Feasibility report). Amulti-dimensional feasibility analysis is carried out to

prepare the TEFR on the following grounds:


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Feasibility Analysis- Market Analysis

1. Market Analysis: First step is to estimate potentialsize of the market and the market share that islikely to be captured by the proposed product orservice. Market analysis is carried out by in-depthstudy of information in form of:

Pattern of consumption growth Supply position

Composition of the market

Nature of competition in the market

Income and price elasticity of the demand

Consumer behavior Availability of substitutes

Distribution channels

Marketing policies

Administrative, technical and legal constraints


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Data required for Market Analysis may begathered from two sources:

Primary Source: Data and Information that is collected

first time to meet the specific purpose at hand

Secondary Source: Data or Information that has beengathered in some other context and is already

available. Some sources of Secondary information

are:

National Census report

Planning commission report

Reports of Ministry of Commerce and Industry

Industry specific data published by trade organisations

Reports of Research Agencies etc


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Primary information is gathered through marketsurveys, specific to the project being analysedCensus Survey

Sample Survey

Data collected from market survey may relate to one

or more of the following information:Market demand and rate of growth of demand

Segmentation of demand

Income and price elasticity of demand

Drivers and motives of purchaseSatisfaction level with existing products/services

Unsatisfied demand


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Demand Forecasting:Trend projection method

Delphi method

Consumption level method

End use method

Leading indicator method

Econometric method


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Feasibility Analysis- Technical Analysis

Technical Analysis of a project is undertaken toevaluate Technical and Engineering aspects ofthe project. It also provides input for other typesof analysis and thus is a continuous process. Itprimarily covers following aspects of a project:Plant Capacity

Number of units that can be produced in a given period

Influenced by a number of factors like: Technology employed,input constraints (availability of raw materials, electric power,skilled labor etc), market conditions, investment cost,availability of resources, government policy etc

In absence of other constraints, relationship between capacityand investment cost is an important consideration

Market Condition: Decision on the basis of anticipated marketof the product/service

Minimum economic capacity is taken into consideration


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Production Technology: For manufacturing a product/

service often two or more alternative technologies are

available. Choice of technology is influenced by a

variety of considerations:

Plant Capacity

Principle inputs (quality and quantity available)

Investment outlays and production cost

Competitors technology

Product mix

Latest technological developments Ease of absorption


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Technology can be acquired from outside sources in

three different ways:

Licensing of technology

Purchase of technology

Joint venture agreement

Material Inputs and Utilities: Defining the materials

and utilities required, specifying their properties in

detail and their supply programme. Material inputs and

utilities can be classified in four categories:

Raw materials Processed industrial materials and components

Auxiliary materials and factory supply

Utilities (power, water, steam, fuel, etc)


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Product Mix: Choice of product mix is guided bymarket requirements. While planning the productionfacilities of the firm, some flexibility with respect to theproduct mix must be sought. Such flexibility enablesthe firm to alter its product mix in response tochanging market conditions and thus makes it morerobust to survive and grow under different situations

Location and Site: Choice of location is influenced by: Proximity to Raw materials and Markets

Availability of Infrastructure (Power, transport, water etc)

Labour Situation Governmental Policies

Other Factors

Site selection is influenced by site development costs


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Machinery and Equipments: depends on plant

capacity and production technology. For process

oriented industry and for Manufacturing industry

machines and equipments required have specific

requirements

Constraints in selecting machineries and equipments:

Power for electrical machinery

Transporting heavy machinery and maintenance of machines

Know-how to operate sophisticated machines

Import policy of government

Procurement of Plant and Machinery


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Structures and Civil work:

Site preparation and development

Buildings and Structures

Outdoor works

Environmental Aspects:

What are the types of effluents and emissions generated

Disposal of effluents and treatment of emissions

Environmental clearances and statutory requirements

Project Charts and Layouts:

General functional layout

Material flow diagram

Production line diagrams

Transport layout


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Utility Consumption Layout.

Communication layout

Organisational layout

Plant Layout

Schedule of Project Implementation: As part of

technical analysis, a project implementation scheduleis also prepared, which requires the following

information:

List of all possible activities from project planning to

commencement of production Sequence in which various activities need to be performed

Time required for various activities

Resources required for performing the various activities

Implications of putting more resources or less resources than

normally required


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Work Schedule: Plan of work concerning installation as well

as initial operation. Its main purpose are: To anticipate probable problems during the installation phase

and suggest possible means of coping with them

To establish the phasing of investments taking into account theavailability of the finances

To develop a plan of operations covering the initial periodNeed for considering alternatives: There may be alternative

ways of implementing a project, related to followingaspects:

Nature of Project

Production Process Product Quality

Scale of Operation and Time Phasing

Location


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Feasibility Analysis- Financial Analysis

Financial analysis is the examination of a projectproposal from the angles of capital cost, productioncost, working capital, profitability, financingarrangements and national economicconsiderations. In financial analysis a projects

feasibility is studied for profitability, cash & fundflows, sustainability etc. Financial analysis includesanalysis of:Cost of Project

Means of Financing

Estimates of sales and production

Cost of production

Working capital requirement and its financing


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Profitability projections

Projected cash flow statements

Projected balance sheets

Cost of Project: It consist of sum of the outlays on the

following: Land and site development

Buildings and Civil work

Plant and Machinery

Technical Know-how and engineering fees

Expenses on technicians and training Miscellaneous fixed assets

Preliminary and Capital issue expenses

Pre-Operative expenses

Margin money for working capital

Initial cash losses


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Estimates of Sales and Production: Generally its the

core of profitability projections. For estimates following

points should be kept in mind:

Conservative approach regarding capacity utilization

Selling price considered should be the price realisable by the

company net of excise duty Selling price used should be present selling price

Cost of Production:

Material cost

Utilities cost Labour cost

Factory overhead cost


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Working capital requirements and its financing

Required for: raw materials, stocks of goods-in-progress,stocks of finished goods, debtors, operating expenses,consumable stores

Principle sources of working capital are: working capital

advances by banks, trade credit, accruals and provisions, longterm source of financing

Margin money requirements are there against each currentasset financed by commercial banks

Margin requirements varies with the type of current asset

Current Assets Margin

Raw materials 10-25 percent

Work-in-progress 20-40 percent

Finished goods 30-50 percent

Debtors 30-50 percent


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Profitability projections: After estimates of sales

revenue and cost of production, profitability

projections are prepared on following lines:

A. Cost of production

B. Total administrative expenses

C. Total sales expenses

D. Royalty and know-how payable

E. Total cost of production (A+B+C+D)

F. Expected sales

G. Gross profit before interestH. Total financial expenses

I. Depreciation

J. Operating profit (G-H-I)

K. Other Income


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L. Preliminary expenses written off

M. Profit/loss before taxation (J+K-L)

N. Provision for taxation

O. Profit after tax (M-N)

Less Dividend on

Preference Capital Equity Capital

P. Retained profit

Q. Net Cash accrual (P+I+L)


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Projected Cash Flow Statement: Cash flow statement

shows the movement of cash into and out of the firm

and its net impact on the cash balance within the firm.

Projected Balance Sheet: The balance sheet, showing

the balance in various asset and liability accounts,

reflects the financial condition of the firm at a given

point of time.

The liabilities side of the balance sheet shows the sources of

finance employed by the business The assets side of the balance sheet shows how funds have

been used in the business


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2.1 project management

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