Technical Analysis

Presented By: Harsha C Pathak

Meaning
Examination of the technical and engineering characteristics of a project needs to be done repeatedly when a project is made. Technical analysis seek out to decide whether the fundamentals for the successful commissioning of the project has been considered and reasonably good options have been made with respect to location, size, process etc.

Learning Objectives
This Topic will help in the following aspects Discuss the considerations that have a bearing on the choice of technology Describe the various material inputs and the utilities required on the choice for a project Factors that have bearing on the capacity decisions List the important charts and layouts that define the scope of the project

Introduction
Analysis of technical and engineering aspects is done continually when a project is being examined and formulated. The purpose of

technical analysis:
To ensure that the project is technically fesible in the sense that all the inputs required to set up the project are available To facilitate the most optimal formulation of the project in terms of technology, size, location, and so on.

Manufacturing Process/Technology
For manufacturing a product/ service, often two or more alternative technologies aer available. For Example: Steel can be made either by the Bessemer process or the open hearth process. Cement can be made either by the dry process or the wet process.

Choice of Technology

The choice of technology is influenced by a variety of

considerations:
Plant capacity Principal Units Investment outlay and production cost Use by the other users Product mix Latest developments
Ease of absorption

Plant Capacity: There is a close relationship between the plant

capacity and the production technology. To meet the given capacity requirements, perhaps only a certain production technology may b e viable. Principal Inputs: The choice of technology depends on the

principle inputs for the project.

Investment outlay and the Production Cost: The effect of

alternative technologies on investment outlay and production

cost over a period of time should be carefully assessed.

 Use by other units: The technology adopted should be

proven by successful use by other units, preferably in India.

Product mix: The technology chosen must be judged in

terms of the total production mix generated by it, including

saleable by the product. Latest developments: The Technology adopted must be based on latest development in order to ensure inter alia that the likelihood of technological obsolescence in the near future

is minimized.

 Ease of Absorption: The ease with which the technology

is absorbed can influence the choice of technology.

Technical Arrangements Satisfactory arrangements must be made to obtain the technical know

how needed for the proposed manufacturing process.

When

collaboration is sought, inter alia, the following aspects of agreement must be worked out in detail. The nature of support to be provided by the collaborations during the designing of the project, selection and procurement of equipment, installation and erection of the plant, operation and maintenance of the plant, and training of the project personnel.

 Process and performance guarantees in terms of plant capacity, product quality, and consumption of raw materials and utilities.

Material Inputs
An important aspect of technical analysis is concerned with defining the materials and utilities required, specifying their properties in some detail, and setting up their supply programe. Material inputs and utilities may be classified into 4 broad categories:

Raw materials
Processed Industrial Materials and Components

Auxiliary materials and factory supplies

Utilities

1. Raw materials can be classified into four types: Agricultural Products Mineral Products Livestock and Forest Products Marine Products

 Agricultural Products:
In studying agricultural products, quality must be first determined. An assessment of the quality available, currently and potentially, is required.

Mineral Products:

In assessing the mineral raw

materials, information is required on the quantum of exploitable deposits and the properties of raw materials.

The study should provide the details of the location, size and
depth of deposits and the viability of open cast or underground mining. The composition of the ore, level of impurities, need for beneficiation, physical and chemical and other properties also must be studied.

Livestock and Forest Products

Secondary sources of data on livestock and forest products often

do not provide a dependable basis for estimation. Hence a

specific survey may be required to obtain more reliable data.

 Marine Products
Assessing the potential availability of marine products and

the cost of collection is very difficult. Preliminary marine

operations, essential for this purpose have to be provided for

in feasibility study.

2. Processed industrial materials and components

It represents various inputs for various industries.

3.

Auxiliary materials and factory supplies

Chemical, additives, packaging materials, paint, varnishes, oils, grease, cleaning materials etc. The requirements of such materials should be considered in the feasibility study.

4. Utilities
Power, water, steam, fuel etc come under utilities. Since the successful operations of a project depends on the availability of the utilities. The shortages or the bottlenecks should be assessed.

Product Mix
The choice of product mix is assessed by the market requirements. Variations in the size and quality is aimed at satisfying the need of the customers.

Plant Capacity
It refers to the number or volume of units that can be manufactured during a given period. It can be defined in 2 ways.
Feasible Normal Capacity (FNC) Nominal maximum Capacity NMC)

The FNC refers to the capacity attainable under the normal working
conditions. This can be established on the basis of the installed

capacity, technical conditions of the plant, holidays, tool changes

and shift patterns.

 The NMC is the capacity which is technically attainable and this often

corresponds to the installed capacity guaranteed by the supplier of the

plant. Our focus will be on the Feasible Normal Capacity. Technical Requirements Input Constraints Investment Cost Market Conditions Resources of the firm Governmental Policy

1. Technical Requirements: For many industrial projects,

particularly in process type industries, there is a certain minimum economic size determined by the technological factor. Eg: a cement plant should have a capacity of at least of 300 tones per day in order to use the rotary klin method; otherwise, it has to employ the vertical shaft method which is suitable lower capacity.

2. Input Constraints:
In a developing country like India, there may be constraints

on the availability of certain inputs. Power supply may be

limited; basic raw materials may be somewhat scarce;

foreign available for imports may be inadequate. Constraints

of these kinds should borne in mind while choosing the plant

capacity.

3. Investment Cost When serious input constraint to not obtain, the relationship between capacity and investment cost is an important consideration. Typically,

the investment cost per unit of capacity decrease as the plant capacity
increase. This relation may be expressed as follows. C2=C1[Q2/Q1] Where C2 is the derived cost for Q2 units for Capacity, C1 is the known cost the Q1 units of capacity, and is a factor reflecting capacity cost relationship. This is usually between 0.2 and 0.9.

4. Market Conditions: The anticipated market for product/service has an important bearing on plant capacity. If the product is likely to be very strong, a plant of higher capacity is preferable. If the market is likely to be uncertain, it might be advantageous to start with a smaller capacity. If the market, starting from a small base is expected to grow rapidly, the initial capacity may be

higher than the initial level of demand further additions to

the capacity may be effected with the growth of market.

5. Resources of the firm:

The resources, both managerial and financial, available to a firm

define a limit on its capacity decisions. Obviously, a firm cannot

choose a scale of operations beyond its financial resources and or

managerial capability.

6. Government Policy: The capacity level may be influenced by the policy the government. Traditionally, the policy of the government was to disturb was to distribute the additional capacity to be created in a certain industry among several firms, regardless of economies of

scale. This policy has been substantially modified in recent

years and the concept of minimum economic capacity has been

adopted.

Location and Site

The choice of location and site follows an assessment of demand, size and input requirements. Location means city, an industrial zone, coastal area etc. Site refers to a specific piece of land where the project

would be set up.

The choice of location is influenced by many factors:

1. Proximity to raw materials and Markets

2. Availability of infrastructure

3. Labor Situation
4. Governmental Policy

5. Other factors
Climatic Conditions

General Living Conditions

Proximity to ancillary units

Ease in coping with problems

Machineries and Equipment

The requirement of machineries and equipment is dependent on the production technology and plant capacity. It is also influenced by the type of project. To determine the kinds of machinery and equipment required for a manufacturing industry, the following procedure may be followed:

 Estimate the likely levels of production over time

Define the various machining and other operations

Calculate the machine hours required for each type of

operation

Select machineries and equipment required for each

function

 The equipment required for the project may be classified into the following types:
Plant Equipment

Mechanical Equipment
Electrical Equipment Instruments Controls Internal transportation system

others

Constraints in selecting machineries and Equipment Minimum availability of power Difficulty in transporting heavy equipment to a remote location Difficulty in the initial operation of sophisticated equipment Government policies

Structure and Civil Works

It can be divided into 3 categories: 1. Site Preparation 2. Buildings and structure 3. Outdoor works

Environmental aspects
The project should make sure that it does not harm the environment in any way. The effluents must be checked.

Project charts and layouts

Once all the previously described dimensions of projects are made available, project charts and layout may be prepared. This defines the scope of the project and provide the basis for detailed project engineering and estimation of investment for the project.

The important charts and layouts are as follows: General Functional Layout: Shows the relation between the equipment, buildings and civil works. The primary consideration is to facilitate smooth and economic movement of raw materials, work in progress and finished goods. Material Flow Diagram: Shows the flow of materials, utilities, intermediate products, final products, and emissions. Along with material flow diagram, quantity flow diagram can also be prepared.

 Production Line Diagram: This shows how the production

would progress along with the main equipment. Transport layout: shows the distances and means of

transport outside the production line. Utility consumption layout: shows the consumption point of utilities i.e power, water, gas, compressed air, etc. and their requires utilities and qualities

 Communication Layout: This shows how the various parts of the project will be connected with the telephone, internet, intercom, etc. Organizational layout: shows the organizational set up of the project with the information on the personnel required for various departments and their inter-

relationships.

 Plant Layout: Concerned with the physical layout of the factory. It has to consider certain points: Consistency with the production Smooth flow of goods from one stage to another Proper utilization of space Scope fro expansion Minimization of production cost Safety of personnel

Schedule of project implementation

As a part of technical analysis, a project implementation schedule is also important. For that, the following information is needed. List of all possible activities from the project planning to the commencement of production The sequence in which various activities have to be performed.

 The time required for performing the activities

Requirement of resources

Implications of putting more

normally required

or less resources than

Need for Considering Alternatives

Nature of the project Production Process Product quality Scale of operation

Location

Key project linkages

While evaluating various alternatives, the inter-linkages among factors of the product or service like demand, plant capacity, production etc. should be born in mind.

Key Project Inter-linkages

Product/Service

Demand Size Technology Location

Selling Price

Production Cost

Financial Requirements Investment outlay Profitability

Thank You