PROJECT MANAGEMENT

AND APPRAISAL
PGDM III Sem
Chandra Mohan Sumra
UNIT 2: Project Feasibility Study
Project Plan: Planning is an ongoing process
that 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
Project Planning
Factors that influence project plan are Internal
and External:
Internal Factors:
Labor relations
Project scope
Infrastructure
Location
Leadership
Organizational goal;
Management approach
Technical and manpower supply
Resources and capital availability

Project Planning
External factors:
Public needs
Market needs
National goals
Industry stability
State of technology
Industrial competitors
Government regulations
Project Plan
General components of a Project Plan:
Project Master Plan: It is an instrument to guide the
process 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 the
objectives should be specified
Approach:
Managerial and Technical methodologies of implementing the
project should be specified. (Hierarchy, Responsibility,
Experience on similar projects, development models, etc)
Project Plan
Policies and Procedures:
Policy: General guidelines for carrying out tasks within the
project
Procedure: Detailed method of implementing a given policy
Contractual requirements: This portion of project plan
outlines the requirements related to reporting,
communication, customer specification, performance
specifications, deadlines, review process, project
deliverables, delivery schedules, internal and external
contacts, data security, policies and procedures etc.
Any scenario that has slightest potential to cause
ambiguity at the later stage of the project should be
documented under this section


Project Plan
Project Schedule: Broadly speaking it specifies the
time of project initiation and completion.
Major phases of project should be identified and calibrated
against schedule
Appropriate time estimates (based on experts knowledge,
past records, forecasting etc) of project tasks should be
included
Resource requirements:
Project resources, capital and costs are documented in this
section
Capital and resource requirement are specified by tasks and
activities.
Budget size and source should be presented
Basis of resource and budget estimation should be justified
Project Plan
Performance measures: To evaluate the progress of
the project
It should mention method of monitoring, collecting, and
analyzing the facts to measure the performance
Corrective actions for specific undesirable events should be
mentioned
Contingency 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
Feasibility Analysis
Feasibility study or analysis is a preliminary study
undertaken 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 areas
of 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). A
multi-dimensional feasibility analysis is carried out to
prepare the TEFR on the following grounds:
Feasibility Analysis- Market Analysis
1. Market Analysis: First step is to estimate potential
size of the market and the market share that is
likely to be captured by the proposed product or
service. Market analysis is carried out by in-depth
study 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
Feasibility Analysis- Market Analysis
Data required for Market Analysis may be
gathered 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 been
gathered 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
Feasibility Analysis- Market Analysis
Primary information is gathered through market
surveys, specific to the project being analysed
Census 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 purchase
Satisfaction level with existing products/services
Unsatisfied demand
Feasibility Analysis- Market Analysis
Market Survey is performed in several steps as
mentioned:
1. Identify the target population
2. Selection of sample size and sampling method
3. Preparation of questionnaire
4. Recruitment and training of field investigators
5. Collecting of information through questionnaire
6. Scrutiny of information
7. Analysis and interpretation of information
Feasibility Analysis- Market Analysis
Demand Forecasting:
Trend projection method
Delphi method
Consumption level method
End use method
Leading indicator method
Econometric method
Feasibility Analysis- Technical Analysis
Technical Analysis of a project is undertaken to
evaluate Technical and Engineering aspects of
the project. It also provides input for other types
of analysis and thus is a continuous process. It
primarily 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 capacity
and investment cost is an important consideration
Market Condition: Decision on the basis of anticipated market
of the product/service
Minimum economic capacity is taken into consideration
Feasibility Analysis- Technical Analysis
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
Feasibility Analysis- Technical Analysis
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)
Feasibility Analysis- Technical Analysis
Product Mix: Choice of product mix is guided by
market requirements. While planning the production
facilities of the firm, some flexibility with respect to the
product mix must be sought. Such flexibility enables
the firm to alter its product mix in response to
changing market conditions and thus makes it more
robust 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
Feasibility Analysis- Technical Analysis
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
Feasibility Analysis- Technical Analysis
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
Feasibility Analysis- Technical Analysis
Utility Consumption Layout.
Communication layout
Organisational layout
Plant Layout
Schedule of Project Implementation: As part of
technical analysis, a project implementation schedule
is 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
Feasibility Analysis- Technical Analysis
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 the
availability of the finances
To develop a plan of operations covering the initial period
Need for considering alternatives: There may be alternative
ways of implementing a project, related to following
aspects:
Nature of Project
Production Process
Product Quality
Scale of Operation and Time Phasing
Location
Feasibility Analysis- Financial Analysis
Financial analysis is the examination of a project
proposal from the angles of capital cost, production
cost, working capital, profitability, financing
arrangements and national economic
considerations. In financial analysis a projects
feasibility is studied for profitability, cash & fund
flows, sustainability etc. Financial analysis includes
analysis of:
Cost of Project
Means of Financing
Estimates of sales and production
Cost of production
Working capital requirement and its financing
Feasibility Analysis- Financial Analysis
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
Feasibility Analysis- Financial Analysis
Means of Finance
Share capital
Term loans
Debenture capital
Deferred credit
Incentive sources
Miscellaneous sources
Planning the means of finance:
Norms of regulatory body
Key business considerations
Cost
Risk
Control
Flexibility
Feasibility Analysis- Financial Analysis
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
Feasibility Analysis- Financial Analysis
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, long
term source of financing
Margin money requirements are there against each current
asset 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
Feasibility Analysis- Financial Analysis
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 interest
H. Total financial expenses
I. Depreciation
J. Operating profit (G-H-I)
K. Other Income
Feasibility Analysis- Financial Analysis
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)
Feasibility Analysis- Financial Analysis
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