Project Fe ‘ormulation and Feasibility Analysis In a broad sense, project management takes place at three different levels — at onal level, at sectoral level and at the project level. At the national level, national ‘ans are formulated, priorities among sectors are fixed and the macro e laid down. At the sectoral wvestment pl sconomic framework of policies for economic growth ar ermined and the issues and re considered. Finally, at Jevel, priorities for investment within each sector are det problems affecting development of a particular sector ai the project level, individual projects are identified, prepared and implemented, and attention is given to their economic, technical, fin: dimensions. Project management work is in fact a continuous pr avith project identification. 1. Project Identification Project identification represents a high-pri achieve im portant developmental obje: ‘identification stage either or by default, have a far-reaching Imp: putcome of the project. [tis particularly important at the outset @ range of alternatives as feasible b i ‘ ancial, social, institutionaland other ocess which starts ict jer as wide : cause opportunity lost at th stage can sel be recaptured. Explicit attention should be paid for project identification and to ensure *hat all the parties concerned, including, external lending agencies, agree on it and on the strategy for achieving objective of the proj ect, The intended beneficiaries of the Project must be consulted when their participation in designing and implementation ° f the project is important to its ultimate success. Failure to reach an understanding ‘and to secure a firm commitment for the project from all those concerned has oftet generated friction later and resulted in poor project implementation. A project catA aii Lfilled the followin, be considered to have passed the identification stage when it has fu rn criteria: \2 All major options and alternatives hat ae justified, given rough estimat > The project options selected are likely to be justified, given rougl es of expected costs and benefits. ; ees 2 >the principal policy issues affecting project outcome have been duly identitieg and appear to be amenable to solution, ante ce | >t aii that the projeet will have full support both from the managerial authorities and from the intended beneficiaries, ee YW Prospects of the project identified are reasonable and adequate funding will be : as well as from external sources. — ject formulation has been established, ye been identified and some initial choices > -A specific plan for proj as Project Formulation The next step is project formulation or project preparation. It is well known that: in the comple: of business world, it is almost impossible. for an organisation to start investing ina business before a plan is drawn for the proposed investment, Tlie project formulation is a systematic expression of such plan with detailed estimate within certain parameters and needs lot of functional support from specialists in their relevant fields. In order to be more realistic and reliable, such estimates are generally based on actual experiences and environments alongwith trends forecasted for the coming years. Project formulation involves undertaking a feasibility study with the purpose to establish feasibility or justification of the project, both asa whole and in its principal dimensions ~ technical, economic, financial and social — with the following main considerations: 8 (a) Technical Dimension % The technology involved in the is not an obsolete technology, % The technical collaborator is capable to impart si % The other terms and conditions for technical acceptable as per norms, (b} Economical Dimension % = The investment in the project i and particularly with the r The cost of the Project i derived from it, (6) Financial Dimen: on project is appropriate to meet the objectives andit | uch technology, 2 know-how. are reasonable and j : the overall economic situation | elevant industry to which the project belongs, Justified in comparison to the economic benefits to be | fied considering, ° * The necessary financi: rees for i oe ea nah sprees for implementation and Operation of the project il be avi ¢ ne, Because, experience indicates i ot being partially carried out, partis oun eae delayed in it implementation , ds 1 N resulting in cost e % The estimated revenue | cane (9 be generated on fall iny ft Hicit rol 4 Plementation of the projec sufficient to jt IY the project capital cost and ils profitabilio OF the project i (d) Social Dimension ly. % The ultimate objective of the Project is to serve the society, common people, |project Formulation and Feasibility Analysis 33 Ses generation ete. (with the objective of profitability for private sector & The project is acceptable according to the social cost-benefit analysis criteria. Each of the above dimensions nuust be analysed both separately aud in relation yoall the others. This analy: s done in a series of approximations that test different jechnical approaches for theireconomic benefit and financial viability. The purpose ‘of this analysis is not to determine whether a particular project is good ‘enough to proceed with, but to arrive at the best one possible under the circumstances. Formulation of project report on the basis of detailed feasibility study isa costly and time-consuming task, although such a study enables a definite decision tobe made oon the project. Therefore, before assigning funds for detailed feasibility study, a preliminary assessment of the project is made through a. pre-feasibility study. 3, Pre-feasibility Study Pre-feasibility analysis seeks to determine whether the project is prima facie worthwhile to justify a feasibility study/techno-economic feasibility study and what aspects of the project are critical to its viability. When a project opportunity study is tndertaken in respect of an investment opportunity, the pre-feasibility analysis can be dispensed. Similarly, when a sector or resource opportunity study contains sufficient ° project data to cither proceed to the feasibility stage or to determine its discontinuance, pre-feasibility analysis can also-be by-passed. However, this analysis is conducted _ when economies of the project are doubtful unless a certain aspect of the analysis has . been investigated in depth to determine viability of the project, either ‘by adetailed market study or by some other functional study. While ‘conducting pre-feasibility analysis, short- cuts may be used to determine minor components of investment outlay and production cost but not to determine major cost components. These components must be estimated {for the project as a part of pre-feasibility analysis. Themiain objectives of pre-feasibility study are to determine the following: _-S Whether the investment opportunity is so. promising that an investment decision can be taken on the basis ‘of information elaborated at pre-feasibility stage. 3 Whether the project concept justify a detailed analysis by h techno-economic feasibility study. > Whether the information is adequate ‘enough to decide that the project is not either viable proposition or attractive enough for a particular investor or investor group. > Whether any aspect of the project is critical to its feasibility and require in-depth \ nvestigation through functional or support studies such as market surveys, laboratory tests, pilot plant tests etc. Any proposal for a project generally passes through the three stages of scrutiny and clearance — pre-feasibility, project feasibility and detailed project report. The structure/outline of the information and estimates in which they are prepared and submitted is the same for all the three stages of scrutiny. The difference is only in the refinement or level of accuracy to be achieved in the data, information and figures as the project formulation or project design advances. Refinements at 4 later stage can be supported by more detailed estimates, graphs, worksheets, quotations and the likeProject Management c, Supporting, documents, ro-feasibility report feasibility stage to | 34 because a more clear report will clici explanatory notes, sketches. diagrams etc. may be piven with the pi to facilitate appraisal, Accordingly. it ig necessary even at the pre- ensure that the project is viable from the following angles: © Market demnd for end-products of the project it a faster clearanc © Plant cap © Materials and other inputs. Plant location nnd site. © Project investment costs. 1g, works. © Project engineering ~ technologies, equipments and engineerin * Manpower ~ Jobour and staf. + Plant organisation and overheads ~ factory, administration and sales. + Plant implementation schedule. «Financial and economic evaluation including commercial profitability. i lysis a report is prepared, known as | pre-feasibility report (PER) which elicits the preliminary sanction or first stage clearance by the Board of Directors and/or the Government. The kind of information | ates to be included in the PFR are shown in Annexure 1. Generally, it is | and estima not expected from a PFR to contain precise details and accurate figures but an | empl should be made to give the best available information. When an aspect, | anos fevourable or adverse, calls for special attention in making a decision, thet ( spect should be highlighted in sufficient details e.g. the cost of foreign technology! | process to be acquired, its age and obsolescence, and its Indianisation plan. | 4. Project Feasibility Analysis i sis is viewed as an intermediate stage between a pre: * Statutory clearances. On the basis of pre-feasibility ana “A project feasibility analy: feasibility study and a detailed project analysis, the difference being primarily the | detail of information obtained, Covering almost the same grounds as the pre- | fessibility analysis, a project feasibility analysis is undertaken in a more detailed manner thoroughly and completely. This analysis results ina reasonably adequate formulation of the project in terms of location, production technology, production, Zapacity, material inputs etc. and contains fairly specific estimates | of project cost, meats of financing, sales revenues, production costs, financial profitability and | social benefits, The repon prepared after project feasibility analysis specially covers technical and economic aspects of the project, and therefore, also known as techno } economic feasibility report (TEFR). TEER is a substantial improvement on PFR | The information and figures given in PFR undergo a lot of refinement to find theif. places in TEFR. Once the TEFR is cleared, the project proposer ean expend money 4 on detailed project analysis and on the preparation of detailed project report ‘ (DPR). ‘Annexures 2 to 2 (x) shows the contents of techno-economic feasibility. | fferent aspects of a project. study on diproject Formulation and Feasibility Analysi Various dimensions of proj ui | gages of feasibility Manne tly are anaysed throughout different to others, Thus, a molti-dimensional Raat i one separately and in relation ied out to prepare the TEER on the following wronds : A ga Market Analysis: 8 BONER The first step in project feasibility analysis i i iz snarket and the market share that is fi ysis Is to esti ne ot ie se cirtata ht sebiealmeal settee he eee the sans a projeet depends crteally on vel or no the estimated sales satis and for the products or services. To ascertain the above, an intelligent me Prd as ofa variety of information is required. These data mainly. felines ©” Pattern of consumption growth, © Supply position, : + Composition of the market, + Nature of competition in the market, * Income and price elasticity of demand, = Consumer behaviour, * Availability of substitutes, © Distributiori channels, = Marketing policies, © Administrative, technical and legal constraints etc. é Various types of information and data required for market analysis may be gathered from two sources ; primary source and secondary source.(Primary. information represents information specific purpose on hand. n ‘On the other hand, secondary information repre has been gathered in some other context and is already available. This information provides the base and the starting point for iiiarketanddemand analysis. This indicates what is already known and offers.clues and leads for further investigation. -.. + 4.1.1. Sources of Secondary Information: The important sources © f secondary rmation useful for market analysis are as follows = icing > Census of India ~ published by the Government of India after every ten years 2 containing information on population, demographic characteristics, household size and composition, and maps. > National Sample Survey Reports | to time containing data on various economic and social aspects. _> Panning Commission Report issued usually atthe beginning middle and end aac year plans contininga wealth information and data on plan proposals, physical and financial targets, actual outlays, accomplishments etc. ye aoetical Abstract ~ published annually by the Cena Statistical Organisation ats information on demographic characteristics, ational income estimates, agricultural and industrial statistics. data that is collected! for the first time.to.mee the, issued by the Government of India from timejeot Manage! 3.6 Project Managemen, jon on economic and other aspect, relating to vatious aspects like ok-- contains wide range of informat industrial production, worlg |= ntains world statistics domestic production, India Year Bor UN Statistical Year Book —con population, demogr raphy, gross rade ete, ten > Annual Economic Survey ~ published by s ee Si information on wholesale prices, industrial producto i ional i sumer prices etc. 3 production, national income, consume! = a‘ > Annual Survey of Industries — published by the Central Statistical Organisation ides i i ‘ps aspects of different industries. : and provides information on various aspet plied aay fic i dust > Reports of the Ministry of Commerce & Industry — cou : Development Wing of the Ministry giving detailed review of ee brat: I also provides list of protected industries and new items manu! st time in India, > Annual Bulletin of Statistics of Expo! P of Commerce providing information and data on imports and exports. > Techno-ceonomic Surveys — conducted and published for various States by the | > > vv he Ministry of Finance providing | exports, agricultural | rts and Imports— published by the Ministry National Council for Applied Economic Research (NCAER)- Industrial Potential Surveys —' conducted by All India Financial Institutions under the leadership of IDBI providing data on several backward areas. .d by the Mumbai Stock Exchange and Stock Exchange Directory — publishes : i formance of various companies classified provides a ten-year picture on financial per! industry-wise. é > RBI Bulletin—this monthly publication provides information on production indices, prices, balance of payment position, exchange rates etc. > Monthly Studies of CSO — this publication of the Central Statistical Organisation provides all-India data on production, number of units installed, their capacities, State-wise break-up etc. for several selected industries. > Publications of Advertising Agencies — containing data on test markets, consumer index of markets, and other studies which are valuable for understanding Indian markets. 3 i > Other Publications ~ which includes studies of the State Trading Corporation of India, studies-and reports of Export Promotion Councils and Commodity Boards, studies and réports of the Indian Institute of Foreign Trade (IIFT), annual report on currency and finance of the RBI etc. Apart from the above, there are lustry specific data on automobiles, ceffen, fertilizers, industrial machinery, textiles, rubber, chemicals, electrical and | eletronis itn andstee et, published by the respective trade associations which ea so 8 valuable. source of secondary. information for market/demand analysis: though the information from secondary sources is economically svaiable ar spe te bility and relevance of such it st be studied carefully. While maki vane’ 7 Such | E Batis fotlowin points making such study, focus of market analyst should be mainly | <2 source of information and data, objective with which data was collected, age of data and its present relevance, degree of unambiguity in the data,| -- project Formulation and Feasibility Analysis 37 ‘arget population for data collection, method of sample selection, 4. techniques used in data collection, oe» degree of sampling bias and non-response bias in data collection, + degree of misrepresentation in data, #7 methods used for information editing, tabulation and analysis and its accuracys xe proper application of statistical analysis methods. e 4.1.2 Market Survey: Secondary data which is readily and economically available is very useful for market and demand analysis but often does not provide comprehensive basis for such analysis and needs to be supplemented with primary gata, Primary information is gathered through a mai ific to the project being apr ‘There are two types of market surveys — census survey and census survey, all. members of the population are co method. This survey is generally done for intermediate goods and investment goods because of small size of the population. _Inasample survey, a sample of total population is selected and information is collected for that sample only, Data collected from the sample is analysed and used for drawing conclusions about the total population. In practice, market survey is ically a sample survey. Data collected in market survey may relate to one or more of the following information : S : total market demand and rate of growth of demand, “¢ demand in different segments of the market, “income and price elasticities of demand, motives for purchase, “2, purchasing plans and intentions, £¢° satisfaction levels with existing products/services, _& unsatisfied demand, (Ae attitudes towards various products/services, > distributive trade practices and preferences, socio-economic characteristics of buyers etc. When a market survey is undertaken to collect data and information on the above mentioned points, several steps are performed, which may be listed as follows: (a) Identify the target, population: Important terms in identifying the target population are carefully and unambiguously defined, The target population may be divided into various segments which may have different characteristics e.g., all two wheeler owners may be divided into three to four income brackets. (b) Selection of sample size and sampling method: ‘A proper sample size is selected as the reliability of estimates is a function of sample size — the larger the sample size, the.greater is the iability of estimates. There are various sampling methods; randont_. ied sampling, cluster sampling, sequential sampling, systematic sampling and non-probability sampling. Each method has its own merits and demerits. (c) Prepa tion of q Questionnaire is the main instrument for | the quality of i has an iiiportant ple survey-In a very expensive collecting information from the sample. Si38 : Project Managemen bearing on the results of market survey, the questionnaire is tried out in a pilot. survey and modified in the light of experiences gained in pilot survey. i alidating the | cer ui ‘aining of field investigators: After validating the ) Recruitment and training pT stifvey questionnaire, investigators are recrul h NF Se siney ‘Great care must be taken for recruiting the right kind of investigators ang iniparting proper training to them, 7 F \ Me) Cottection of infor nation through questionnaire: Respond sO Ay be {ntetviewed personally, telephonically or by-mail for obtarning ee Response rate tends to be high with personal interviews or ae th eee : time consuming and likely to result in biased responses. Mai! su a ae Ost effective but generally have poor response rate. Telephone inte i veel : limited application duc to high tariff rates and low rate of telephone c ions, nail responses are not yet widely use ‘din India but can be used for market surveys for products based on sophisticated technologies and where target population oj sample size is very small belonging to elite class. : i 4 © Scrutiny of information: At this step, information and data collected is i te data which.is internally inconsistent and which ity. 3 cnalysis and interpretation of information: At the-final.stage, validated data: oe ivaal and.interpreted with due care and imagination. There are various statistical methods for data analysis which are broadly divided into two categories: parametric methods and non-parametric methods. Parametric methods assume | that the variable under study confirm to known distribution. Non-parametri methods do not pre-suppose any particular distribution. Results of data analysis | based on sample survey are interpreted and extrapolated for the target population. For this purpose, suitable adjustments are made with appropriate inflationary factors. | It is important here that the results of market survey can be seriously vitiated due to one or more of the following factors: non-representativeness of the sample, * _ improper phrasing of questions in the questionnaire, * failure of respondents to understand questions, * deliberate distortions in the answers given by respondents, * improper handling of interviews by the investigators, * cheating of the part of investigators, * * slip-shod scrutiny of data, * — wrong application of statistical methods, 4 * incorrect and inappropriate analysis and interpretation, __fel.3 Demand Foreea On the basis of analysis and interpretation of | information gathered about various aspects of market and demand from primary | and secondary sources, an attempt is made to forecast the future demand of the | proposed product or service. There are various methods of demand forecasting | available to the market analyst. A btief introduction is given in the following | paragraphs of some of the important methods of demand forecasting. Students call [2 refer to any standard book on statist(cs for understanding these methods in detail. | (i) Trend projection method: This method is used for making future demandproject Formulation and Feasibility Analysis : 39 -projections by extrapolating the trend based on consumption pattern in the past. Under this method, demand estimates are urve fitting method. high- jow method or Teast square method: by using t iionships. The basic assumption in trend projection method is that same factors which influenced the consumption pattern in past years will continue to influence the pattern in future period also. This is a popular method of demand forecasting and market analysts may go beyond the mechanical projections by understanding the factors that influence fature demand. Delphi method: This is a non-quantitative method and is used for eliciting opinions.of a-group-of-experts with.the help of a mail survey. In this method, a _ questionnaire is mailed-to a group of experts anid aré asked to express their views. The responses received are summarised without disclosing identity of experts and _ sent back them along with the questionnaire meant to probe further the reasons for extreme views”expressed in the first round. This process is continued for one or _ more rounds till a reasonable agreement emerges in the views of experts on demand forecasting. , (ii). Consumption level method: This method is used in_case.of.a traduict which i is directly consumed. In this method, demand forecasting is‘made on the basis of elasticity coefficients ~ the important ones being the income elasticity of demand and the price elasticity of demand. While the.income elasticity of demand refers to changes in demand to changes in income, the price elasticity of demand measures the responsiveness of demand .to variations in price. (iy) End use method: This method is also called the consumption coefficient method and is suitable for demand forecasting for intermediate products. This method involves the following steps: > Identifying possible users of the product. > Determining consumption coefficient for various users. > Projecting output levels for the: consuming industries. > Deriving demand for the product. As the estimation of projected output levels of consuming industries is difficult and also the consumption coefficients vary from one period to another due to new manufacturing processes and technological changes, the end se method should be used judiciously. (v) Leading indicator; method: In this netliod, changes noticed in leading indicators are used to pred ¢ changes in lagging indicators. Variables which change faster than others are known as leading, indicators and the variables which change “Slowly are called lagging indicators. For example, a leading indicator like level of urbanisation can be used to predict the change in demand for four wheelers, a lagging variable, The main advantage of this method is that it does not require a forecast of an explanatory variable. But, to find out an. appropriate ‘leading indicator and a stable lead-lag relationship is a difficult task which makes this method of a limited use, (vi) Econometric method: This method is a mathematical representation of3.10 Project Managemen. economic relation econometric analysis is to forecast ships based on economic theory. The primary objective of} future behaviour of economic Variables} incorporated in the model. There are two types of econometric one ae single equation model and the simultaneous equation model. The single baler Mode] | has a dependent variable which is influenced by one or morc independen arable On the other hand, simultancous equation model shows economic relations ip in two ‘or more equations with variables which are inter-dependent in these sae There are four broad steps in the construction and tse of an econometric mo el: } Specify the economic relationship in the form oF a mathematical equation, > Estimate the parameter values and other statistics using least square method, > Verify the specification as a reasonable approximation to truth, based on the results ofestimation and the application of relevant statistical tests, and > Project the value of the dependent variable. Demand forecasts for the project under consi uncertainty which may arise from past and present market information, forecastin, methods and environmental changes. However, one can cope with the errors an uncertainties in demand forecasting if the efforts are made along the following lines; + Conducting analysis with data based on uniform and standard definitions. By ignoring abnormal or extreme observations in identifying trends, coefficients and relationships. ‘i | 4 Byevaluating the assumptions critically and choosing a method appropriate to the | situation. 3 Suitably adjusting the projections derived from quantitative analysis in the light of a due consideration on unquantifiable but significant influences. a Monitoring the environment imaginatively to identify important changes. Considering likely alternative scenarios and their impact on market and competition. | Performing sensitivity analysis to assess the effect on the size of demand due ean and favourable variations of the determining factors-from their most | ideration are prone to errors and ‘ . Technical analysis represents study of the project to evaluate technical and sbesring mens afi 4 project is being examined and_formulated| It is inuot cess in the project appraisal i requisites for meaningful eommissioning tthe projest Other ioe dependent and closely iner-tovined with technical analysis: Techieg covers the following aspects of a project: eeicee Li) Plant capacity ii) Production technology Machinery and equipments Plant location and site selection Material inputs and utilities Product mix Plant structures and civil works Project charts and layouts pes of analyses are | al analysis primarilyyject Formulation and Feasibitity Analysis 3 Work schedule : ae aspects of technical analysis of a projeot are explained in the following | dat Plant Capacity: Plant eapacity or production eapacity is defined with Be volume of set of units that can he manufactured during a given period. Pont capacity decision of a concen WS fluenced by a tiimber of factors e.g, chnoloay..emplayed, input constraints, market conditions, investment cost, silnbility of resources, government For many industrial-projects particularly in process industries, a'minimumcconomic size jis required as.per technology employed. Plant capacity is also constrained by certain inputs such as bility of critical raw materials, electric power, skilled labour force, insufficient y of foreign exchange for importing key components and materials. All These constraints are considered while deciding the plant capacity. In the situations when there are no serious input constraints, the relationship ‘petwecn capacity‘and investment cost is an important consideration. Typically, the “javestment cost per unit enpacity decreases as the plant eapacity inereases. Plant capacity may be defined in two'ways. One is feasible normal capacity F and the other is nominal maximum capacity. The feasible normal capacity is the capacity that can be attained under. normal working conditions. The maximum capacity is the capacity that is stechnically_atiainableyand. corresponds to installed capacity guaranteed by the supplier of the plant. | The another determinant of plant capacity is the anticipated market for the product/service. If the market is very strong, higher plant capacity is preferable. But, if the market is uncertain, it is better to start with smaller plant capacity. Ifthe market is anticipated to grow rapidly, the initial capacity can be increased with further additions to capacity with the growth of market. Availability of financial » and managerial resources. is another determining factor of plant capacity as no business can think of having high plant-capacity beyond what its resources can permit. Government restrictions on initial and subsequent additions to plant capacity is another important factor in selecting the plant capacity, although in the recent "years many of the restrictions have been substantially withdrawn and the concept mic capacity’ is adopted in several industries. ction Technology: The selection of an appropriate production technology is an important management decision. ‘There are various consi ions in the selection of production technology. These include : plant capacity, major inputs, investment outlay. and production cost, technology used by competitors, product mix, technological developments and ease of absorption. Technology can be acquired from outside sources in three different ways-(a) ligensing of technology, (b) purchase of technology, or (c) joint venture agreement, a chnology licensing is a popular method of acquiring technology which gives icensee the right to use patented technology and get related knew-how ona mutually agreed basis. Suppliers of technology often include certain things in the technology package like technology proper, engineering services, supply of intermediate products, supply of equipments, use of trade name etc., which may not3.12 Project Management | be essential for the licensee. Efforts should be made to acquire only the essential Components of the technology package offered by the licensor. Technology licensing agreement should be carefully scrutinised with respect to: (a) definition of technology to be acquired, (b) cost of licensing the technology, (¢) guarantees offered by the licensor, (d) period of license agreement, and (e) purchase of intermediate products, components and other inputs. Purchase of technology is useful when there is very | little possibility of significant improvement in technology in the foreseeable future | and when there is no need for any technological support from the seller of techivology, In a joint venture agreement for production technology, the supplier may _ participate in the project both technically as well as financially. Financial. participation in the form_of equity.holding. may strengthen the motivation of technology supplier to pass on improvements promptly. | The production. technology selected must be suitable to the methods of: production which are familiar with the local economic, social and cultural conditions. | A technology is considered as an appropriate technology when it uses local Faw materials, local manpower, cater basic needs of customers, protects ecological balance and is also harmonious with local social and cultural conditions. i 4.2.3 Machinery and Equipments: The requirement of machinery and equipménts for a project is dependenton the plant city, production technology and the type of project. In a process industry, machinery and equipments have to be | properly balanced for various stages of production. In case of a manufacturing _| industry, the choice of machinery and equipments is somewhat wider because various _| __ machines can perform the same function with varying degrees of accuracy. While _ determining the requirements of machinery and equipments in a manufacturing industry, the following procedure may be followed : | >} Estimate the production levels over time. _ >> Déscribe the various machining and other operations, »> Calculate the machine hours required for each type of operation, «> Select the machinery and equipments required for each operation, Alongwith estimating the requirement of machinery for the project, the equipments required can be classified into: (@)-plant equipments, (b). mechanical | equipments, (¢) electrical equipments, (d) instruments, (e) controls, (f) internal transportation system, and (f)-other equipments, In selecting machinery and equipments for the project, certain constraints are _| required to be borne in mind. These are : (a) limited availability of power for an electricity — intensive plant like electrical furnace, (b) difficulty in transporting a heavy equipment to a remote location or hilly area, (c) inability of workers to operate, at least in the initial stage, certain sophisticated equipments such as numerically | controlled machines, (d) governmental import policy which may preclude the import | of certain machinery and equipments. | 4,2.4 Plant Location and Site Selection: Though often used synonymously, the Yérm location refers to the broad area such as city, industrial zone or coastal area. On the other hand; site refers to the specific piece of land where the project would be set up. While selecting the location for a project, the following factors | should be considered :project Formulation and Feasibility Analysis 3.13 Proximity to raw materials and n Availabi kets, % infrastructure facilities, eo Gover mmental policies and other ‘An important co actors, Icration for location of a project i imi ee: 4 a ‘i ‘a project is the proximity of sources of raw peat and a ‘ness to the market for its final products. An ideal location js one where the total cost (raw materials transportation cost, pro peer ‘ tion’cost and distt ape ait Hiaished products) is minimum..This implies that a resource f based pros ree A ees factory should be located close to the sources of Jimestone, a project based on imported materials should be located near to a well | developed port and a project manufacturing perishable products should be located close to the centre of consumption, eee a cture = power, transportation, water, é relecommunication ete. - is a vital carefully assessed before a location decision is made. Adequate supply of power is very essential, particularly in case of _ power-intensive projects. In evaluating power supply, stability, of power supply, _ quantum of power available, power tariff structure, investment required for tie-up in | the network of power supplying ageney etc. have to be reviewed carefully. 5 - For transporting raw materials and other inputs and distributing the finished | products adequate transport facilities like rdil; road, inland water, sea oF air are required. The availability, reliability and cost of transportation for several alternative - locations have to be assessed. Water requirement for the project should be assessed based on the plant capacity and type of technology used. After estimating the water required, the amount to be | drawn from the public utility system and the amount to be provided from surface or _ sub-surface sources may be determined considering the relative costs, relative | dependabilities and relative qualities. : : In addition to the above, modern. telecommunication-facilities like telephone, telex, fax, mobile etc. are also required and the choice of location must assure these facilities. Government policies also influence the choice of location of a project. Policy for regional dispersion of industries, restrictions to reduce the congestion in urban industrial cities, incentives to.encourage the growth.and development of backward/ rural areas etc. are required to be assessed carefully while selecting a suitable location _ for the project. ; Se ‘ Similarly, cost of mitig ting environmental. pollution, availability of different types of labour force with wage levels, situation of industrial relations, weather and climatic conditions, cost.of living, availability of, housing facilities, educational facilities, medical facilities, recreational opportunities, local public transport facilities etc. have to be assessed for alternate locations before choosing the location. Once. the broad location. is chosen, two or three. alternative sites must be considered and evaluated with respect to.cost of land and cost of site preparation and development. Land costs tend to vary from one site to another in the same ‘broad location. A site nearer to a city will be more expensive than a site away from the city. Sites in industrial estates déveloped by government may be available at concessional rates. The cost of site preparation and development depends on theproject Managemen, 34 physical features of the site. An in si vel ent is the important element 1 site dere op odd utility connections and the cost involve tn ee F Mg ig context that costs differ very significantly f lit n seetrom te nain grid, raloway’ siing [FO%0 the 3 Teo he main road, eftiuent disposal and involved in obtaining, important to note in thi i in respect of power transmission Hines nearest rail road, feeder road connecting ™ transport of water. sn terials and Utilities: While undertaking nies the“materials and other inpu required, their specteat Sa their supply requir onsiderable attention of the pr - et an pects OF projet and other inputs required are closely linked with th ee formulation, specially those coneeti a LE a Dal “a . ¢ materials and other inputs can be divides BOK r eas (b) processed industrial materials and components, (c) auxiliary materials .d factory supplies, and (d) utilities. pe i Paranal processed and/or ‘semi-processed, may be divided into agricultural products, mineral products, forest products, livestock products and mane proce The quality and availability of different materials for the project must be A Sse carefully, Another important inputs for many industries are processed in lustrial materials and components. Their properties, requirements, avail lability from domestic and foreign sources, dependability of supplies, price trends in past and likely future prices have to be examined and studied carefully. Apart from these, various auxiliary. materials such as chemicals, oils, packing material etc. are also required for the project and their total requirement is needed to be assessed. : The requirement of iitilities like power, water, fuel; steam, chilled water, oxygen tc. is initially assessed at the time of input study. The successful operation of a project depends on the availability of utilities in sufficient quantities with the lowest possible cost. It is necessary therefore to ascertain, at the time of technical analysis, the quantities of utilities required, their sources of supply, shortages or bottlenecks (if any) and the ways to augment shortages in supplies of one or more utilities. 4,2.6 Product Mix: The determination of product mix is highly dependent on | market requirements. In the production of most of the items, variations in size and | quality are intended to satisfy a broad range of customers, For example, a TV | manufacturer may havea wide range in terms of size and quality to cater to different | income group customers, Sometimes slight variations in quality can enable a firmto | expand its market and achieve higher profitability, Some flexibility with respect to product mix may be provided when planning the production facilities, Such flexibility | allows freedom to change the product mix in response to changing market conditions | and increases the survival power and growth under different situations, The degree | of flexibility chosen must be based on a careful analysis of the additional i nt requirement for different degrees of flexibility. Se 42.7 Plant Structure and Civil Works: Project analyst must estimate the |) requirement of structures and civil works for the project. Structures and civil works may be broadly divided into three categories: (a) site preparation and development, (b). | buildings and structures, and (c) outdoor works. P w nical analysis ofa project,Project Fornulation and Feasibility Analysis ___ Site preparation and development consists of notheoelion and tsiovalstentcineasee grading and leveling of the “hes, roads, powerines cle reclamation of Sega eared : atonding water, connections to various utilities and other site preparation and B development work. Buildings and structures may be classified as factory buildings; ncillary buildings for stores, power house, boiler house, laboratories ete; ministrative buildings; staff welfare buildings like canteen, health centreancd medical _ services buildings: and residential buildings. Ougdoor works include supply and gisribution of utilities; handling and treatment of emissions, wastages and effluents; transportation and traffic arrangements; ight i om ae 's; outdoor lighting; la aping; enclosure nd supervision works, jghling; landscapines.ensi0os "© 4.2.8 Project Charts and Layouts: Once the data is available on plant capacity, : market size, production technology, machinery and equipments, buildings and civil works, inputs for the project and conditions at plant site etc., project charts and ~ layouts may be prepared (The project charts and I t project engineering, estimation of investment: charts and layout drawings which are widely used in project analysis are as follows > General functional layout: This layout shows the. general.telationship-between equipments, buildings. and_civil,wor! ial ‘ks.-This facilitate smooth and economical flow diagram: This diagram shows the fl intermediate products, final products, by-produets.and,emissions. > Production line diagrams: These diagrams show how the production proses ~~ with the following information for main equipment —deseri foundation and mounting devices, space equipment, need and distance from next section. > Transport layouts: These. layouts show distances and outside the production line. > Utility consumption layouts: These layouts show the main consumptis utilities and their quantities and qual _of transportation ints of ies required. These layouts provide the basis “for developing specifications for utility supply installations. > Communication layouts: These layouts show how various parts of the project are connected with different communication > Organisational layout: This shows the organisation structure of the project along \ with information on personnel required for, various. departments.and-theirinter— relationship. } Plant layout: The plant layout is concerned with the physical layout of the factory. In process industries, it is dictated by the production processes adopted. However, in manufacturing industries, there ig much greater flexibility in defining the plant layout. ; : 42.9 ‘Work Schedule: Work schedule reflects the plan of work concerning, insiallation as well as initial operation. The aii purpose of preparing work schedule is to anticipate problems likely to arise during the installation phase and support » possible ways for coping with them; to establish the phasing of investments according - tothe availability of finances; and to develop a plan of operations covering the initial | period. 315