SUBJECT: PROJECT MANAGEMENT AND ENTREPRENEURSHIP (HSMC-701)

UNIT 8: PROJECT FEASIBILITY STUDIES

Pre-Feasibility Studies: A prefeasibility study (PFS) is an early-stage analysis of a potential mining project. These studies
are conducted by a small team and are designed to give company stakeholders the basic information they need to
greenlight a project or choose between potential investments. They typically give an overview of a mining project’s
logistics, capital requirements, key challenges and other information deemed important to the decision-making
process, such as whether the operation will be open pit or underground.

Feasibility Studies: A project feasibility study examines all of a project's pertinent aspects, including economic,
technical, legal, and scheduling issues to determine the possibility of the project's successful completion. Prior to
commencing the project and investing funds, time, and efforts into it, managers conduct a feasibility study of the
project.

Preparation of Detailed Project Report:

The preparation of a detailed project report involves several steps, each requiring careful consideration and analysis.
Here is a step-by-step guide to preparing a DPR:

➢ Conceptualization- The first step is to conceptualize the project idea, including defining its objectives, scope,
and expected outcomes. This involves conducting preliminary research and identifying the need for the
project.

➢ Feasibility Study- Conduct a feasibility study to assess the technical, financial, and economic viability of the
project. This involves analyzing market demand, competition, and potential risks.

➢ Data Collection- Gather relevant data and information needed for the DPR. This includes technical
specifications, cost estimates, revenue projections, and regulatory requirements.

➢ Analysis and Evaluation- Analyze the data collected and evaluate the feasibility of the project. This involves
conducting financial analysis, risk assessment, and impact analysis.

➢ Report Writing- Prepare the detailed project report, including all the necessary sections and information.
Ensure that the report is systematic, easy to understand, and free of errors.

➢ Review and Finalization- Review the DPR to ensure its accuracy and completeness. This involves checking for
consistency, verifying data, and ensuring compliance with relevant standards.

➢ Submission and Presentation- Once the DPR is finalized, it should be submitted to the relevant stakeholders,
including investors, regulatory authorities, and project team members. The report should be presented in a
clear and professional manner, highlighting key points and addressing any concerns.

Project Appraisal:

Definition: The exercise of project appraisal simply means the assessment of a project in terms of its economic, social
and financial viability. This exercise basically aimed at determining the viability of a project and sometimes also in
reshaping the project so as to upgrade its viability i.e. it aims at sizing up the quality of projects and their long-term
profitability.
Technical Appraisal:

A project is considered to be technically feasible, if it is found to be ‘sound’ from technical and engineering point of
view. It is an attempt to find out how well the technical requirements of the unit can be met, which location would be
most suitable and what the size of plant and machinery should be.

Objectives of Technological Appraisal

The fundamental objective of appraising a project from the technology point of view is to justify the present choice
and provide an insight into future technological developments. Other objectives are:

➢ To justify the goal compatibility of a project with the preferred technology

➢ To seek a better available alternative technology which is both cost effective and efficiently manageable
➢ To seek such a technology that can go with existing skill levels of team members or requires little orientation
and training programmes
➢ To seek a better technology that is not detrimental to the overall environment

Economic Appraisal:

An economic appraisal is the comparative analysis of alternatives in terms of their costs and consequences. It is used
as an aid in decision making because of rising expectations of health services, new technologies, demographic changes
and health sector inflation. Essentially, there are not enough resources to satisfy all demands and needs. Available
resources are finite. Human wants are infinite.

Commercial Appraisal:

Commercial appraisals refer to the process of determining the value of a commercial property. They are conducted by
certified appraisers who specialize in assessing the worth of various types of commercial real estate, including office
buildings, retail spaces, industrial properties, and more.

During a commercial appraisal, the appraiser evaluates multiple factors that contribute to the property's value, such
as location, size, condition, and market demand. They employ different valuation techniques and approaches to arrive
at an accurate and unbiased estimate of the property's worth.

Financial Appraisal:

Economic appraisal, hereafter referred to simply as 'appraisal', is about getting a good deal from public expenditure. It
is a key tool for achieving value for money and satisfying public accountability requirements. It is a systematic process
for examining alternative uses of resources, focusing on assessment of needs, objectives, options, costs, benefits, risks,
funding, affordability and other factors relevant to decisions.

Capital Budgeting:

Definition: Capital Budgeting is defined as the process by which a business determines which fixed asset purchases or
project investments are acceptable and which are not. Using this approach, each proposed investment is given a
quantitative analysis, allowing rational judgment to be made by the business owners.

Capital asset management requires a lot of money; therefore, before making such investments, they must do capital
budgeting to ensure that the investment will procure profits for the company. The companies must undertake
initiatives that will lead to a growth in their profitability and also boost their shareholder’s or investor’s wealth.
Steps in the Capital Budgeting Process

Following capital budgeting process steps enable businesses to make informed capital budgeting decisions. There are
6 steps in the capital budgeting process.

1) Identifying the investment opportunities

The first step in the capital budgeting process is identifying investment opportunities. Once the opportunities are
identified, the company’s capital budgeting committee identifies the expected sales. The investment opportunities that
are aligned with the sales targets are identified.

Identification of the best investment opportunities requires regular monitoring of the external environment to
understand the investment opportunities better. The corporate strategy is based on the SWOT analysis and suggestions
from employees on investment opportunities.

2) Gathering investment proposals

Once the investment opportunities are identified, the next step is to collect investment proposals. Proposals are
evaluated by various authorized persons in the organization before submitting them to the capital budgeting
committee in order to ensure that bids are given according to requirements.

The investment proposals are classified into categories such as expansion, welfare investment, replacement, etc.
Classifying the proposals aids decision-making and facilitates budgeting and control.

3) Deciding on projects for capital budgeting

This step involves executives who will be deciding which investments need to be made from the available investment
opportunities. The sanctioning power open to them influences the decision-making process.

4) Preparation and Appropriation in Capital Budgeting

Once the decision is made on the investments for capital budgeting, the investment outlays are classified into higher
and smaller investments. When the value of an investment is low and approved at the lower management level, then
for getting speedy actions they are generally covered with blanket appropriations.

5) Implementation of Capital Budgeting

Once all of the preparatory steps are completed, the investment proposals are implemented. The investment proposals
are converted into concrete projects. The implementation phase poses several challenges to the management
personnel. Successful implementation requires adequate formulation of the project and the use of the responsibility
accounting principle. Several network techniques like the critical path method (CPM) and program evaluation and
review technique (PERT) can be used in implementing capital budgeting projects.

6) Performance review
The last and most important step in capital budgeting is a review of the performance of capital budgeting projects. For
this, management must compare the actual results with the projected results. This comparison must be done when
operations get stabilized.

Social Cost Benefit Analysis:

Cost-benefit analysis is a process of deciding whether to go with a business decision or not on the basis of the net
benefits from it. We first assess the benefits or rewards from a business decision. Then we deduct the costs that we
will incur in order to implement that decision or idea. If the result is positive, we can go ahead with the plan. We should
shelve the idea and look for other alternatives in case of a negative result. However, there are some projects in which
we may not benefit financially, but still, companies and governments go ahead with them. Such projects have social
implications or benefits. In order to gauge the social or socio-economic benefits of a project, we do a social cost-benefit
analysis in project management.

The most common investments that have social benefits are infrastructure projects like building roads, dams, railway
tracks, bridges, electricity generation, etc. Social cost-benefit analysis in project management is a tool to assess the
viability of such projects. Apart from taking into account the financial costs that we incur in a project, we also consider
the social impact of the project on the people, environment, and society as a whole. Such impacts include pollution
effect, safety, and security, the effect on the lives of people, etc. We assess the benefits of a project by attaching a price
to the social effects that they cause. We deduct the social costs from the social benefits derived from a project to arrive
at the net social benefits to the society.

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