Chapter-2

Project Design and Development

Dr. Andualem Ufo Baza

Assistant Professor
International Leadership Institute

Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved.

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 2.1 Project design

Components of project Design are:

–Project Idea Generation
–Project Appraisal
– Project idea screening

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 2.1. Generation and Screening of Project
Ideas

SCREENING OF IDEA
The process of project selection consists of
following stages:
• 1.Idea generation
• 2.Environment appraisal.
• 3.Corporate appraisal
• 4.Preliminary screening.

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 2.1.1. Idea Generation

There is no standardized formula to come up

with a project idea. The project ideas can be
generated from various internal and external
sources. These are:
• Knowledge of market, products, and services.
• Knowledge of potential customer choice.
• Emerging trends in demand for particular
product.

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 2.1.1.Idea Generation

• Scope for producing substitute product.

• Market survey & research.
• Going through Professional magazines.
• Making visits to trade and exhibitions.
• Government guidelines & policy.
• Ideas given by the experienced person.
• Ideas by own experience.
• SWOT analysis.

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 2.1.2. Project appraisal

The process of project selection consists of

following stages:
• 1.Idea generation
• 2.Environment appraisal.
• 3.Corporate appraisal
• 4.Preliminary screening.
 Environment appraisal

The key elements of the environment are

Economic Sector
– State of the economy
– Overall rate of growth
– Cyclical fluctuations
– Inflation rate
– Growth rate of primary, secondary and territory
sector
– Growth rate of world economy
– Trade surplus and deficits
– Balance of Payment
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 Government Sector

• Industrial policy
• Government programs and projects
• Tax structure
• Export-import policy
• Financing norms
• Subsidies incentives and concessions
• Monetary policy

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 Technological Sector

• Emergence of new technologies

• Access to technical know-how, foreign as
well as indigenous

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 Socio-demographic Sector

• Population trends
• Age shifts in population
• Income distribution
• Educational profile
• Employment of women
• Attitudes toward consumption and
investment

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 Competition Sector

• Number of firms in the industry and the

market share of the top few
• Degree of homogeneity and differentiation
among the products
• Entry barrier
• Comparison with substitutes in term of
quality and price
• Marketing policies and practices

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 Supplier Sector

• Availability and cost of raw material

• Availability and cost of energy
• Availability and cost of capital

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 Corporate Appraisal
The broad areas of corporate appraisal and the important
aspects to be considered under them are

Marketing and Distribution

• Market Image
• Product Line
• Product Mix
• Distribution Channels
• Customer loyalty
• Marketing & distribution costs

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 Production and Operations

• Condition and capacity of plant and

machinery
• Availability of raw material and power
• Degree of vertical integration
• Location advantage
• Cost structure

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 Research and Development

• Research capabilities of the firm

• Track record of new product developments
• Laboratories and testing facilities
• Coordination between research and
operations

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 Corporate Resources and Personnel

• Corporate image
• Dynamism of top management
• Relation with government and regulatory
agencies
• State of industry relations

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 Finance and Accounting

• Financial leverage and borrowing capacity

• Cost of capital
• Tax structure
• Relation with share holders and creditors
• Accounting & control system
• Cash flow and liquidity

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 2.1.3. Preliminary Project Idea Screening

process of eliminating the irrelevant and

unviable ideas . It can be done with the help
of testing the following conditions of the
propositions.
– Compatibility with the promoter
– Consistency with governmental priorities
– Availability of inputs
– Adequacy of market
– Reasonableness of cost
– Acceptability of risk level etc.

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 Preliminary project idea Screening

The project idea must satisfy or go along with

the governmental priorities, National goals
and governmental regulatory framework.
Considerations may include:
• No Contrary environmental effects to
governmental regulations
• Easily accommodation foreign exchange
requirements
• No difficulty in obtaining license

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 Preliminary project idea Screening

This feature of the project can be assessed

with the help of determining the following
points relating to a project.
• Capital requirement within manageable limit
• Obtaining technical know-how
• Availability of raw materials at a reasonable
cost
• Obtaining power supply

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 Preliminary project idea Screening

To judge the adequacy of market the following

factors have to be examined.
• Total present domestic market
• Competitors and their market shares
• Export market
• Quality price profile of the product.
• Sale and distribution system
• Projected increase in consumption

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 Preliminary project idea Screening

• Barriers to the entry of new units

• Economic social and demographic trends favorable
to increased consumption
• Patent protection
The following cost factors must be carefully considered
to design a viable cost structure:
– Cost of material inputs, labor costs, factory
overheads.
– General administration expenses, selling and
distribution costs.
– Service costs, economics of scale etc.

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 2.2 Project definition and description

• What is project?
• A project is a unique, transient endeavor,
undertaken to achieve planned objectives, which
could be defined in terms of outputs, outcomes or
benefits.
• A project is usually deemed to be a success if it
achieves the objectives according to their
acceptance criteria, within an agreed timescale
and budget.
•
 Project charter
– The charter is a “legal” agreement between the project manager
and the company.
– Some companies supplement the charter with a “contract” that
functions as an agreement between the project and the line
organizations.
– It is prepared to document the project manager’s authority and
responsibility, for projects implemented away from the home office.
– Project charter is more of an internal legal document identifying to
the line managers and their personnel the project manager’s
authority and responsibility and the management- and/or customer-
approved scope of the project.
– The sponsor prepares the charter and affixes his/her signature, but
in reality, the project manager may prepare it for the sponsor’s
signature.
 Project charter
• At a minimum, the project charter should include:
– Identification of the project manager and his/her authority to
apply resources to the project
– The business purpose that the project was undertaken to
address, including all assumptions and constraints
– Summary of the conditions defining the project
– Description of the project
– Objectives and constraints on the project
– Project scope (inclusions and exclusions)
– Key stakeholders and their roles
– Risks
– Involvement by certain stakeholders
 Project Approval
– The criteria that must be meet for the project to be
accepted( approval requirement) by the client or
sponsor can be approved.
– The approval stage contains the whole project life
cycle.
– The stages are:
– Project initiation
– Project planning
– Project Monitoring and Controlling
– Project Execution
– Project Closure
PROJECT LIFE CYCLE
 2.3 Feasibility Study

MEANING AND BACKGROUND

– It is an analysis of the viability of a project idea from
different parameters. 
– It is a process for determining the viability of a
proposed initiative or service and providing a framework
and direction for its development and delivery.
– It is a process for making sound decisions and setting
direction.
– The study focuses on helping answer the essential
question of “should we proceed with the proposed
project idea?”
Definition and significance of feasibility study

Feasibility study is:

is a process for determining the viability of a proposed
initiative or service and providing a framework and
direction for its development and delivery.

Indications of a Feasible Project

– Generating adequate cash-flow and profits,
– Withstanding the risks it will encounter,
– Remaining viable in the long-term and meet the goals of
the founders.
 The Role and reason of Feasibility Study

REASONS TO DO A FEASIBILITY STUDY

– To give focus to the project and outline alternatives by
narrowing them
– To surface new opportunities through the investigative
process
– To identify reasons not to proceed
– To enhance the probability of success
– To provide quality information for decision making
– To help to increase investment in the company
– To provide documentation that the business venture
was thoroughly investigated
– To help in securing funding from lending institutions
and other monetary sources
 The Role and reason of Feasibility Study
CONSEQUENCES OF POOR FEASIBILITY
STUDIES
– Overstatement of returns, market share, sales
volume, etc.
– Underestimated costs, resources, risk, etc.
– Omission of a necessary component
– Failure to consider the variability of environment
– Optimistic calendar for implementation,
• Low capacity utilization, Heavy costs overruns,
hence deteriorated financial profitability,
 COMPONENTS OF FEASIBILITY STUDIES

–Market and Demand Analysis

–Technical Analysis
– Financial Analysis
– Project Risk Analysis
– Investment Criteria Analysis
– Social Cost-Benefit Analysis
• Will be discussed in detail in chapter 4