Project management book for mba

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Project management book for mba

  1. 1. M.B.A. Paper – 3.2 PROJECT MANAGEMENT
  2. 2. PROJECT MANAGEMENT Unit – 1 Concepts of Project Management: Project – Meaning – Nature – Types of project and project life cycle – Project management – Nature and scope of project management – Project management as a profession – Role of project manager. Unit – 2 Project Identification and Formation: Project environment – Identification of investment opportunities – Project screening – preferability study – Project selection – Project formulation – Stages in project formulation – Project report preparation – Planning Commission’s guidelines for project formulation. Unit – 3 Project Appraisal: Objectives, essentials of a project methodology – Market appraisal – Technical appraisal – Financial appraisal – Socio-economic appraisal – Managerial appraisal Unit – 4 Project Planning and Scheduling: Objectives – Process or planning components or good planning – Project designing and project scheduling and time estimation – Scheduling to match availability of man power and release of funds – Cost and time trade cost. Unit – 5 Project Execution and Administration – Project contracting: Contract pricing, Types – Project organization: Forms of organization – Project direction – Project communication – Project coordination – Factors influencing effective project management – Project time monitoring and cost monitoring – Project over runs. Unit – 6 Project Control: Control techniques – PERT, CPM – Proper review – Project audit.
  3. 3. REFERENCES 1. Prasanna Chandra, Projects Implementation and Review. Planning, Analysis, Selection, 2. Gopalakrishnan P & Ramamoorthy V.E, Textbook of Project Management. 3. Kerner Harold, Project Management. 4. Dennis Hock, Project Management Handbook. 5. Choudhry S, Project Management 6. Goel B.B, Project Management: A Development Perspective
  4. 4. LESSON 1 CONCEPTS OF PROJECT MANAGEMENT OBJECTIVES 1. 2. 3. To explain the nature and scope of Project management. To give an over view about system approach and Project management. To give an outline about the factors influencing effective Project management. INTRODUCTION Projects are the building blocks to meet the enterprise objectives. Project management is essentially involved in executing the projects. It is recognized as a management philosophy in the recent past in addition to that of discipline. Project management has always been central to the existence of industries like construction, aerospace and defense, where schedule and cost goals are contract fundamentals. The new design of maruti zen, concord supersonic jet aircraft, ship vasundhara, Godrej puff refrigerator, compaque computer, L&T crane steel rolling mill of the Tatas, New oil base for the ESSAR refinery, new production line of J.K cement, highway roads of the country’s capital city, new fly over in metropolitan cites etc have one thing common; indeed they are all purposefully unique and they are project. The basis logic behind on the these projects are; a. Investment of resources for a specific objective and b. a cause of irreversible change. What is a project? Project is a scientifically evolved work plan devised to achieve a specific objective within a specific period of time. It can be considered as proposal involving capital investment for the purpose of developing facilities to provide goods a and services. A project is a blue for print action oriented activities of an organization. A project reflected the plan for action in its totality. Like a movie film it is projection oriented process. The project has beginning middle and an end. For example, cement project, manufacturing Power project, refinery projects Health project, Educational projects Social project, construction projects etc.
  5. 5. DEEINITION OF PROJECT A Project is a one-shot, time limited, goal directed, major undertaking, requiring the commitment of varied skills and resources. It has also been described a s a combination of human and non human resources pooled together in a temporary organization to achieve a specific purpose. The purpose and the set of activities which can achieve that purpose distinguish one project form another. -Project Management Institute, U.S,A ‘’We mean by a project any scheme, or part of sachem, for investing resources which can reasonably be analyzed and evaluated as an independent unit. The definition is thus arbitrary. Almost any project could be broken down into parts for separate consideration; each of these parts would then by definition a project”. - I.M.D. Little and J.A. Mirrless. “A specific activity with a specific starting point and a specific ending point intended to accomplish a specific objective. It is something you draw a boundary around at least a conceptual boundary and say this is the Project”. -J. Price Gettinger. “Compilation of data which will enable an appraisal to be made of the economic advantages and disadvantages attendant upon the allocation of country’s resources to the production of specific goods and services.” -United Nations. FEATURES OF A PROJECT  A project can be identified by its features. The special features of a project that would differentiate from any other on going activity are given below:  A project fixed set of objectives. Once the objectives have been achieved, the project ceases to exist.  It has a specific life span.  Project has for a teamwork,  Project has a life cycle reflected by growth, maturity and decline similar.  Change is an inherent feature in any project out its life.  Project is based on successive principle and hence it is difficult to learn fully the end results at any stage.
  6. 6.  A project works for a specific set of goals with the complex set of diversified activities.  High level of sub-contraction of work can be done in a project.  Every project has risk and uncertainty associated with it.  Project needs feasibility any appraisal studies. So that the sponsors sweet dream becomes realizable. Types of projects Much of what the project will comprise and consequently its management will depend on the category it belongs to. The location, type, technology, size, scope and speed are normally the factors which determine the effort needed in executing a project. Though the characteristics of all projects are the same, they cannot be treated alike. Recognition of this distinction is important for management. Classification of project helps in graphically expressing and highlighting the essential features of the project. Projects are often categorized in terms of their speed of implementation as follows: NORMAL PROJECTS ♦ Adequate time is allowed for implementation. ♦ All the phases in a project are allowed to take their normal time. ♦ Minimum requirement of capital. ♦ No sacrifice in terms of quality. CRASH PROJECTS Requires additional costs to gain time. Maximum overlapping of phases is encouraged. DISASTER PROJECTS Anything needed to gain time is allowed in these projects. Around the clock work is done at the construction site. Capital cost will go will go up very high. Project time will get drastically reduced. Besides that, projects in general are classified on several basis as give in the following illustrative list.
  7. 7. - United Nations Asian and Pacific Development Institute. Categories of Projects PROJECT National International Non Industrial Industrial Non Conventional R&D High Technology Conventional Mega Major Medium Gross Root Expansion Modification Normal Crash Disaster Low Technology Mini CLASSIFICATION OF PROJECT The project can be classified on several basis. Major classification of the projects are given below: 1. On the basis of Expansion: 1. Project expanding the capacity 2. Project expanding the supply of knowledge. 2. On the basis of Magnitude of the resources to be invested: 1. 2. 3. 4. Giant projects affecting total economy Big projects affecting at one sector of the economy Medium size projects Small size projects (depending on size, investment & impact)
  8. 8. 3. On the basis of Sector: 1. 2. 3. 4. 5. 4. Industrial project Agricultural project Educational project Health project Social project On the basis of objective: 1. Social objective project 2. Economic objective project 5. On the basis of productivity: 1. Directivity productive project 2. Interactively productive project 6. On the basis of nature of benefits: 1. Quantifiable project 2. Non-quantifiable project 7. On the basis of government priorities: 1. Project without specific priorities 2. Project with specific priorities 8. On the basis of dependency 1. Independent project 2. Dependent project 9. On the basis of ownership 1. Public sector project 2. Private sector project 3. Joint sector project 10. On the basis of location 1. Project with determined location 2. Project with future impact
  9. 9. 11 On the basis of social time value of the project 1. Project with present impact 2. Project with future impact 12. On the basis of National policy 1. Project determined by inward looking policy 2. Project determined by outward looking policy 13. On the basis of risk involved in the project 1. 2. 3. High risks project Normal risks project Low risks project 14. On the basis of economic life of the project 1. 2. 3. Long term project Medium term project Short tern project 15. On the basis of technology involved in the project 1. 2. 3. 4. High sophisticated technology project Advance technology project Foreign technology project Indigenous technology project 16. On the basis of resources required by the projects 1. 2. Project with domestic resources Project with foreign resources 17. On the basis of employment opportunities available in the project 1. 2. Capital intensive project Labour intensive project 18. On the basis of management of project 1. 2. 3. High degree of decision making attitude Normal degree of decision making attitude Low degree of decision making attitude
  10. 10. 19. On the basis of sources of finance 1. 2. 3. 4. Project with domestic financing Project with foreign financing Project with mixed financing Project with financial institutions 20. On the basis of legal entity 1. Project with their own legal entity 2. Project without their own legal entity 21. On the basis of role played by the project 1. Pilot project 2. Demonstration project 22. On the basis of speed required for execution of the project 1. Normal project 2. Crash project 3. Disaster project PROJECT LIFE CYCLE Every programme, project or product has certain phases of development. The different phases of development in an investment proposal or project is called life cycle. A clear understanding of these phases permits entrepreneurs, managers and executives to have better control over existing and potential resources in the achievement of the desire goals. PHASES OF PROJECT LIFE CYCLE Project life cycle is complex process consisting of different steps arranged in a sequential order. Different authors have described these steps I different sequential manner but the concept of the cycle is almost similar in each case. According to United Nations Guidelines for Rural Centre Planning, there are 7 steps in the project life cycle such as project identification and appraisal, pre-feasibility study, feasibility study detailed design project implementation, operation maintenance, monitoring and evaluation. Rondinelli, Dennis & Apsy Palia in their book “Project Planning and implementation in Developing countries” identified the following 12 steps in the project life cycle. Project identification and definition, project formation,
  11. 11. preparation and feasibility analysis, project design, project analysis, project selection, project activation and organization, project implementation and operation, project supervision (monitoring and control) project completion or termination, output diffusion and transition to normal administration, project evaluation follow-up and action. World Bank Guidelines reveals the following six major steps in the project life cycle. Conception (identification), Formation (preparation), Analysis (appraisal), Implementation (supervision), operation and evaluation. All the steps given in different studies can be grouped into three main phases viz., - Pre-investment phase Implementation phase and Operational phase A brief description of each of these phases in given below: PRE-INVESTMENT PHASE The first phase of the cycle describes the preliminary evaluation of an idea. It consists of identification of investment opportunities, preliminary project analysis, feasibility study and decision-making. Project idea emanates from the following problems; potential and the needs of the people of an area; plan priorities when planning is done by the government demand and supply projection of various goods and services; Pattern of imports and exports over a period of time; natural resources which can serve as the base for potential manufacturing activity; scope of extending existing lines of activity; consumption pattern in other countries at comparable stages of economic stages of economic development. On the basis of the investment opportunities, it is possible to conceive a number of projects out of which a particular project may be consistent with development objectives of the area. During this phase, the following aspects of a project must be carefully designed so as to enable implementation.           Project infrastructure and enabling services System design and basic engineering packages Organization and manpower Schedule and budgets Licensing and government clearances Finance Systems and procedure Identification of project manager Design basis, general condition for purchase and contracts Constriction resources and materials
  12. 12.  Work packaging This phase is involved with preparation for the project to take out smoothly. Once a project opportunity is conceived, it needs to be examined. Preliminary project analysis concerns with marketing, technical, financial and economic aspects of the project. It seeks to determine whether the project is prima facie worthwhile to justify a feasibility study and what aspects of the projects are critical to its viability and hence call for an in depth investigation. More details, through and complete feasibility study results in a reasonably adequate formulation of the projects in terms of location, production capacity production technology and material inputs. The feasibility study contains fairly specific estimates of projects cost, means of financing sales revenues, production costs, financial profitability and social profitability. Based on the thorough feasibility study the project owner or sponsors or financiers can decide whether to accept or reject particular project. In other words, the decision whether investment on the project should be made or not has to made at this stage. IMPLEMENTATION PHASE The implementation phase of an industrial project involves setting up of manufacturing facilities. After judging the worthiness, project needs to be designed for implementation. Drawing, blue prints and the sequences in which the various activities concerning the project need to be carried out. The main activities under this phase are: Project and engineering design: It consists of site probing and prospecting, preparation of blue prints, plant design, plant engineering, selection of machinery, equipment. Negotiations and contractions: It covers the activities like project financing, acquisition of technology, construction of building and civil works, provision of utilities supply of machine and equipment, marketing arrangement etc. Construction: This step involves the activities like site preparation, construction of building, erection and installation of machinery and equipment. Training engineers, technicians and workers. Plant commissioning
  13. 13. OPERATION PHASE It is the longest phase in terms of time span. It begins when the project is commissioned and ends when the project is wound up. This is a transition phase in which the hardware built with the active involvement of various agencies is physically handed over for production. This phase is basically a clean up phase for project personnel. The main concern of this phase is on smooth and uninterrupted operation of machinery and plant, development of suitable norms of productivity, establishment of a good quality fo rhte product and securing the market acceptance of the product. It aims to realize the projection made in the project regarding sales, production, cost and profits. Project monitoring and project evaluation are two vital activities under this phase. Project monitoring is a step towards achieving properly identified objectives through a carefully laid down strategy. Each activity in the project implementation should be carefully watched so that, the progress may be measured and any deviation from the expected progress be identified in time. Project evaluation refers to post-investment analysis. It aims at finding out whether the project has achieved the objectives for which it was taken up and whether it has created the anticipated or intended impact. This helps in developing an insight for future investment and better planning. Thus the life cycle of a project narrates the methodology of developing, maintaining nd controlling an investment proposal at its various phases in the life cycle. The various steps in the project life cycle are given in the following diagram.
  14. 14. Diagram 1 PROJECT LIFE CYCLE 1. Information input 2. Investigation of technology, feasibility etc. 3. Competition 4. Preliminary evaluation 1. Post-mortem 2.Final de-manning 3. Final reports 4. Commissioning aftermath Conception Evaluation Application 1. Objectives 2. Establish goals 3.TQM procedures 4. Setting up control systems Definition Planning & Designing Development & Construction 1. Install and field test 2. Quality control 3. Advertising begins 4. De-bug and redesign 1. Establish structure 2. Engineering 3. Model building 4. Design review 1. Prototype development 2. First units to test marked 3. Begin campaign 4. Progress report PROJECT LIFE CYCLE CURVES The project life cycle phases from an interesting pattern indicative of growth, maturity and decline almost similar to product life cycle. The following figure shows the typical project life cycle curve.
  15. 15. Diagram 2 TIME It can be seen from that curve that effort built up in a project is very slow but effort withdrawals is very sharp. It can also be seen that time taken in the formative and clean up stages together is more than the implementation stage. This parabolic patterns of growth, maturity and decline itself in all phases of the project life. This curve enable a project manager to ascertain the state of health of any project at any point of time. Project management Project management is an existing new profession which receives much attention in these days. It is concerned with the management of resources successfully to complete the project, the resources being time, money, materials and equipment and the most expensive resources of all- namely the human resources. Project management is concerned with achieving a specific goal in a given time using resources available for that period only. Project management can mean different thing to different people. Project management as regard ongoing project within a company refers the art of creating that illusion that any outcome is the result of a series of predetermined, deliberate acts when, in fact, it was dumb luck It is designed to make better use of existing resources by getting work to flow horizontally as will as, vertically within a company. An overview definition of project management is the planning, organizing, directing and controlling company resources for a relatively short term objective that has been established to complete specific goals and objective. Further more, project management utilizes the system approach to management by having function personnel assigned to a specific project Project Management has been evolved as a distinct discipline ever since the Second World War. Though it is special discipline it got elevated only in the recent times, it has been in practice ever since the times of construction activities in this world. Constructions such as British Aisles, the Taj Mahal, Eiffel Tower, London Bridge etc., stand testimony to the fact that the doctrine of Project Management are not new. Project management resembles functional management in all aspects for all practical purposes with a little difference. It is concerned with the management
  16. 16. of resources successfully to complete the project, the resources being time, money, materials and equipment and the most expensive resource of all – namely the human resource. To understand the project management one must first understand the basic concepts and different approaches to the study of management. An overview of different management approaches with specific emphasis on System approach to management approaches with specific emphasis on System approach to management and its relevance to project management, brief mention about the steps in project management, benefits and limitation of project management, and also an outline about effective project management are discussed in this lesson. Thus, the project management is designed to manage or control company resources on a given activity, within time, within cost and within performance. This has been depicted in the following diagram. OVERVIEW OF PROJECT MANAGEMENT GOOD CUSTOMER RELATIONS TIME COST RESOUCES PERFORMANCE Project management involves project planning and project monitoring and includes such item as        Project planning Definition of work requirements Definition of quantity of work Definition of resources needed Project monitoring Tracking progress, comparing actual to predicated Analysis impact and making adjustments. Thus, the successful project management can be defined as the process of achieving the project objectives within the cost (budget), at the desired performance and within the allocated time. Development of a Project system The three major groups of management theorists – the structuralists, the functionalists and the behavioruists – differ some what on how the project
  17. 17. manager deals with problems shifting job environments but they are unanimous on the utility of the task force as a useful device in group problem solving situations. The structuralists argue that the project manager, as a unifying agent, integrates the parochial interests of autonomous organizational elements towards a common objective through the formation of some standard organization instead of functional or product departmentalization. The funtionalists argue that project management is in reality simply the application of the systems concept to organizational problems. They visualize integration into a separate organizational system of activities related to particular projects or programmes, Management science techniques, computer simulation approaches and information decision systems are just a few of the tools that will make it possible for management to visualize the firm as a total system. The behaviouralists see the task force as organized around problems (not products, programmes, projects or tasks) arranged in an organic rather than a mechanical model in which the executive becomes the link pin or coordinator but human speaking the diverse languages or research and who has skills to realay information and mediate between groups. People will be differentiated not vertically according to rank and status but flexibly and functionally according to skill and professional training and replacing bureaucracy as we know it. Components of a Project Management System The vital components of a project from the systems perspective are:  Objective: The fundamental rationale of a system that must be accomplished.  Requirement: A sine qua non or a fundamental and irreducible constident of a whole system that may even satisfy the objective to some extent.  Alternative: A surrogate, a secondary course of action, if one fails out the other will substitute and fulfill the needs of a system  Selection criteria: The matter of ‘carrying out’ is focused on assessing the choice and selecting the best course of action.  Constrain: A demarcation point which describes the frontiers of a system within which the alternatives must move and devote their resources. It can be inferred that the basic theories and philosophies, governing the age-old corps and projects had a stormy attack by the systems approach to management. Owing to the fact that project management is a subset of total management cult, it would be comforting oneself to describe the principles of general systems theory. The general systems approach can be squared with a
  18. 18. management approach which attempts to integrate and unify scientific information across many fields of knowledge. Systems theory attempts to strike at problems with a holistic view rather than through and analysis of the individual components. STEPS IN PROJECT MANAGEMENT Project Management basically consist of the following steps. Grouping work into packages which acquires the properties of a project. This means that the works so grounded are related on each other, contribute to the same goals and can be bound by definite time, cost and performance targets. Entrusting the whole project to a single responsibility centre known as the project manager, for coordinating directing and controlling the project. Supporting and servicing the project internally within the organization by matrixing or through total projectisation, and Building up commitment through negotiations, coordinating and direceing towards goals through schedules, budgets and contracts. Ensuring adherence through negotiations, coordinating and directing towards goals through schedules, budgets and contracts. Defining what is to be done, maintaining its integrity and ensuring that it is done and performed as desired, within time and cost budgets fixed for it through a modular work approach, using organizational and extra-organizational resources is what is project management. PROJECT MANAGEMENT ENVIRONMENT Project management performance will largely depend on the real-world environment. The project management environment in India, is very different from any other country. There are many problems which are peculiar to our country and these are experienced by all those who are concerned in the execution of both small and big projects. One has to aware of these problems in order to be able to cope with the same for successful implementation of a project. The most important problem is lack of mutual trust and respect amongst the participating agencies: owner, financial institutions, consultants, vendors and contractors. The owner believes that the agencies/contractors would take his for a ride and, therefore, he should, as far as possible, do things himself. When consultants are not appointed, projects are likely to have congenial weakness such as wrong selection of technology, wrong site, high risk element, etc. Sometimes the owner may appoint a consultant for a nominal fee and ask him to
  19. 19. prepare a report which he can sell to the bank. These reports often do not reflect reality as they are made without any in-depths study, and if cleared, would give birth to defective projects. This, doubt, reflects on a consultant’s lack of professional ethics and can be avoided if the financial institutions use a proper accreditation, system for consultants. However, accreditation of consultants may not set everything right. A site may often be selected purely on personal rather than on techno-economic considerations. The same may happen with the selection of technology or even with the selection of the consultant. It is often suggested that besides technical and financial appraisal of a project the financial institutions should appraise the entrepreneur himself. It is also suggested that the financial institutions should introduce an on-going audit system to prevent diversion of funds and other forms of financial irregularities. In other words, the financial institutions may not trust the owner/promoter since an owner may disown a project and the financial institutions have more stake in the project than the owner himself. Sometimes a promoter may intentionally underestimate the project cost with the intention of reducing his contribution. This would inevitably lead to cost overrun which normally the financial institutions are expected to finance. Of course, the financial institutions can insist on proportional overrun finance by the owner, but since the promoter’s stake is low, the institutions take their own time to decide to finance the overrun, meanwhile the project cost undergoes further overrun. A project, thus faces a fund crisis leading to extension of project completion time. With the extension of the project schedule further fund problems occur. Financing cost and inflation overtake the revised cost estimate. Since contingency provisions are too inadequate to meet the inflationary conditions of the economy, institutions have to provide further funds. But this again is not easily sanctioned. Most vendors and contractors, do not trust the owner regarding payment. At the very first sign of delay in payment, they start slackening. They cannot also be expected to be too enthusiastic about a project where fund problems are foreseen. A vendor, in such circumstance, may not start the work at all. This not only delays the project but sours the relationship between the owner and the vendor. Over the years, a number of projects have been affected by enormous increase in prices of cement, steel and transport and energy costs. These are noncontrollable costs as far as the owner is concerned and, therefore, the owner looks towards the financial institutions for relief. But the overruns even in such cases do not get automatically sanctioned as the financial institutions do not trust the promoter and would first like to be satisfied about the reasons for overrun.
  20. 20. Financial institutions often hesitate to disburse their term loans unless the promoters bring their entire contribution. Sometimes they withdraw their commitments due to temporary resource constraint, or when the find a project facing serious technical problems. Thus, due to financial insecurity some projects cannot progress as desired and end up with huge time and cost overruns. The problems discussed above can broadly be grouped into four classes of environmental problems: social, economic, technical and managerial. As discussed before, if these problems are not tackled, time and cost overruns cannot be stopped. Yet management of environment is beyond the scope of project management. There is no point, therefore, in discussing these problems in any further detail as they are beyond the scope of this book. While one cannot change the environment for the duration of a project, one can definitely project oneself from its adverse influences adverse influences. This can be done by creating a strong shield which will not only resist the adverse effect of the environment but also influence the environment marginally, at least, along the boundary. This is referred to as boundary management. A project can shield itself effectively against the environment only if it engages good agencies, used good system and has adequate funds to meet the requirements of the project. Good system and good agencies will require good funds. However, the funds must be used properly otherwise a project cannot be completed at least cost which is the ultimate criteria for measuring the efficiency of project management. Unfortunately, at the moment, we are unable to provide such a shield to all our projects that must be the only reason for our poor performance in the execution of the project. Projects in India have to be executed in a highly unfavorable environment but project management must cope with the situation. It has been suggested that project must be insulated adverse environmental influences by mobilizing good agencies, good system and all adequate funds. Benefits of project management Project management helps to avail the following benefits: Identification of functional responsibilities to ensure that all activities are accounted for regardless of personnel turnover. • Minimizing the need for continuous reporting. • Identification of time limits for scheduling. • Identification of a methodology for trade-off analysis. • Measurement of accomplishment against plans. • Early identification of problems so that corrective action may follow. • Improved estimating capability for future planning.
  21. 21. • Knowing when objectives cannot be met or will be exceeded. Obstacles in project management To enjoy the various benefits of project management given above, the following obstacles be overcome carefully. ♦ Project complexities ♦ Execution of customer’s special requirements ♦ Organisation restructuring is a typical task ♦ Project risks ♦ Changes in technology ♦ Forward planning and pricing. Project Management – A Profession Project management has been evolved as a distinct ever since the Second World War. It has got elevation the recent times. Novelty is the hallmark of every project, hence it should exhibit fascination and dynamism. This requires professional approach in conceiving, implementing and controlling projects. Though the functional management and project management are related, the degree of professional approach is highly essential for the efficient management of project. The project management is mainly driven by intellectual operation and skilled and mechanical operations. Project management is covered by the matrix form of organization structure where a roles are defined according to a combination rather than functional specialization. Only managers with sufficient spirit and dynamism can withstand the over whelmin dizziness in these incessant operations. Hence, the project management requires sound expertise and exposure, which may not be possessed by the project promoter. So they have to resort the assistance from projects consultants and project managers. A brief description about the role of project manager and need functions of project consultants are given below. Project Manager and his role This is to signify a person who has the overall control of the project and shoulders responsibilities for its execution and performance. Therefore, he is thoroughly involved in planning the work and monitoring, directing and leading the participants and seeks to reach the project goal in time-cost-quality
  22. 22. conundrum. The project manager is either a specialist or having predominantly technical background with sufficient experience, exposure, expertise on multifaceted, multidimensional and multi disciplinary project. It is well evident from the monumental constructions and project that have been around us since heydays, that the role of a project manager is quite distinct and demands an all round performance. A project manager is always found shard in the enternal circle of doing, learnig and changing. Only managers with sufficient spirit and dynamism can with stand the overwhelming dizziness in these incessant operations. An ideal candidate for project managership should have some prominent personal characteristics as out lined by R Archibald. • Flexible and adaptable • Preference for significant initiative and leadership • Aggressiveness, confidence, persuasiveness, verbal fluency; • Ambition, activity, forcefulness; • Effectiveness as communicator and integrator; • Broad scope of personal interests; • Poised with enthusiasm, in agitation, spontaneity; Able or willing to devote most of his time to planning and controlling, • Able to identify problems; • Willing to make decisions that are acceptable; • Able to maintain a proper balance in the use of time, This ideal project manager would probably have doctorates in engineering business and psychology, sustained with a handful years of experience on similar natured project officer occupying different positions, and should have physical fitness to undertake such Machiavellian tasks with feeling of positive stress. Good project managers in industry today would probably be lucky to have 60% to 80% these traits. good project managers are willing to identify their shortcoming and know heavy traffic, they have to balance between the wheels that are mutually exclusive and yet engineering to run coherently, they ensure that goal is reached by properly accelerating the vehicle the vehicle to manager the traffic avoiding. Project Consultant For any developing country, project management hols the key for development. Without efficient project management neither cost control nor time
  23. 23. control is possible. The basis ingredient of successful project management is a happy integration of three factor, appropriate estimate, competent contractor and effective project management. The other important ingredient of successful project management is an effective management team. Consultant provide guidance as well as direction to the projects. From the formulation stage to the completion and post project evaluation stage, consultants services are essential ant are also available. Infect, the consultant is the part of the project management team, though as a paid member on contractual terms and conditions. When a project is taken up for execution, the first task would be to assess the requirements of the service of an outside consultant or the in-house expertise available would be sufficient for the project. Need of consultants Need of consultant arises: i) When a project of new technology is undertaken. ii) When the in-house consultant is incapable of meeting the requirements of the project. iii) When there is no in-house facility available in the organization. iv) When the project is executed on the basis of imported technology and know how. v) To avail the advantages of expertise available with the outside consultants. Consultants may be of: a) In-house consultants b) Outside consultants • Indigenous • Foreign consultants. As regards ‘in-house consultant’, it may be stated that in many organizations a separate department is maintained in the total orgainisation structure. This department looks after the work of detailed engineering , drawings and preparation of technical specifications, etc. An office order shall be issued assigning the jobs along with scope of work, time schedule and job responsibilities to carried out.
  24. 24. When the jobs cannot be done my the in-house consultants, the appointment of outside consultants would become unavoidable. While assigning jobs to the outside consultants the following steps should carried out effectivel:  Approval from the competent authority.  Decide about Indigenous or foreign consultants.  Preparation of list of consultants.  Scope of services of consultants  Preparation of tender documents  Inviting offers from leading consultants  Evaluation of offers  Award if contract to the consultant While selecting outside consultants the various factors to be considered are : job requirements, facilities available in their organizations, experience, performance, their organization structure, fees, the terms and conditions, pre and post commissioning services etc. Job of consultants The functions of a project management consultant have been identified as 1) Assisting the agency in appropriate site investigation and sourcing of materials. 2) Assisting the agency in selecting the appropriate contractor; 3) Checking the quality of work, supervision control, testing monitoring and progress reporting, checking measurements and of bills. The project management consultant has to give periodic reports to the client on the progress, trend and completion date, likely slippage in time, adequacy of resources with the contractor and quality awareness of the contractor, and recommend measures for better control and management, including additional input to correct slippages in future. If it is necessary, they can also recommend termination of a contractor, after examining the legal implications. In India, engaging project management consultants for selection of contractors and supervision of work is somewhat new. The project management consultant concept makes available for project management the latest developments in technical, engineering, management and information fields. Main jobs of the consultants are: i) Preparation of feasibility report
  25. 25. ii) Techno-economic report iii) Preparation of detailed project report iv) Detailed engineering and consultancy services v) vi) Project monitoring and control Supervision of erection and commissioning of project. Provide pre and post commissioning services. vii) With the passage of time, there has been progress in Indianisation in the spheres f technology, know how etc. Many firms in public sector as well s in private sector have come up in have consultancy services. A few well known consultancy firms are:  TATA Consultancy Services Ltd.  Birla Technical Services  Dastur & Co. Ltd.  Engineer India Ltd.  Metallurgical & Engineering Consultants (India) Ltd.  Kirloskar Consultancy Ltd.  Power Consultancy Services India Pvt. Ltd.  Small Industries Services Institute.  Technical Consultancy Organisation  Science and Technology Entrepreneurship Park etc. CONCLUSION Thus, this chapter has explained the various aspects of projects and project management. This conceptual knowledge will certainly helps you to know about the features of project and project managements, which is an emerging unique discipline. And this chapter has also explained the various stages of project life cycle, which helps the project manager to ascertain the strength and weakness of any project at any point of time. SELF ASSESSMENT QUESTIONS 1. 2. 3. Explain the significance of project approach for the economic development of the country. Give an outline about the project opportunities available in different sectors of the economy. Describe the various resource potentials of out country.
  26. 26. 4. 5. 6. 7. Explain the latest trend in the infra-structural project in India. Give a brief note about the various on-going social-welfare sector projects. Explain the role of project manager in successfully administering a project Describe the need and functions of project consultants. ***************************
  27. 27. LESSON – 2 PROJECT IDENTIFICATION OBJECTIVES To know the importance of conceiving a good of project idea To ascertain the different sources from which a project idea can be generated To identify the steps involved in project identification and selection PROJECT IDENTIFICATION SCOUTING AND SCREENING OF PROJECT IDEAS An entrepreneur has an infinitely wide choice with respect to his project in different dimensions such as product/service, market, technology, equipment, scale of production, time phasing and location. Hence, the identification of investment opportunities (projects) calls for understanding he environment in which one operates, sensitivity to emerging investments possibilities, imaginative analysis of a variety of factors and also chance luck. This chapter is concerned with scouting and screening of project ideas, steps in the project identification process and also consideration involved in identifying the new projects by an existing company. PROJECT IDEAS It is the first and foremost task of an entrepreneur to find out suitable business which is feasible and promising and which merit further examination and appraisal. Therefore, he has to first search for a sound of workable business idea and give a practical shape to his idea. While doing so, the entrepreneur has to tackle the various problems from time to time to achiever the ultimate success. Since the good project ideas are elusive, a variety of sources should be trapped to stimulate the generation of project ideas. SOURCES OF PROJECT IDEAS • Project ideas could originate fro the various sources viz., • Success story of a friend/relatives • Experience of others in manufacture/scale of product • Examining the inputs and outputs of industries
  28. 28. • Plan outlays and government guidelines • Suggestions of financial institutions and developmental agencies • Investigation of local materials and resources • Economic and social trend of the economy • New technological developments • Project profiles and industrial potential surveys • Visits to trade fairs • Unfulfilled psychological needs • Possibility of reviving sick units The various sources from which the project idea can be generated are explained below: Analysis the performance of existing industries A study of existing industries in terms of their profitability and capacity utilization is helpful. The analysis of profitability and break even level of various industries indicates promising investment opportunities. Opportunities which are profitable and relatively risk free. An examination of capacity utilization of various industries provides information about the potential for further investment. Such a study becomes more useful if it is regionwise, particularly for products which have high transportation costs. Examine the inputs and outputs of industries An analysis of the inputs required for various industries may throw up project ideas. Opportunities exist when (I) materials purchased parts, or supplies are presently being procured from different sources with attendant time lag and transportation costs and (ii) several firms produce internally some components/parts which can be supplied at a lower cost by a single manufactures who can enjoy economies of scale. A study of the output structure of existing industries may reveal opportunities for further processing of output or even processing of waste Examine imports and exports An analysis of import statistics for a period of fie to seven years is helpful in understanding the trend of imports of various goods and the potential for import substitution. Indigenous manufacture of goods currently imported is advantages for several reasons:
  29. 29. It improves the balances of payments situations It provides market for supporting industries and services It generates employment Likewise, an examination of export statistics is useful in learning about the exports possibilities of various products. Plan outlays and government guidelines The governments plays a very important role in out economy. Its proposed outlay in different sector provides useful pointers toward investment opportunities. They indicate the potential demand for goods and service required by different sectors. Suggestions of financial institutions and developmental agencies: In a bid to promote development of industries in their respective states, state financial corporations state industrial development corporations and other developmental bodies conduct studies, prepare feasibility reports and offer suggestions to potential entrepreneur. The suggestions of these bodies are helpful in identifying promising projects. Investigate local materials and resources A search for project ideas may begin with an investigation into local resources and skills, various ways of adding value to locally available materials may be examined. Similarly, the skills of local artisans may suggest products thay may be profitably produced and marketed. Analysing economic and social trends A study of economic and social trends is helpful in projecting demand for various goods and services. Changing economic conditions provide new business opportunities. A great awareness of the value of time is dawning on the public. Hence the demand for time saving products like prepared food items, ovens and powered vehicles has been increasing. Another change that we are witnessing is that the desire for leisure and recreational activities has been increasing. This has caused and growth in the market for recreational products and services Explore the possibility of reviving sick units Industrial sickness is rampant in the country. There are over 20,000 units which have been characterized as sick. These units are either closed or face the prospect of closure. A significant proportion of sick units, however, can be nursed back to health by sound management, infusion of further capital and provision of complementary inputs. Hence there is a fairly food scope for investment in this
  30. 30. area. Such investments typically have a shorter gestation period because one does not have to begin from scratch. Indeed, in many cases marginal efforts would suffice to revive such units. Identify unfulfilled psychological needs For well established, multi brand product groups like bathing soaps, detergents, cosmetics and tooth pastes, the question to be asked is not whether there is an opportunity to manufacture something to satisfy an actual physical need but whether there are certain psychological needs of consumers which are presently unfulfilled. To find whether such an opportunity exists, the technique of spectrum analysis may be followed. This analysis is done somewhat as follows. (i) Important factors influencing brand choice are identified (ii) respect of the factors identified in step (iii) gaps which exist in relation to consumer psychological needs are identified. Visit to trade fairs Attending the National and International trade fairs provides an excellent opportunity to know about new products and new development. The above said sources of project ideas may be generated by the Government agencies, credit institutions, non-governmental organizations and also by public. The Governments has largest resources and have the necessary information to generate project ideas and it plays a predominant role in this sphere. The government has the required facilities and manpower to conduct detailed studies which may lead to making investment decisions. Banks and other financial institutions are actively involved in sharing the social responsibility of achieving the national objectives of economic development. The co-operatives and non-governmental organizations as well s individual entrepreneurs are now actively participated in identification of projects. The awareness of involving the people or the beneficiaries in project identification is now increasing fast. Since the local people have the first hand knowledge of the potentials and problems of the area to which they belong, more realistic project identification has become possible with their involvement. It needs no emphasis the project ideas would be generated in better manner both in the qualitative as well as quantitative terms when the knowledge and ideas of the Gove. Functionaries, people, the financial institutions and other experts are pooled together. PURPOSE AND NEED FOR PROJECT IDENTIFICATION The entire economic management planning is based on two fundamental assumptions. i.e. a) limited means and b) unlimited ends. A planner has to select few important needs to cut it into size of his/her means. This may be treated as
  31. 31. fixing the priority is called identification of project. It helps in elimination process. Identification and selection of a project is a scientific process. This process is based on certain essential conditions. It may differ from project to project. The essential conditions which should be taken into consideration for identification and selection of production projects are as follows: Project should be in conformity with the economic needs of the area. It should take into account the depriving factors which might have adverse impact. The input-output ratio should be optimum. The purpose of the project is to increase the production and employment of the area. Thus, the above said conditions will differ due to resources availability, use pattern and other relevant conditions of the area. Besides that, project should also consider certain national priorities. STEPS IN PROJECT IDENTIFICATION Project ideas are like other ideas which don’t take concrete shape immediately. There are several stages of making propositions their considerations and scrutiny for their soundness. An idea is first born, it is under incubation for sometime and subsequently is begins to take some definite shape. The project ideas to develop take almost the same course. This project identification may be broadly divided into four stages, viz., A. Conceptual stage – where project ideas are generated B. Screening stages – at which unviable ideas are eliminated. C. Identification stage – at which viable projects are selected D. Pre-feasibility state – at which pre-feasibility studies are taking up. Conceptual stage A number of project ideas may be generated either by those officials or nonofficials and entrepreneurs individually or collectively who are conversant with the area. In this context, one has to examine the potentialities of development and the problems, needs and aspirations of the people of the concerned area.
  32. 32. Screening stage In the second stage project ideas generated above are screened n a preliminary exercise to weed out the bad or unviable ides. All project ideas would not pass the screening test. Some project ideas may be imaginary to warrant any serious consideration. The third & fourth stages may be called as investment opportunity study. This study is necessarily preliminary and the broad one and has a limited objective of providing planners with a choice of projects from which they can make a selection. Pre feasibility study and these can be differentiated opportunity study and a detailed feasibility study and these can be differentiated mainly on the basis of information required for respective stages. SCREENING PROJECT IDEAS After gathering the project ides from the various sources as aforesaid, it is essential to eliminate ideas which prima facie are not promising. This process f eliminating the irrelevant and unviable ideas is called screening of project ideas. It can be done with the help of testing the following conditions of the propositions. a.) Compatibility with the promoter b.) Consistency with governmental priorities c.) Availability of inputs d.) Adequacy of market e.) Reasonableness of cost f.) Acceptability of risk level etc. The project idea must be compatible wit interest personality and resources of the entrepreneur. It should be accessible to him and also it offers him the prospects of rapid growth and high return on invested capital. The project idea must satisfy or go along with the governmental priorities, National goals and governmental regulatory framework. e.g. No Contrary environmental effects to governmental regulations Easily accommodation foreign exchange requirements No difficulty in obtaining license.
  33. 33. The resources and inputs required for the project must be reasonably assured. 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 Identifying the adequacy of market is the key factor to select, the viable project idea. 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 • Barriers to the entry of new units • Economic social and demographic trends favourable to increased consumption • Patent protection Reasonableness of cost is another factor to screen the project ideas. The cost structure of the proposed project must enable it to realize and acceptable profit with a competitive price. The following cost factors must be carefully considered to design a viable cost structure. Cost of material inputs, labour costs, factory overheads. General administration expenses, selling and distribution costs. Service costs, economics of scale etc. Acceptability of risk level is another factor which helps to screen the project ideas and hence determine the desirability of a project.
  34. 34. METHODOLOGY FOR PROJECT IDENTIFICATION To make a viable project it should be linked with the actual circumstances prevailing in the area. Without knowing the basic information relating to socioeconomic conditions of the area, it is difficult to draw a suitable project for the area. Development needs and potentials vary from area to area. For specific area, before drawing a project, local condition and other relevant factors must be taken into consideration. Most of the project fails because they were not based on local problems. Assumptions based on macro level information may fail to watch at micro level. Survey is a technique to unearth the hidden information which are vital to identify the basic requisites of project i.e , need, resource and priorities. It also helps in making right choice between different alternatives. Secondly it presents lot of information to be used as bench mark information which will help at the later stage for evaluation of the project. PROJECT IDENTIFICATION FOR AN EXISTING COMPANY Existing companies essentially large scale company form of organizations are continuously developing various projects for their developmental purposes. While doing so, the existing company has to make a more intensive analysis of its resources and environment and conceive of projects on the basis of its existing activities. An existing company which seeks to identify new project opportunities should undertake a “SWOT” analysis, It is an acronym law of strengths and weakness and opportunities and threats. This analysis evaluate all these four characteristics of existing company. A brief summary of the points required for SWOT analysis is given below: Availability of internal financial reasons for new projects after taking into account the need for replacement expenditure, increase in working capital, repayments of borrowings and dividend payments. Capability of raising external financial resources Availability of production facilities Technological capabilities of the company Availability of different sources of raw materials and its utilization Availibility of infrastructural facilities Cost structure and profit margins of the company Distribution network of the company
  35. 35. Market share of the company Capability of top management of the company State of industrial relations in the company Impact of corporate laws on the growth of the company especially (MRTP ACT) etc., Likely changes in the governmental policies Possibility of evolving new technology and its impact on the cost structure of the company Existence and severity of competition Changes in the customers preferences, tests etc., By considering the above said information keenly the SWOT analysis helps to provide the basis for the corporate strategy to be followed and indicate the major areas of thrust. These may include expansion of the capacity of existing product range, vertical integration, diversification in related areas and mergers. CONCLUSION Thus this lesson has explained to you the significance and mode of conceiving good project idea. It also explains to you the various sources from which the project ideas can be generated and how one should select the project ides. SELF ASSESSMENT QUESTIONS 1. What factors would you take into account for identifying promising investment opportunities? 2. What is SWOT analysis and how it can be done? 3. Explain the process of project identification
  36. 36. LESSON – 3 PROJECT FORMULATION OBJECTIVES To impart the need for project formulation To describe the project formulation process To know the criteria to be followed in project formulation INTRODUCTION Project formulation is an investigating process which precedes investment decision. The purpose is to present relevant facts before the decision-makers to enable them to decide as to whether to go ahead signal should be given for the project or not. Formulation of projects involves scientific procedure. The task of any formidable project is too many. It has to present several information subjective and objective in nature. It explains the objectives, goals and justification for the acceptance of the project. The major task of the project is to assess the financial, technical and managerial involvement and its justification considering the resource constraint. The project formulation stage involves the identification of investment options by the enterprise. Project formulation is designed to bring the project sponsoring authority and the agencies from whom it has to gent concurrence, support etc., on one wavelength. Project formulation by providing a scientifically developed procedure for developing the contend as well as the format of the investment proportions, seek to streamline the process of appraisal of project at government and the aiding agencies level. So, the project formulation is a process involving the joint effort of a team of experts including the economists, the financial analysis and specialists in various fields. A well formulated project provides a medium which out across scientific, social and positional prejudices and provides a common meeting ground for all those who have a contribution to make successful implementation of a project. STAGES IN PROJECT FORMULATION The different stages in the project formulation process are briefly describes as follows;
  37. 37. A. Feasibility analysis B. Techno-economic analysis C. Project design and network analysis D. Input analysis E. Financial analysis F. Social cost-benefit analysis G. Project appraisal FEASIBILITY ANALYSIS Feasibility analysis is the first stages in the process of project development. The purpose of the analysis is to examine the desirability of investing in pre-investment studies. For this purpose it is essential to examine project idea in the light of the available internal (inputs, resources & outputs) and external constraints (environment). When a project idea is taken up for developmental three situations can arise. The project may appear to be feasible, project may turn out to be not feasible or the available data may not e adequate for arriving at reasonable decision regarding further investment. In the last mentioned case, investment in pre-investment studies will obviously have to be adequate for arriving at reasonable decision regarding further investment. In the last mentioned case, investment in pre-investment studies will obviously have to e deferred till such time s adequate date regarding the project feasibility is available. The project sponsoring body will therefore have to invest in collection additional data and refer the investment decision for the time being. In the second situation when the project is found to e not feasible, further investment in the project idea is completely ruled out. In the third situation, when the project idea is found to be feasible, the decision-makers can proceed to invest further resources in preinvestment studies and design development. TECHNO-ECONOMIC ANALYSIS Techno-economic analysis is primarily concerned with the identification of project demand potential and the selection of the optimal technology which can be used to achieve the project objectives. The analysis provides necessary material on which the project design can be based. It also indicates whether the economy is in position to absorb the output of the project or not. PROJECT DESIGN AND NETWORK ANALYSIS Project design is the heart of the project entity. It defines the individual activities which go into the corpus of the project and their inter-relationship with each other. It identifies the flow of events, which must take place before a project can start yielding the results for which it has been set up. The inter-relationship
  38. 38. between various constituent activities of a project in most conveniently expressed in the form of a network diagram. Project design and network analysis are concerned primarily with the development of the detailed work plans of the project and its time profile, and the presentation of this plan is form of a detailed network drawing. Project design and network analysis make available to the project formulation team a clear picture of the work elements of the project and also their sequential relationship. This presentation the way for detailed identification and quantification of the project inputs, an essential step in the development of the financial and cost-benefit profile of the project. INPUT ANALYSIS The objective is to identify and quantify the project inputs and to assess the feasibility of a sustained supply of these inputs all through the effective life span of the project. Resources are consumed in project constituent activities. The best method of identifying the project constituent activities. The best method of identifying the project inputs is therefore to identify these activities determine the resources which each activity will consume individual requirements. Input analysis uses the network plans for developing the input characteristics of the project. If thereafter proceeds to evaluated the availability of the inputs both in quantitative as well as qualitative terms. Resources require for a successful implementation of a project include not only the material inputs but also human resources which are necessary both for the setting up of the project as also its successful normalization run. Resources requirements estimates form the basis of costs estimates of the project and are, therefore, essential for developing the financial profile and cost-benefit profile of the project. FINANCIAL ANALYSIS The objectives of financial analysis is to develop the project from the financial angle and to identify these characteristics. Financial analysis concerns itself with the estimation of the project costs, estimation of project funds requirements, It also involves appraisal of the financial characteristics of the project so as to establish the relative merits and demerits of the project as compared to other investment opportunities. Financial analysis reduces investment proposition in diverse fields of human activity to one common scale, thereby simplifying the project is developing project financial forecasts. COST BENEFIT ANALYSIS In judging the overall worthiness of the project, the effect of the project on society as a whole is very essential. While financial analysis evaluates a project from the profitability point of view, social cost benefit analysis views it from the point of view of national viability. The cost-benefit analysis however takes into account not only the direct costs and benefits which will accrue to the project implementing body but also total costs which all entities connected with the
  39. 39. project will have to bear and the benefits which well be enjoyed by all such entities. The idea here is to evaluate the project in terms of absolute costs and benefits rather than in terms apparent costs and benefits. PRE-INVESTMENT APPRAISAL Pre investment appraisal is the process of consolidating the results of feasibility analysis, the techno-economic analysis, the design and network analysis, the input analysis, the financial analysis and the cost benefit analysis, so as to give the investment proposition a final and formal shape, It naturally involves selection of appraisal format, the material which should go into preinvestment report and the form of presentation of various conclusions. The sun total of the pre-investment appraisal is to present the project idea in a form in which the project sponsoring body, the project implementing body and the outside agencies can take investment decision regarding the proposals. CRITERIA TO BE FOLLOWED The main criteria in the project formulation process are: Forecasting – understanding and precisely identifying the objectives/needs/goals (regional/state/national/international) of the unit/society/economy/on a sustained basis. Setting up priorities and choosing the goals that are more urgent Searching for alternations and carrying out feasibility studies to pick up projects that appear most beneficial and desirable. Carrying out detailed studies of the project so selected Estimation the needed resources (human and physical) and finding the yearly cost and benefit of project Arranging funds – both approval and allocation. The successful implementation of any project depends upon the timely availability of the required resource as per projections. Preparing of time schedule for all hobs so that the physical and financial targets of the projects are passed appropriately Distributing the works to various departments or agencies having the appropriate technical expertise
  40. 40. Execution and controlling the project. This requires frequent reviewing, updating and constant action to restore the operation to its planned characteristics. Evaluating the performance of each project to ensure the worth of good or service for each rupee to be spent. CONCLUSION Thus the process of project formulation involves a stage by stage development of the project idea into an investment proposition. The conclusion down at the end of each stage forms the basis of development of the ensuing stage. These conclusions also provide necessary materials for re-checking of the initial premises from which a beginning was made. There must be forward and backward look at the completion of every stage. So the project formulation team has to be ready to revise its opinions and conclusions in the light of further evidence. SELF ASSESSMENT QUESTIONS 1. What do you mean by project formulation? Explain the several aspects of project formulation. 2. What are the different phases of project formulation? 3. Explain the criterion to be adopted while formulating a project. 4. “Formulation of projects involves scientific procedure” elucidate. ***************
  41. 41. LESSON – 4 FEASIBILITY STUDY AND PREPARATION OF FEASIBILITY REPORT OBJECTIVES 1. To explain the nature and significance of feasibility study. 2. To know the components of feasibility study in a detailed manner. 3. To import knowledge of preparing feasibility report and how it can be checked. INTRODUCTION A feasibility report is an investment proposal base on certain information and factual data appraising the project. This type of feasibility study may be required by the financing institutions, project sponsor, project owner. The feasibility report enables the project holder to know the inputs required and if rightly prepared confirms to the convictions that he is proceeding in the right direction. In other words, a project needs to be fully defined in order to provide terms of reference for the management of the project. A project can be considered to have been fully established when the following conditions are fulfilled. The technical configuration of the project has been fully defined. The performance requirement for the various technical system and the key equipment have been specified. Cost estimate for the project is frozen. Techno-economic viability of the project has been examined, appraised and approved. An overall schedule for implementation of the project has been drawn-up. The feasibility report is prepared during the definition phase of a project. It lies in between project formulation stage and appraisal and sanction stage. It is prepared to present an in-depths techno-commercial analysis carried out on the project idea for consideration of the financial institutions and other authorities empowered to take the investment decision.
  42. 42. NATURE OR PROJECT FEASIBILITY ANALYSIS In the broadest sense, every rational decision t make new investment is proceeded by an investigation of the feasibility of the project, whether or not this carried out in a formal manner. The larger the project and greater the investment, the more formalized the investigation. Assurance is needed that the market exists or can be developed, that raw materials can be obtained, that sufficient labour supply is available, that local services vital to the project are at hand, and that the overall costs for plant equipment, labour and raw material input will be of a certain order. Most importantly it must be determined that income will exceed costs by a margin sufficient to make the project financially attractive. When the project is small, the study format may be quite informal, perhaps there will be no formal study at all and little accumulation of actual data. Nevertheless, the feasibility calculations will have to be computed and evaluated, even if an informal manner before the ultimate step of actual investment is taken. NEED FOR FEASIBILITY STUDIES A company is incorporated for the purpose of setting up a project. The promoters obviously have, to start with, some broad idea about the proposed industrial activity. They make mental picture as to how the idea, when translated into reality would result in a profitable project, given the demand supply pattern, probable cost of production etc. It is quite likely that the originators get attracted by the favorable aspects of the project known to them, while they may have overlooked the dark side of the picture, which can only be revealed by a detailed objective study. Too many projects have floundered, at considerable loss to the investors and indeed to the national economy through waste of scarce resources, because the investment decisions were taken without objective and in depth techno-economic feasibility studies. The need for such careful studies is further underscored on two counts: In modern times, business operations are complex, requiring carefully prepared plans. The shareholders, creditors, term leaders etc., insist on as complete an analysis of the scheme as possible without their co-operation, it would not be possible to translate the ide into action. This feasibility study helps the promoter to make the investment decisions correctly and to obtain funds without much difficulties. It allows the promoters to anticipate the problems likely to be encountered in the execution of the project and phases them in a better position to answer the queries that may be raised by the financial institutions and others who would have to be involved in the project.
  43. 43. COMPLEMENTS OF FEASIBILITY STUDY Project feasibility study comprises of market analysis, technical analysis, financial analysis, and social profitability analysis. The analysis is mainly interested only in the commercial profitability and thus examining only the market, technical and financial aspects of the project. But, generally the gamut of feasibility of a project covers the following areas: • Commercial and economic feasibility • Technical feasibility • Financial feasibility • Managerial feasibility • Social feasibility or acceptability These areas are briefly described below: COMMERCIAL AND ECONOMIC FEASIBILITY The economic feasibility aspect of a project relates to the earning capacity of the project. Earnings of the project depends on the volume of sales. If taken into consideration the following important indicators. Present demand of the goods produced through the project. i.e. market facility (or) getting a feel of the market. Future demand: a projection may be made about the future demand. The period normally depend upon the scale of investment. Determining the extent of supply to meet the expected demand and arriving at the gap. Deciding in what way the project under consideration will have a reasonable chance to share the market. Anticipated rate of return on investment. If it is positive the project justifies the economic norm in the relationship between cost and demand. Future demand can be estimated after failing into consideration the potentialities of the export market the charges in the income and prices, the multiples use of the product, the probable expansion of industries and the growth of new industries. The share of the proposed project n the market could be identified by considering the factors affecting the supply position such as competitive position of the unit, existing and potential competitors, the extent of
  44. 44. capacity utilization, unit cost advantages and disadvantages, structural changes and technological innovations bringing substitute into the market. The commercial feasibility of a project involves a study of the proposed arrangements for the purchase of raw materials and sale of finished products etc. This study comprises the following two aspects. Arriving at the physical requirement of production input such as raw materials, power, labour etc., at various level of output and converting them into cost. In other words, deciding costing pattern. Matching costs with revenues with a view to estimating the profitability of the project and the break-even point. The possibility ultimately decides whether the project will be a feasible proposition. The technical analysis of a project feasibility study serves to establish whether or to the project is technically feasible ant it also provides a basis for cost estimating. TECHNICAL FEASIBILITY The examination of this aspect requires a thorough assessment of the various requirements of the actual production process and includes a detailed estimate of the goods and services needed for the project. So, the feasibility report should give a description of the project in terms of technology to be used, requirement of equipment, labour and other inputs. Location of the project should be given special attention n relevance to technical feasibility. Another important feature of technical feasibility relates the types of technology to be adopted for the project. The exercise of technical feasibility is not done in isolation. The scheme has also to be viewed from economic considerations; otherwise, it may not be a practical proportion however sound technically it may be. The promoter of the project can approach the problem of preparation of technical feasibility studies in the following order: Undertaking a preliminary study of technical requirements to have a quick evaluation. If preliminary investigation indicate favourable prospects working out further details of the project. The exercise begins with engineering and technical specifications and covers the requirements of the proposed project as to quality, quantity and specification type of components of plant & machinery, accessories, raw materials, labour fuel, power, water, effluent disposal transportation etc. Thus, the technical feasibility analysis is an attempt to study the project basically from a technician’s angle. The main aspects to be considered under this
  45. 45. study are: technology of the project, size of the plant, location of the project, pollution caused by the project production capacity of the project, strength of the project. Emergency or stand-by facilities required by the project sophistication such as automation, mechanical handling etc. required collaboration agreements, production inputs and implementation of the project. FINANCIAL FEASIBILITY The main objectives of this feasibility study is to assess the financial viability of the project. Here, the main emphasis is in the preparation of financial statement, so that the project can be evaluated in terms of various measures of commercial profitability and the magnitude of financing required can be determined. The decision about the financial feasibility of project should be arrived at based on the following consideration: For existing companies, audited financial statements such as balance sheets, income statements and cash flow statements. For projects that involve new companies, statement of total projects cost, initial capital requirements, and flow relative to the projective time table. Financial projections for future time periods, including income statements, cash flows and balance sheets. Supporting schedule for financial projections stating assumptions used as to collection period of sales, inventory levels, payment period of purchases and expenses and elements of production cost, selling administrative and financial expenses. Financial analysis showing return on investment return on equity, breakeven volume and price analysis. If necessary sensibility analysis to identify items that have a large impact on profitability or possibly a risk analysis. MANAGERIAL FEASIBILITY The success or failure of a project largely depends upon the ability of the project holder to manager the project. Project is a bundle of activities and each activity has its own role. For the success of a project, a project holder has to coordinate all the activities in such a way that the additive impact of different inputs can produce the desired result. The ability to manage and organize all such inter related activities come within the concept of management. If the person in-charge of the project, has the ability, has the ability to manage all such activities, the desired result can be anticipated.
  46. 46. There are three ways to measure the managerial efficiency: a. Hereby skill b. Skill acquired through training c. Skill acquired course of work SOCIAL FEASIBILITY A project may cross all the above barriers mentioned above an found very suitable but is will lose its entire creditability, if it has no social acceptance. Though the social customs, conventions such as caste community, regional influence etc. are creating hindrance for development of a project should avoid all such social conflicts which will stand on the successful implementation of the project, (e.g.) Considering the interests of the general public; projects which offer large employment potential, which channelise the income from less developed areas will stimulate small industries. In a nut shell, the feasibility report should highlight on these five testing stones before it can be declared as complete and only after judging through these indicators a project can be declared as viable and can be submitted for finance or any other assistance from any institutions. FORMAT OF FEASIBILITY REPORT The sketch of feasibility report of the project covers the following 1. Introduction 2. Summary and Recommendations 3. Project Capacity, Chemistry of the product, specifications, properties, application and uses. 4. Market potential 5. Process and know-how 6. Plant and machinery 7. Location of the unit 8. Plot plan and building 9. Raw materials availability 10. Utilities, requirements
  47. 47. 11. Effluents treatment 12. Personel requirement 13. Capital cost 14. Working capital 15. Mode of finance 16. Manufacturing cost 17. Financial analysis 18. Implementation schedule CHECK FOR FEASIBILITY REPORT The following key elements must be presented in the feasibility report, Examination of public policy with respect to the industry project Broad specification of outputs and alternative techniques of production Listing and description of alternative locations Preliminary estimates of sales revenue, capital costs and operating costs of different alternatives Preliminary analysis of profitability for different alternatives Marketing analysis Specification of product pattern and product prices Listing of major equipment by type, size and cost Listing of auxiliary equipment and process know-how Specification of site and completion of necessary investigation Listing of buildings, structures and yard facilities by type size and cost Specification of supply sources connection costs and other costs and other costs for transportation services, water supply and power Preparation of layout Specification of skill-wise labour requirements and labour costs. Estimation of working capital requirement Phasing of activities, and expenditure during construction Analysis of profitability Determination of measures of combating environmental problems State the preparedness to implement the project rapidly
  48. 48. CONCLUSION Thus, this chapter narrates the very purpose of a feasibility report in a lucid manner, covering components of feasibility reports, principal feature of project feasibility study and also checklist for feasibility study. It helps in defining and analyzing the alternative approaches to production processes and outcomes. It focuses attention on the material inputs and various other techno-economic variables. It describes the optimization process, justifies the assumptions and hypothesis set thereby selection the better alternative solutions and defines tre clear boundaries of a project viability. SELF ASSESSMENT QUESTIONS 1. What do you mean by feasibility study? Explain its significance in project formulation? 2. Explain the different components of feasibility study 3. Suggest a suitable outline of feasibility report for setting up a small scale industry. 4. How a technical feasibility of a project can be ascertained? 5. Analyse the significance of managerial competence and commercial viability of project in the feasibility study. 6. What the elements to be covered in the feasibility report?
  49. 49. LESSON – 6 PROJECT REPORT OBJECTIVES 1. To know the need for preparing a project report 2. To explain the content of an ideal project report INTRODUCTION A project at the outset must bear a logical appearance, which it can get only after the feasibility test. Project report is a document, which clearly narrates the various aspects f project in a prescribed form. Project report preparation is a post investment decision exercise. It involves the preparation of detailed specifications and designs for the project premises, detailed design of the process or other equipment and time schedules for the implementation of the project. Hence, the detailed project report is the work plan for the implementation of the a project once an investment decision is arrived at. A project report is meant to provide the necessary information, which may be required for the purpose of processing and assessing the proposal for getting the financial assistance from the financial institutions. This is essentially prepared in order to provide a complete information with proximate values of the project and presented to the financial institution for appraisal. A project report prepared with utmost care care would not only give a clear idea to the banker but also it relives the entrepreneur from the normal objections and formal queries of the banker. In a developing economy like India, where the development banking is vigorous, an entrepreneur gets a lot of published materials with data relating to various feasibilities and promotional institutions engaged in entrepreneurship development produce good literature covering various aspects of producing a project or products in the country. The Director General of Technical Development (DGTD), National Small Industries Corporations (NSIC) are some of the pioneer institutions providing variety of information for small scale enterprises to manufacture. They are guidelines for industries indication those items, in which good scope exists for manufacturing. With these available information, an entrepreneur has to do the following for starting an industrial unit: To decide the types and level of industrial production. To compare the requirements of funds with his personal availability of finance.
  50. 50. To prepare a nice project report containing all relevant information. Many of the institutions like SISI, State Financial Institutions also help in preparation of project report and later on recommend they to the banks. Besides these institutions, several commercial banks help the entrepreneurs to get a good project report. Components of Project Report The following are the important headings under which the complete information on relevant aspects should be included for a small scale industry’s project report. General information Rationale Project description Market potential Capital expenditure and sources of finance Assessment of working capital requirements Other financial factors Government and other statutory approvals Economic and social variables 1. GENERAL INFORMATION The following aspects should be given in the stage, which are of general nature: Name and address of the entrepreneur The qualifications, experience and other capabilities of the entrepreneur. If it is a partnership firs, these information of other members should also be given. A small reference of analysis of industry to which the project belongs e.g. past performance, present status, the way of organization, the problems etc. The organizational structure of the enterprise The utility of the product and the range of products to be manufactured
  51. 51. 2. RATIONALE As mentioned earlier a project may have several objectives subsidiary to the prime objective of making profit. As a first step in project evaluation, it is essential that one looks at the broad rationale of the project proposal to ensure that the project is appropriate and justified. As an example, one could say that modernization or pollution control may be fully justified on grounds of survival and environmental protection even if, in the short-term the project expenditure may adversely affect the financial criteria of project evaluation. On the other hand, a project which would improve the earnings per share or the debt service cover or the production efficiency may not necessarily be justified if all this is to be achieved at the expense of national interest or public interest. 3. PROJECT DESCRIPTION A brief description of the project covering the following aspects should be given in the project report. SITE: Location (Town, Complete address) whether owned or leasehold land whether the site is approved industrial area? Is it suitable for the product under review. 4. INPUT FACTORS Raw materials: What are the sources of raw materials? Are they locally available? Whether imported raw material is also required? If so, whether license has been obtained? Is it suitable to get quality raw materials continuously at reasonable prices? The availability, quality critically and quality compatibility of the raw material with the technology as well as the plant and machinery are important factors to be clearly understood while evaluating a project especially those in hitech area. This element is also intimately linked to many other elements in a project and can force necessary changes in them to ensure the viability of the project. As a simple example, one can easily surmise that a raw material with a high volume to weight ratio will indicate the plant is located near the source of raw material. e.g. Cement, power (coal based). On the other hand, if the values added in such a case is very high, then it may be possible or even necessary to locate the plant away from the source or raw materials. Textiles, power (gas based of oil based), processed foods like snack foods, ice creams are some the pertinent examples. The characteristics of the raw materials are multivariate and not just on the volume weight ratio. It is imperative therefore that this elements gets a careful
  52. 52. consideration while assessing a project. The market, the management, and the utility needs of the projects also influence the locational decisions. Labour: What is the type of labour required? Whether skilled or unskilled? Are they available in that area? If not, what arrangement have been made to recruit and train the labour in various skills? Power: Inadequate supply and high cost of electricity is a major problem now-adays. So, the project report should contain the information regarding the power requirements, the load sanctioned, stability of supply of power and the price at different consumption level. Fuel & water: Whether the fuel systems like coal, coke, oil or gas are required and if yes, then state their availability position. Similarly water is an important factor. The source and the quality of water should be clearly stated. Waste discharge: Most of the plants product waste material or emissions that may result in many health problems to the public. The emissions and discharges may be various types like (a) gaseous )smoke, fumes, dust etc.) by physical (noise, hear, vibration etc.) or (c) liquid or solid discharged through pumps and sewers. Hence, it should be clearly stated that the arrangements made from these things. COMMUNICATION AND TRANSPORT FACILITIES A vialability of communication facilities like telephone, telex and post and telegraph department, should be stated in the report. Similarly, transport is a basic necessity for industries. Raw materials as well as finished products has to reach destination only through a good transport systems available. So, the various transport facilities available in that should be clearly stated. Similarly availability of facilities like machine shops, welding shops and electrical repair shops etc., should also be stated. List of machinery & Equipments: A complete list of items of machinery and other equipments indication their type, size and cost should be stated. Source of supply of capital equipment and the construction services should also be given. The source of plant and machinery as also the specification for the same can often make or break a project. It is, therefore, equally important to evaluate the plant and machinery which is to be installed at the project. The reputation of the supplier and references to place where such/similar plant and machinery are installed is a good starting point while assessing this element. Capacity & Technology: The installed and licensed should be stated and the number of shifts likely to follow should be stated. Similarly, is the technology
  53. 53. upto date and appropriate? Which other units are using the same technology and with what results? How the required know-how is proposed to be arranged.? The level of technology in terms of its “state of art” or obsolescence, adaptability to the local conditions, maintenance and repairability, sophistication in management and control are elements which have a significant impact on the quality and quantity of production that is envisaged in the project. It is thus necessary to have a clear understanding about the technology which is to be utilized in the project. It is pertinent to note that there are no hard and fast rules but “appropriateness” and “relevance” are the two key operative words while assessing a technology proposed for the project. It is ridiculous to propose a highly sophisticated, push button control technology in a place where electricity supply follows its own rules or where a simpler technology is better understood and more manageable. Equally, it would be disastrous to recommend an obsolete technology on account of its durability or time tested proof of performance when everyone else is fast discarding it. This technology elements is linked to ever other element in the project proposal and these linkages also need to be looked into as an essential step in assessing the technology. One of the technologies available may necessitate creation of large capacity not necessarily advisable given the current raw material supply or the market size for the product. For example, a capacity of 100 tps. But if raw material proposed is “agricltral waste” a whole lot of new considerations starting from collection and storage or raw materials come into play necessitation appropriate changes in the plant size and even perhaps the technology. Similar situations can arise in linkages of technology to management, availability of utilities, and cost of the project. Quality control: What is the system arranged for to check the quality of products on continuous basis? The quality marks like ISI, Agmark will enhance the values of the product as well as confidence among the consumers. If it is desired to get quality markings, the fact should be included in the project report. 5. Market Potential Estimation of demand & supply Facts regarding the anticipated demand for product and the level of supply, should be clearly stated. An estimate of manufacturing and administrative expenses together with the price expected along with the margin of profit should be stated.
  54. 54. Marketing strategy: What is the strategy adopted for marketing the product should be stated. Whether the products are to be supplied to the reputed sellers directly or distributors? Is there any possibility of getting a contract from the reputed concerns should also be stated in this project report. Similarly whether after sales service has been arranged and how to fill the gap of demand if there is fluctuations in the sales seasonal demand arrangements made for warehousing the products. 6. Capital expenditure and sources of finance Cost of the project : Since each project is profit motivate it is important that cost of the project is carefully assessed and evaluated. One of the most important factors in this assessment is the level of accuracy in the cost estimates, which in addition to proper data collections also depends upon the approach and the attitude of the evaluator himself. Some evaluators tend to see all cost estimates as “too high” leading to unnecessary under estimation of the project cost and consequent problems in project implementation and even project viability. On the other hand some evaluators tend to provide “cushions” at all levels of cost estimates which may erode the viability of the project on paper leading to wrong decision on the issue of project selection and implementation. As estimate regarding this various capital inputs required by the industry should be given. Those capital items include the following: 1. Land & Building 2. Plant and machinery 3. Preliminary expense 4. Miscellaneous assets 5. Price escalation 6. Working capital limit Means of financing: Having established the cost of a project as justified and reasonable, it is necessary to evolve the means of financing the project. It should be acceptable within the framework of the financial system and sufficiently attractive/or safe enough for the investor lender to come forward and extend the necessary assistance. During the last decade, financial scenario in India has undergone substantive, qualitative as well as quantitative change almost amounting to a metamorphosis. As a result the project prosperity has a fairly wide range of means of finance available to him to choose from. Instead of a standard debt-equity ratio of 2:1, the promoter taking up 50% to 75% of the equity, the balance being offered to the public and the financial institutions and banks

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