Project Feasibility Studies By Engr Dr Attaullah Shah

Project Feasibility Studies By; Engr. Dr. Attaullah Shah Ph. D ( Civil) Engg , MSc Engg ( Strs), BSc Engg ( Gold Medalist), ), MBA, MA ( Eco) MSc Envir Design, PGD Computer Sc. Tel: 051 -9250100 E-mail: pdaiou@yahoo. com.

Project management includes: - Project Appraisal ( Before Commencement of Project PC-I, PC-II). Project monitoring. ( During Execution of the Projects PC-III) - - Project Evaluation ( After Completion of the projects. PC-IV, PC-V)

What is Project Feasibility Study? n A feasibility study is defined as an evaluation or analysis of the potential impact of a proposed project or program. n A feasibility study is conducted to assist decision-makers. n In determining whether or not to implement a particular project or program. n n The feasibility study is based on extensive research on both the current practices and the proposed project /program and its impact on the existing operation. The feasibility study will contain extensive data related to financial and operational impact and will include advantages and disadvantages of both the current situation and the proposed plan.

n n n The selection of a sound project to achieve the given target of economic development in a particular sector is very important for attainment of Plan objectives. Development projects, especially large and complex ones, often meet with difficulties during their execution process. A feasibility study is, therefore, a pre-requisite for preparation of a major development project on sound lines, and is not ruled out even for a minor one. It is basically an in-depth "three-in-one" study consisting of the technical, financial and economic viability of a project. The study arrives at a definite conclusion about the feasibility of a project after considering the various options

Assessing Project Feasibility n You need to calculate Nine categories of feasibility: n n n n n Economic Financial Operational & Technical Schedule ( Time) Legal and contractual Political Marketing Ethical Environmental

Project Appraisal. § Technical Analysis § The analysis for determining the technical viability of the development project is based on the technical data and information given in the PC-I form as well as the earlier experience of carrying out similar projects. The technical analysis covers the following areas: § § § § § Impact Analysis: Location, land, suitability of location ( Seismic Zones), Utilities, roads, infrastructure, Raw material, Present and Future needs. Availability of machinery, plants and equipments, technology. Transportation facilities, commercial centers, Manpower, Local labor, technicians, unskilled workers. Climate, natural hazards, Demand supply analysis. Government incentives and commissions.

Institutional/Organizational/Managerial Analysis: n A whole range of issues in project preparation revolves around the overlapping institutional, organizational and managerial aspects of the project. Managerial Feasibility. Managerial feasibility involves the capability of the infrastructure of a process to achieve and sustain process improvement, Management support, employee involvement, and commitment are key elements required to ascertain managerial feasibility. It is the most neglected part in the feasibility studies of construction projects.

Two basic approaches of Project Organization. n Separation of organizations: n n n Traditional sequence of design and construction. Professional construction management Integration of organizations: n n Owner-builder operation in which all work will be handled in house by force account. Turnkey operation in which all work is contracted to a vendor which is responsible for delivering the completed project.

Various Forms of Project Organization A Matrix Organization A Project-Oriented Organization

The Matrix Organization in an Engineering Division Coordination between Owner and Consultant

n Commercial/ Marketing Analysis The commercial aspects of a project include the arrangements for marketing the output produced by the project and the arrangement for the supply of inputs needed to build and operate the project. n n n n Test marketing Market Planning process. Market Share determination. Pricing and Competition strategies (Skimming or Penetration) Distribution networks. Advertisement plans. Sales promotion strategies. Product Life Cycle studies.

Financial Analysis n n Financial analysis involves assessment of financial impact, judgment of efficient resource use, assessment of incentives, provision of a sound financing plan, coordination of financial contribution and assessment of financial management competence. The following techniques are used. The overall resource requirements of the projects are tabulated in three basic documents: n n Income/Expenditure Statement ( Profit & Loss Statement) Project Cash Flows ( Cash inflows and outflows) Project Balance Sheets ( Assets & Liabilities) Various tools of project Financial Analysis: n n n n Simple Rate of Return Break Even Analysis. Pay Back period Net present Value Internal Rate of Return ( IRR) Financial Ratio Analysis. Benefits Cost Ratio.

Financial Analysis of Project based on Social Cost Benefit Profitability n Contribution of the project to social welfare of a society. n n Impact of the project on Foreign trade ( Exports and Imports) Effect on trained Human Resource Direct and Indirect impact on environment. Techniques used for Social CBA. n n n Net Value Added Distribution effect ( Poverty Alleviation) Foreign Exchange Effect Sensitivity analysis ( Impact of project in case of cost and time overruns). Risk Analysis

Economic Feasibility n Viability of a project over a period of time. n n n Capital Costs Working Capital requirements. Estimates of operating Costs Depreciation/Taxes and Profits. Determine Tangible Costs n n Can easily be measured in PKR Determine Tangible One-Time Costs n Associated with project startup, initiation and development Includes n System Development n New hardware and software purchases n User training n Site preparation n Data or system conversion

Assessing Economic Feasibility n Determine Tangible Recurring Costs n n n Associated with on-going use of system Includes: n Application software maintenance n Incremental data storage expense n New software and hardware releases n Consumable supplies Determine Intangible Costs n n Cannot be easily measured in dollars Examples: n Loss of customer goodwill n Loss of employee morale

Assessing Economic Feasibility n Determine Intangible Benefits Cannot be measured easily n Examples n n n Increased employee morale Competitive necessity More timely information Promotion of organizational learning and understanding

n Operational Feasibility n How likely is it that system can be used to meet desired objectives? (e. g. , functional illiterate line workers make up 90% of production staff…can proposed system work at our facility? )

Assessing Other Project Feasibility Concerns n Schedule Feasibility n n Assessment of timeframe and project completion dates with respect to organization constraints for affecting change Legal and Contractual Feasibility n Assessment of legal and contractual ramifications of new system (e. g. , does it violate the union contract? )

Assessing Other Project Feasibility Concerns n Political Feasibility n n Ethical Feasibility n n Assessment of view of key stakeholders in organization toward proposed system (e. g. , How will this affect morale? Will we see a worker slowdown in other areas? ) Are there issues that are inconsistent with corporate ethics and goals even if legal (e. g. , lots of e-waste? ) With above analyses, firm can rank order project and determine if it should be done via prioritization…

EIA: Environmental Impact Assessment of Projects n n EIA is a systematic process to identify, assess and manage the potential environmental effects of a proposed development or activity. The findings of the EIA process are presented in an Environmental Statement (ES). The process and findings inform decision-makers e. g. Local Planning Authorities (LPAs) of the likely environmental consequences of the proposals. The EIA process gathers data and evaluates effects on a range of technical topic areas that are specified in the legislation, these include, air, population, soil, fauna, flora, water, climatic factors, material assets including architectural and archaeological heritage, landscape and the inter-relationships between these factors. The findings from evaluation of each of these topic areas link together to provide a picture of the effects of the proposal as a whole.

Why EIA of the Projects?

EIA Process.

n Part-II Project Management in Public Sector

History of Planning Bodies in Pakistan n n n n Development Board was established early in 1948 In 1950 a Six-Year Development Plan was formulated and embodied in the Colombo Plan for Cooperative Economic Development in South and South East Asia. . Planning Board: 18 th July, 1953, To develop the resources of the country as rapidly as possible so as to promote the welfare of the people, provide adequate living standards, and social services, secure social justice and equality of opportunity to all and aim at the widest and most equitable distribution of national wealth. Planning Commission On 22 nd October 1958, the President was pleased to re-designate the National Planning Board as the Planning Commission. Federal Ministries/Divisions The Federal Ministries are responsible for the preparation of programmes and projects in their respective fields of interest including autonomous organizations under their control

Conceptual Plans. Perspective Plan-Vision Plan ( Ex: 2030 Vision) n To provide a long-term (15 -25 years) economic and social policy framework so that the objectives to be achieved over a much longer period can be incorporated in a medium-term framework. Five Year Plan: n A five year plan is a general statement of objectives and targets relating to the economy as a whole and its various component sectors. Roll-On Plan n In order to bring flexibility into the Five Year, a roll-on plan of medium term is designed in which the sectoral and project-wise position is adjusted according to the foregoing year Annual Plan n It is regarded as the implementation side of the five year plan. n The annual plan includes an evaluation of past performance, a presentation of the main targets, an assessment of the resource position for the year.

FEASIBILITY STUDY Pre-requisite for preparation of a major development project on sound lines, and is not ruled out even for a minor one Preparation/Processing of PC-II. n For Large projects of cost 500 Million or more n Consultants are appointed for pre-feasibility. n The consultancy charges should not exceed 10% PC-I/Project Feasibility: n Part 'A' is the "Project Digest”- containing eight questions which are more or less common to all sectoral PC-Is forms. n Part 'B' entitled "Project Description and Financing", n Part 'C' deals with "Project Requirements". n Part 'D' deals with environmental aspects.

n n n PC-III Proforma Designed to furnish information on the progress of on-going projects on quarterly basis PC-IV & V Proformae PC-IV form is required to be submitted at the time when the project is adjudged to be complete while the PC-V form is to be furnished on an annual basis for a period of five years by the agencies responsible for operation and maintenance of the projects. Umbrella PC-I Some times a Federal Ministry is required to prepare a PC-I having provincial components to be financed through a joint loan by a donor agency.

Public Sector Development Program PSDP n n The Public Sector Development Programme (PSDP) is an annual document which lists all the public sector projects/ programmes with specific allocations made for each one of them in that particular financial year. ( 1920 Projects in 200607) Federal Vs Provincial Projects Major share of the total Development Programme is allocated to Federal projects While the remainder is allocated to the Provincial Development Programme.

PROJECT APPROVING BODIES n National Economic Council (NEC) –CEO/PM as Chief. ( No limit) n n Executive Committee of National Economic Council (ECNEC) Above 500 M Headed by the Federal Minister of Finance/ Adviser to the Prime Minister for Finance and Economic and Planning. Economic Coordination Committee of the Cabinet (ECC) Headed by the Federal Minister for Finance and Federal Ministers of economic ministries as its members. It attends to all urgent day-today economic matters and coordinates the economic policies initiated by the various Divisions of the Government

n n n Central Development Working Party (CDWP) Headed by the Deputy Chairman, Planning Commission and which includes as its members the Secretaries of the Federal Ministries concerned with the development and the heads of the Planning Departments of the Provincial Governments. Departmental Development Working Party (DDWP/DSC) Headed by the respective Secretary/ Head of Department and includes representatives of Finance Division and concerned Technical Section in the Planning and Development Division. Provincial Working Party (PDWP): headed by the Chairman, Development Board/Additional Chief Secretary (Development) and includes Secretaries of the Provincial Departments concerned with development, as its members

Predecessor and Successor Activities 1. Pre-feasibility A 2. B Concept clearance (where necessary) A 3. Negotiation foreign aid/loan (where necessary) C 4. Preparation of PC-II D C 5. Feasibility E D 6. F E 7. Processing/Scrutiny of the Project G F 8. Approval of the project by competent authority. H G I H J B K H L H Project formulation/preparation of PC-I 9’ Project documents (work plan/ PERT/CPM) 10 Signing of foreign loan/aid agreement+ 11 Administrative approval 12 Allocation of funds/ADP (PLA) B

13 Release of funds*M - Appoint of Project Director N - Land Acquisition O- Simultaneous - Creation of Posts and appointment of staff - Appoint of consultant O - Detailed design preparation R 14 Tendering S R 15 Evaluation of Tender 16 Award of Contract T S U T 17 Construction of Civil Works V U 18 Procurement of Machinery / other inputs W K / L / V 19 Installation of machinery / equipment X 20 Commissioning / Completion YV X W

Preparation/Processing of PC-II • A PC-II is prepared for undertaking a feasibility study in respect of a majo project estimated to cost Rs 50 million or more. This is mandatory. • A project-oriented TOR should be prepared and professional consultants should be engaged for the feasibility study, if necessary • The procedure for processing a PC-II is the same as for the PC-I. The consultancy cost should not exceed 10% of the project cost. • The relevant scrutinizing body and the sanctioning authority will also remain the same as for the PC-I. In short, all the rules and procedures in respect of the PC-I will apply mutatis mutandis to the PC-II. • All proposals for consultancy, both local and foreign, for preparation of feasibility studies/ conducting surveys should be drawn up on the PC-II form and got approved from the Competent Authority before undertaking the actual work. • The need for utilization and development of local consultancy has been recognized by the Government.

n n n Accordingly, ECC in its meeting held on 19 -7 -1988 decided that 30 per cent of expenditure to be incurred on foreign consultancy should be devoted to the development of local consultancy and that the limit of 30 per cent would be mandatory foreign consultants, who would be required to engage local consultants The Pakistani consultants and engineers be given full opportunity and they should be the first to be hired for projects for consultancies in Pakistan before hiring any foreigners. For details of PC-II refer to Doc-PC-II

n n n n n Project Preparation PC-1 General - Linking Projects to Resources - Location, Area and Population Coverage - Project Description - Project Objectives and Targets - Project Scope - Change in Scope of Projects - Cost Estimates - Revised Cost Estimates - Financial Plan - Financial Phasing - Physical Scheduling of Activities - Period of Implementation - Appointment of Consultants for Project Preparation, Detailed Designing and Tender Documents - Economic Benefits - Inter-Agency Coordination - Preparation of PC-I/Project Document For details refer to PC-I doc.

n PROJECT APPROVAL Approval Stage n Project Approving Bodies - National Economic Council (NEC) - Executive Committee of National Economic Council (ECNEC) - Economic Coordination Committee (ECC) of the Cabinet - Central Development Working Party (CDWP) - Departmental Development Working Party (DDWP) - Provincial Development Working Party (PDWP) n Sanctioning Powers of Approving Authorities n Submission of Schemes to the Competent Authority n Processing of Schemes

n n n n PROJECT IMPLEMENTATION AND MONITORING Project Management & Supervision Appointment of Project Director Increase in Scope of Work and Delay in Execution of Projects. Project Execution/Supervision-Development of Management Information System (MIS) PERT/CPM Techniques Steps in Project Formulation/Implementation - Listing of Activities - Acquisition of Land - Tendering of Civil Works and Award of Contracts - Procurement of Machinery and Equipment - Local Purchase/Fabrication - Foreign Procurement/Utilization of Foreign Aid Submission of Completion Report - Project Review and Monitoring - Progress on PC-III Proforma - Progress Review by the Ministries/Divisions Project Review Groups - Review of Foreign Economic Assistance and Problematic Foreign Aided Projects by the Committee

Project Control Cycle. Monitoring Collect the performance Establish the Standards Data. Feedback Evaluation Take the corrective actions Resolve Compare with the standards

Project Management & Supervision 1. The objective of any effort in project planning and analysis is to have a project that can be implemented to the benefit and socio-economic uplift of the society. 2. The Project Director is appointed, staff of all categories arranged, the detailed designs got prepared, if need be, with the assistance of consultants, contractors pre-qualified and short-listed, tenders floated for civil works, equipment, and their installation, contracts awarded, all in timeliness with the objective of initiating the operations and getting them fully underway for achieving the goals envisaged without any time and cost over-run, in order that the economic benefits accrue according to the promises made in the scheme. 3. For achievement of the stipulated targets and tangible returns, however, it is imperative to entrust the management and supervision of the project during the implementation stage to capable and competent hands of required qualifications, experience and calibers.

CASH PLAN General • The Cash Plan has to be prepared on the basis of allocations made in the PSDP for the next financial year. • Provide name of the ministry/division along with Project and PSDP allocations. The serial number of the project as reflected in the PSDP may also be provided. • The actual expenditure are the expenditure actually incurred on the project. The funds transferred to PWD/C&W department are not expenditure rather it is deposited with the department to be spent on behalf of executing agency. The expenditure incurred by PWD/C&W department may be shown as an expenditure. Object/Functional Classification The classification and head of expenditure as given in the chart of account of PIFRA Items of Expenditure The major components of expenditure have been identified in the Cash Plan. However the items of expenditure may vary from project to project. The executing agency may incorporate any additional item of expenditure as per approved items of expenditure given in the PC-I The executing agencies can further bifurcate an item of expenditure if required. ( For details refer to Cash Plan Doc. )

Approved Cost as per PC-I Provide item-wise approved cost as reflected in the PC-I. Cumulative Expenditure Provide item-wise, cumulative expenditure up to the end of last financial year. Quarterly Financial Targets The cash requirements be worked out on the basis of quarterly physical activities proposed to be undertaken in the next financial year. Ensure a relationship between items of Work Plan and cash requirements of different items of work.

WORK PLAN General n The Work Plan has to be prepared on the basis of activity chart annexed with the Work Plan. n Identify the activities to be undertaken on the basis of PSDP allocations for next financial year. n The activities have to be developed in line plan or bar. n In case, PSDP releases are not lapsable, the executing agency is required to prepare a separate Work Plan for the unspent releases. n n n n Items of Work The items of works are the same as indicated in the Cash Plan. In case of addition of any item in cash plan, it may also be added in the Work Plan. Unit Please indicate the Unit of measurement. It can be kanals, acres, hectare for land sq. ft. for civil works etc. Scope of Work The approved scope of work in quantifiable terms as per PC-I be provided. Physical targets/items of work be provided in absolute figures and not in percentages.

n Cumulative Physical Progress n Item-wise cumulative Physical progress up till 30 th June of the last financial year be provided. n Quarterly Physical Targets n n n n n The quarterly physical targets are developed on the basis of activities identified and time allocated for each activity in activity chart. The activity-wise targets developed be reproduced under quarterly Physical targets. Out Put Indicators Indicate output of the project in quantifiable terms (if applicable) during the financial year. ACTIVITY CHART Activity charts have been developed to identify the time required in undertaking an activity. Relationships between different activities have to be developed. An activity can be undertaken after completion of previous activity or a number of activities can be undertaken simultaneously. Time required to undertake an activity can be identified by line or bar. Activity chart will not be developed for n POL, repairs and maintenance. n Stationery utilities etc. n Contingencies.