PROJECT MANAGEMENT UNIT II Unit II Project Formulation

PROJECT MANAGEMENT UNIT - II

Unit II – Project Formulation The Project Process

Unit II – Project Formulation

Unit II – Project Formulation

Unit II – Project Formulation Project Identification

Unit II – Project Formulation Project Identification • Collection, compilation and analysis of data to locate potential opportunities for starting business and development of such opportunities • Opportunity is a business concept, which if turned into a tangible product or service, by the enterprise, will result into profit. It is all about creating values • The search of a good idea: – – Generate your own idea Develop someone else’s idea

Unit II – Project Formulation Importance of Project Identification • It has long term consequences (make or break) • Involves commitment which can not be easily reversed • Ideas are put into action • Projects are catalytic agents for economic development • Involves creative use of resources- manpower, capital, raw materials etc. • Generates value addition and build-up national capital • Brings socio-cultural development • Leads to development of infra-structure and environment

Unit II – Project Formulation Steps in Project Identification Idea Generation Preliminary Screening Project feasibility Detailed Project Report Support study

Unit II – Project Formulation Project Identification Idea Generation or Investment Opportunities Idea generation is the process of grouping logical thoughts based on some factors. Importance: • • Launch of new business / product Continuous growth of Organization Survival in the competitive Market Development of Society

Unit II – Project Formulation Project Identification Source of Idea Generation • • • Performance of existing Industry Examining the inputs and Outputs of various Industry Review Trade (Local and International) Availability of Material and Labour at Low cost Price Trend Demand supply Gap Government guidelines (legal issues) Economic and social Trends Study of New Technology and Developments

Unit II – Project Formulation Project Identification Pre-Feasibility Study / Preliminary Screening 1. 2. A series of steps to know whether or not a complete detailed feasibility study should be made. Preliminary screening is done with a view to avoid unnecessary cost and efforts in detailed study. Collection of data without spending much money and time: • Interview with Government Officials • Interview with Beneficiaries (customers) • Libraries and other sources of data collection

Unit II – Project Formulation Project Identification Error in Pre-Feasibility Study Drop Error: When a good idea is rejected (Loss of Profit) Go Error: When a bad idea is selected (heavy loss)

Unit II – Project Formulation Preliminary Screening Project rating Index Method PROJECT SCORE SHEET (UNWEIGHTED) SECTION I - BASIS OF PROJECT DECISION CATEGORY Element A. BUSINESS STRATEGY A 1. A 2. A 3. A 4. A 5. A 6. A 7. A 8. Definition Level (Rating) 0 1 2 3 4 5 Score Weight (out of 1) Factor Score Weight X Rating Building Use Business Justification Business Plan Economic Analysis Facility Requirements Future Expansion/Alteration Considerations Site Selection Considerations Project Objectives Statement B. OWNER PHILOSOPHIES B 1. B 2. B 3. B 4. Reliability Philosophy Maintenance Philosophy Operating Philosophy Design Philosophy C. PROJECT REQUIREMENTS C 1. C 2. C 3. C 4. C 5. C 6. Value-Analysis Process Project Design Criteria Evaluation of Existing Facilities Scope of Work Overview Project Schedule Project Cost Estimate Definition Levels 0 = Not Applicable, 1 = Complete Definition, 2 = Minor Deficiencies, 3 = Some Deficiencies , 4 = Major Deficiencies, 5 = Incomplete or Poor Definition

Unit II – Project Formulation Steps in Project rating Index Method • • Identify relevant factors (Useful to the project). Assign weight to each factor on the basis of importance. Rate each factors on the rating scale Multiply the factor rating with factor weight (get factor score) Make a sum of weighted factor score (get rating index) Reject if value is less than desired value Accept if value is more than desired value

Unit II – Project Formulation Feasibility Study / Detailed Feasibility study To identify the selection or rejection of the project by spending money and time on the basis of primary data in formal way. Objectives: • • • It guarantees the success of the project It works as basic ‘Terms of reference’ Describes nature and complexity Gives an idea about investment in project Idea of risk involved Idea about economic and social benefits

Unit II – Project Formulation Components of Detailed Feasibility study • • • Market and Demand Analysis Technical Analysis Financial Analysis Social cost-benefit Analysis Environmental and other Risk analysis

Unit II – Project Formulation Support Study / Functional Study An in depth investigation into any one or a couple of critical aspects of a project, to help the feasibility study It may be done: • • Before Pre-feasibility Study Before feasibility Study After Pre-feasibility Study After feasibility Study Example: Launching of new cola in a market with a critical factor pricing. A support study is required to study specifically price of other competitive products and cost of self

Unit II – Project Formulation Pre- Feasibility Study Vs Feasibility study Factors Pre-Feasibility Study Whether or not the project idea needs further investigation To determine the true profitability Overview study Detailed Study Type of Data Secondary Data (informal sources) Mix of Primary and Secondary data ( both formal and informal sources) Time involved Low High Cost involved Low High Accuracy Low High Objective Scope

Unit II – Project Formulation Detailed Project Report (DPR) A formal written document containing the process of project formulation and briefing the project scope.

Unit II – Project Formulation

Unit II – Project Formulation What is Project Formulation? Stages of Project Formulation Project Report

Unit II – Project Formulation What is Project Formulation? • Taking a first look carefully and critically at the project idea • Carefully weighing its various components • Analyzing with the assistance of specialists or consultants • Assessment of the various aspects of an investment proposition • It is an important stage in the pre-investment phase

Unit II – Project Formulation Stages of Project Formulation 1. Feasibility Analysis 2. Techno-Economic Analysis 3. Project Design and Network Analysis 4. Input Analysis 5. Financial Analysis 6. Cost-Benefit Analysis 7. Pre-Investment Analysis

Unit II – Project Formulation 1. Feasibility Analysis • First stage in project formulation • Examination to see whether to go in for a detailed investment proposal or not • Screening for internal and external constraints Conclusion could be: • The project idea seems to be feasible • The project idea is not a feasible one • Unable to arrive at a conclusion for want of adequate data

Unit II – Project Formulation 2. Techno-Economic Analysis: Screens the idea to. Estimate of potential of the demand for goods/services Choice of optimal technology This analysis gives the project a platform for preparation of detailed project design

Unit II – Project Formulation 3. Project Design and Network Analysis • It is the heart of the project entity • It defines the sequence of events of the project • Time is allocated for each activity • It is presented in a form of a network drawing • It helps to identify project inputs, finance needed and costbenefit profile of the project

Unit II – Project Formulation 4. Input Analysis • Its assesses the input requirements during the construction and operation of the project • It defines the inputs required for each activity • Inputs include materials, human resources • It evaluates the feasibility of the project from the point of view of the availability of necessary resources • This aids in assessing the project cost

Unit II – Project Formulation 5. Financial Analysis: • It involves estimating the project costs, operating cost and fund requirements • It helps in comparing various project proposals on a common scale • Analytical tools used are discounted cash flow, cost-volumeprofit relationship and ratio analysis • Investment decisions involve commitment of resources in future, with a long time horizon • It needs caution and foresight in developing financial forecasts

Unit II – Project Formulation 6. Cost- Benefit Analysis • The overall worth of a project is considered • The project design forms the basis of evaluation • It considers costs that all entities have to bear and the benefit connected to it

Unit II – Project Formulation 7. Pre-investment Analysis • The results obtained in previous stages are consolidated to arrive at clear conclusions • Helps the project-sponsoring body, the project-implementing body and the external consulting agencies to accept/reject the proposal

Unit II – Project Formulation Constraints in project formulation • Lack of a viable / feasible project idea • Lack of realistic/ achievable objectives • Lack of necessary resources / infrastructure to convert idea into reality • Policies of government / Legal restrictions • Lengthy and cumbersome procedures to get finance, start business

Unit II – Project Formulation

Unit II – Project Formulation Market and Demand Analysis

Unit II – Project Formulation Do n wi ’t K ll t no ak w wh e o wh om ve o r Th e. C om pe tit i on Market and Demand Analysis

Unit II – Project Formulation Market and Demand Analysis

Unit II – Project Formulation Market and Demand Analysis Provides a detailed analysis of all market condition and helps in estimating future revenue from the project. Estimations are made regarding: • Size of the potential market • Patterns of consumption • Market composition • Level of competition • Aggregate demand (product / service) for a period • Variation in demand The objective of this analysis is to see the idea generated is feasible from the point of view of market potential

Unit II – Project Formulation Market and Demand Analysis Objective Specification Collection of Data Market Survey Market Description Market Planning Demand Forecasting

Unit II – Project Formulation Market and Demand Analysis Objective Specification First Step: Specify Objectives Example: If the objective is to forecast long term demand to see the feasibility of project, the questionnaire should be set focusing on future not on current.

Unit II – Project Formulation Market and Demand Analysis Collection of Data Primary Data • • Internal External Survey Method Experimental Method Secondary Data • • • Central Statistical Organization (CSO) Census of India Centre for Monitoring Indian Economy (CMIE) Market Analysis and Research Group (MARG) Journal of FICCI Others

Unit II – Project Formulation Market and Demand Analysis Primary Data Obtained from present and past data of the firm. • Internal • External Obtained from opinions of the dealers, feedback of the sales personnel, consumers etc.

Unit II – Project Formulation Market and Demand Analysis Includes interviews, telephonic interviews and mail survey with customers and middlemen. Primary Data • Survey Method • Experimental Method Includes: • product testing (product performance done on limited scale), • psychological techniques (test of subconscious emotions of customers) and • consumer panel technique (interviewing the same group of consumers on permanent basis).

Unit II – Project Formulation Market and Demand Analysis Secondary Data May be collected from: • • • Central Statistical Organization (CSO) Census of India Centre for Monitoring Indian Economy (CMIE) Market Analysis and Research Group (MARG) Journal of FICCI Others

Unit II – Project Formulation Market and Demand Analysis Market Survey Gathering all possible information (primary data) by conducting interviews. Helpful in: • • Determining the total market demand Determining the Demand growth rate in different segments of the market Understanding the inner motives of the customers Measuring the unsatisfied need of the customers.

Unit II – Project Formulation Market and Demand Analysis Steps in Market Survey • • • Defining the Target Market (setting the population) Selecting the sample Developing the Questionnaire (Structured / unstructured) Training the surveyors Recording the information Interpreting the information (testing with the help of statistical tool)

Unit II – Project Formulation Market and Demand Analysis Market Description Based on the information obtained from secondary data and market survey, the project manager try to draw the picture of whole market. includes study of • • • Competition in Market Segments Price Statistics Methods of distribution Sales Promotion Consumers interest

Unit II – Project Formulation Market and Demand Analysis Demand Forecasting An art of predicting demand for a product or service at some future date on the basis of certain present and past behavior patterns of some related events. Characteristics: • • • Accuracy Simplicity Economy Timeliness Availability

Unit II – Project Formulation Market and Demand Analysis Methods of Demand Forecasting Survey of buyer’s intention To ask customers what they are planning to buy Collective Opinion Method Salesmen are required to estimate expected sales (territories wise) Expert Opinion Method Opinion form the experts of the respective fields Controlled Experiments Use of experiments to control variation with use of variables Study of General Economic Environment Study of change in economic environment and its impact Statistical Method Trend Projection, Graphical Method, Regression analysis

Unit II – Project Formulation Market and Demand Analysis Statistical Methods of Demand Forecasting • • • Trend Projection Graphical Method Regression Analysis

Unit II – Project Formulation Market and Demand Analysis Market Planning 4 Ps

Unit II – Project Formulation Project Technical Analysis

Unit II – Project Formulation Project Technical Analysis Includes an in-depth study of all technical aspects related to basis manufacturing operations, detailed design, assembling etc. Selection of Right technology which can produce a right quality product at right cost.

Unit II – Project Formulation Project Technical Analysis Objectives • Primary o To see whether the project idea is feasible or not from technical point-of-view or not. • Secondary o To find out the most optimal formulation of the project technology, size location etc. o To find out the cost of project, so that profitability can be calculated.

Unit II – Project Formulation Project Technical Analysis Activities in Technical Analysis • • • Technology Selection Material And Utilities Input Requirement Flexibility in Product Mix Plant Capacity Location and Site for the Project Machinery and Equipments

Unit II – Project Formulation Project Technical Analysis Technology Selection • Plant Capacity • Availability of Materials and Input and their requirement • Investment Outlay • Production cost • Use by Other Units • Flexibility • Latest Development • Appropriatness