Project Preparation

Pre-feasibility Study
This involves the study of the project idea at a
more elaborate level than that carried out at
the opportunity study. This stage is
recommended when a detailed feasibility
study is both costly and time consuming.

• On the basis of results from pre-feasibility

study, the investor should be able to decide:
• whether the project can be straightaway
accepted or rejected,
• Whether the project requires a detailed
analysis (i.e. a feasibility study)
 Contents of Pre-feasibility and
Feasibility Studies
• UNIDO'S outline of pre-feasibility study for industrial
projects:
• Executive Summary
• Project Background and Basic Idea
• Market Analysis and Marketing Concept
• Raw Materials and Supplies
• Location, Site and Environment
• Engineering and Technology
• Organization and Overhead Costs
• Human Resources
• Implementation Planning and Budgeting
• Financial Analysis and Investment Appraisal
 Feasibility Study
• It provides commercial, technical, financial
and economic information needed for
investment decision-making.

• It is usually based on additional and

more reliable data especially gathered
through research and surveys.

• The analysis involved in a feasibility study

in much more rigorous and requires
specialized skills of a higher order.
Market and Demand
Analysis
 Two Broad Issues
• In most cases, the first step in project analysis is to
estimate the potential size of the market for the product
proposed to be manufactured (or service planned to be
offered) and get an idea about the market share that is
likely to be captured. Put differently, market and demand
analysis is concerned with two broad issues:

• What is the likely aggregate demand for the product/

service?
• What share of the market will the proposed project
enjoy?

• Given the importance of market and demand analysis, it

should be carried out in an orderly and systematic
manner.
 Key Steps
• Situational analysis and specification
of objectives
• Collection of secondary information

• Conduct of market survey

• Characterization of the market

• Demand forecasting

• Market planning
1. Situational Analysis and Specification of
Objectives
• In order to get a "feel" for the relationship between the
product and its market, the project analyst may
informally talk to customers, competitors, middlemen,
and others in the industry. Wherever possible, he may
look at the experience of the company to learn about the
preferences and purchasing power of customers, actions
and strategies of competitors, and practices of the
middlemen.

• If such a situational analysis generates enough data to

measure the market and get a reliable handle over
projected demand and revenues, a formal study need not
be carried out, particularly when cost and time
considerations so suggest. In most cases, of course, a
formal study of market and demand is warranted.
 1. Situational Analysis and
Specification of Objectives
• To carry out such a study, it is necessary to spell out
its objectives clearly and comprehensively. Often this
means that the intuitive and informal goals that guide
situational analysis need to be expanded and
articulated with greater clarity.

• A helpful approach to spell out objectives is to

structure them in the form of questions. Of course, in
doing so, always bear in mind how the information
generated will be relevant in forecasting the overall
market demand and assessing the share of the market
the project will capture. This will ensure that
questions not relevant to market and demand analysis
will not be asked unnecessarily..
 2. Collection of Secondary Information
• Primary / Secondary Sources

• While secondary information is available economically and readily

(provided the market analyst is able to locate it), its reliability,
accuracy, and relevance for the purpose under consideration must be
carefully examined.

• The market analyst should seek to know:

• Who gathered the information? What was the objective?

• When was the information gathered? When was it published?
• How representative was the period for which the information was
gathered?
• Have the terms in the study been carefully and unambiguously
defined?
• What was the target population?
• How was the sample chosen
2. Collection of Secondary Information
• How representative was the sample?
• How satisfactory was the process of
information gathering?
• What was the degree of sampling bias
and non-response bias in the information
gathered?
• What was the degree of
misrepresentation by respondents?
• How accurately was the information
edited, tabulated, and analyzed?
• Was statistical analysis properly applied?.
 3. Conduct of Market Survey
• Secondary information, though useful, often does
not provide a comprehensive basis for market and
demand analysis. It needs to be supplemented with
primary information gathered through a market
survey, specific to the project being appraised.

• The market survey may be a census survey or a

sample survey. The information sought in a market
survey may relate to one or more of the following:
• Total demand and rate of growth of demand

• Demand in different segments of the market

• Income and price elasticity of demand

 3. Conduct of Market Survey
• Motives for buying

• Purchasing plans and intentions

• Satisfaction with existing products

• Unsatisfied needs

• Attitudes toward various products

• Distributive trade practices and preferences

• Socio-economic characteristics of buyers.

 Steps in Sample Survey
1. Define the Target Population
2. Select the Sampling Scheme and Sample Size
3. Develop the Questionnaire
4. Recruit and Train the Field Investigators
5. Obtain Information as per the Questionnaire from
the Sample of Respondents
6. Scrutinize the Information Gathered
7. Analyze and Interpret the Information

• Results of data based on sample survey will have to be

extrapolated to the target population. For this
purpose, appropriate inflationary factors, based on
the ratio of the size of the target population to the
size of the sample studied, will have to be used.
 4. Characteristics of the Market
• Based on the information gathered from secondary
sources and through the market survey, the
market for the product/service may be described
in terms of the following:

• Effective demand in the past and present

• Breakdown of demand

• Price

• Methods of distribution and sales promotion

• Consumers

• Supply and competition

• Government policy.
 5. Demand Forecasting
• A wide range of forecasting methods is
available to the market analyst. These
may be divided into three categories:

• Qualitative methods.

• Time series projection methods, and

• Causal methods.
 6. Market Planning
• Broadly it should cover

• Pricing

• Distribution

• Promotion, and

• Service.
Technical Analysis
 Components of Technical Analysis
• Technical analysis is concerned primarily
with:

• Material inputs and utilities

• Manufacturing process/ technology
• Product mix
• Plant capacity
• Location and site
• Machinery and equipment
• Structures and civil works
• Project charts and layouts
• Work schedule
 1. Material Inputs and Utilities

• May be classified into four broad

categories:

(i) raw materials

(ii) processed industrial materials and
components
(ill) auxiliary materials and factory
supplies, and
 2. Manufacturing Process /Technology
• Choice of Technology: The choice of
technology is influenced by a variety of
considerations:
• Plant capacity

• Principal inputs

• Investment outlay and production cost

• Use by other units

• Product mix

• Latest developments

• Ease of absorption
 2. Manufacturing Process
/Technology
• Acquiring Technology: The acquisition of technology
from some other enterprises may be by way of
(i) technology licensing,
(ii) outright purchase, or
(iii) joint venture arrangement.

• Appropriateness of Technology: Appropriate

technology refers to those methods of production
which are suitable to local economic, social, and
cultural conditions. In recent years the debate about
appropriate technology has been sparked off. The
advocates of appropriate technology urge that the
technology should be evaluated in terms of the
following questions:
2. Manufacturing Process /Technology
• Whether the technology utilizes local raw
materials?
• Whether the technology utilizes local
manpower?
• Whether the goods and services produced
cater to the basic needs?
• Whether the technology protects
ecological balance?
• Whether the technology is harmonious
with social and cultural conditions?
 3. Product Mix
• The choice of product mix is guided by market
requirements. In the production of most of the
items, variations in size and quality are aimed at
satisfying a broad range of customers.

• While planning the production facilities of the firm,

some flexibility with respect to the product mix
must be sought. Such flexibility enables the firm to
alter its product mix in response to changing
market conditions and enhances the power of the
firm to survive and grow under different situations.
The degree of flexibility chosen may be based on a
careful analysis of the additional investment
requirement.
 4. Plant Capacity
• Plant capacity (also referred to as production
capacity) refers to the volume or number of
units that can be manufactured during a
given period. Several factors have a bearing
on the capacity decision:

• Technological requirement
• Input constraints
• Investment cost
• Market conditions
• Resources of the firm
• Governmental policy.
 5. Location and Site
• The choice of location and site follows an assessment of
demand, size, and input requirement. Though often
used synonymously, the terms 'location' and 'site'
should be distinguished. Location refers to a fairly
broad area like a city, an industrial zone, or a coastal
area; site refers to a specific piece of land where the
project would be set up.

• The choice of location is influenced by a variety of

considerations:
• proximity to raw materials and markets,
• availability of infrastructure,
• governmental policies, and
• other factors (labor situation, climatic conditions, and
general living conditions).
 5. Location and Site
• Site Selection: It may be noted in this
context that the cost of the following may
vary significantly from site to site:

• power transmission lines from the main

grid,
• railway siding from the nearest railroad,

• feeder road connecting with the main road,

• transport of water, and

• disposal of effluents, etc.,

 6. Machinery and Equipment
• To determine the kinds of machinery and
equipment required for a manufacturing industry,
the following procedure may be followed:

• (i) Estimate the likely levels of production over

time.
• (ii) Define the various machining and other
operations.
• (iii) Calculate the machine hours required for
each type of operation.
• (iv) Select machinery and equipment required for
each function.
 7. Structure and Civil Works
• Structures and civil works may be
divided into three categories:

• (i) site preparation and development,

• (ii) buildings and structures, and

• (iii) outdoor works.

Gantt Chart for Construction
Work
 8. Project Charts and Layouts
• The important charts and layouts drawings

are:
• General Functional Layout

• Material Flow Diagram

• Production Line Diagrams

• Transport Layout

• Utility Consumption Layout

• Communication Layout

• Organizational Layout and Plant Layout.

SWOT Analysis
Flow Chart - Example
Bar Chart - Example
Pie Chart - Example
Plant Layout - Example
 9. Work Schedule
• The purpose of the work schedule is:
• To anticipate problems likely to arise during
the installation phase and suggest possible
means for coping with them.

• To establish the phasing of investments

taking into account the availability of
finances.

• To develop a plan of operations covering

the initial period (the running-in period).
Work Schedule - Template