1. M.B.A.Study of:PROJECT MANAGEMENTBy:- Rana ratnakarMBA (Marketing)

2. content ofPROJECT MANAGEMENTUnit 1Concepts of Project Management: Project Meaning Nature Types ofproject and project life cycle Project management Nature and scope of projectmanagement Project management as a profession Role of project manager.Unit 2Project Identification and Formation: Project environment Identificationof investment opportunities Project screening preferability study Projectselection Project formulation Stages in project formulation Project reportpreparation Planning Commissions guidelines for project formulation.Unit 3Project Appraisal: Objectives, essentials of a project methodology Marketappraisal Technical appraisal Financial appraisal Socio-economic appraisal Managerial appraisalUnit 4Project Planning and Scheduling: Objectives Process or planningcomponents or good planning Project designing and project scheduling and timeestimation Scheduling to match availability of man power and release of funds Cost and time trade cost.Unit 5Project Execution and Administration Project contracting: Contract pricing,Types Project organization: Forms of organization Project direction Projectcommunication Project coordination Factors influencing effective projectmanagement Project time monitoring and cost monitoring Project over runs.Unit 6Project Control: Control techniques PERT, CPM Proper review Project audit. 3. REFERENCES1. Prasanna Chandra, Projects Planning, Analysis, Selection,Implementation and Review.2. Gopalakrishnan P & Ramamoorthy V.E, Textbook of ProjectManagement.3. Kerner Harold, Project Management.4. Dennis Hock, Project Management Handbook.5. Choudhry S, Project Management6. Goel B.B, Project Management: A Development Perspective 4. LESSON 1CONCEPTS OF PROJECT MANAGEMENTOBJECTIVES1. To explain the nature and scope of Project management.2. To give an over view about system approach and Project management.3. To give an outline about the factors influencing effective Projectmanagement.INTRODUCTIONProjects are the building blocks to meet the enterprise objectives. Projectmanagement is essentially involved in executing the projects. It is recognized as amanagement philosophy in the recent past in addition to that of discipline. Projectmanagement has always been central to the existence of industries likeconstruction, aerospace and defense, where schedule and cost goals are contractfundamentals.The new design of maruti zen, concord supersonic jet aircraft, shipvasundhara, Godrej puff refrigerator, compaque computer, L&T crane steelrolling mill of the Tatas, New oil base for the ESSAR refinery, new productionline of J.K cement, highway roads of the countrys capital city, new fly over inmetropolitan cites etc have one thing common; indeed they are all purposefullyunique 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 irreversiblechange.What is a project?Project is a scientifically evolved work plan devised to achieve a specificobjective within a specific period of time. It can be considered as proposalinvolving capital investment for the purpose of developing facilities to providegoods a and services.A project is a blue for print action oriented activities of an organization. A projectreflected the plan for action in its totality. Like a movie film it is projectionoriented process. The project has beginning middle and an end.For example, cement project, manufacturingPower project, refinery projectsHealth project, Educational projectsSocial project, construction projects etc. 5. DEEINITION OF PROJECTA Project is a one-shot, time limited, goal directed, major undertaking,requiring the commitment of varied skills and resources. It has also beendescribed a s a combination of human and non human resources pooled togetherin a temporary organization to achieve a specific purpose. The purpose and the setof activities which can achieve that purpose distinguish one project form another.-Project Management Institute, U.S,AWe mean by a project any scheme, or part of scheme, for investingresources which can reasonably be analyzed and evaluated as an independent unit.The definition is thus arbitrary. Almost any project could be broken down intoparts for separate consideration; each of these parts would then by definition aproject.- I.M.D. Little and J.A. Mirrless.A specific activity with a specific starting point and a specific endingpoint intended to accomplish a specific objective. It is something you draw aboundary 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 theeconomic advantages and disadvantages attendant upon the allocation ofcountrys 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 projectthat 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 learnfully the end results at any stage. 6. A project works for a specific set of goals with the complex set ofdiversified 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 sweetdream becomes realizable.Types of projectsMuch of what the project will comprise and consequently its managementwill depend on the category it belongs to. The location, type, technology, size,scope and speed are normally the factors which determine the effort needed inexecuting a project. Though the characteristics of all projects are the same, theycannot be treated alike. Recognition of this distinction is important formanagement. Classification of project helps in graphically expressing andhighlighting the essential features of the project.Projects are often categorized in terms of their speed of implementation asfollows: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 PROJECTSRequires additional costs to gain time.Maximum overlapping of phases is encouraged.DISASTER PROJECTSAnything needed to gain time is allowed in these projects. Around theclock work is done at the construction site. Capital cost will go will go up veryhigh. Project time will get drastically reduced.Besides that, projects in general are classified on several basis as give in thefollowing illustrative list. 7. - United Nations Asian and Pacific Development Institute.Categories of ProjectsPROJECTNational InternationalNon Industrial IndustrialNon ConventionalR & DHigh Technology Conventional Low TechnologyMega Major Medium MiniGross Root Expansion ModificationNormal Crash DisasterCLASSIFICATION OF PROJECTThe project can be classified on several basis. Major classification of theprojects are given below:1. On the basis of Expansion:1. Project expanding the capacity2. Project expanding the supply of knowledge.2. On the basis of Magnitude of the resources to be invested:1. Giant projects affecting total economy2. Big projects affecting at one sector of the economy3. Medium size projects4. Small size projects (depending on size, investment & impact) 8. 3. On the basis of Sector:1. Industrial project2. Agricultural project3. Educational project4. Health project5. Social project4. On the basis of objective:1. Social objective project2. Economic objective project5. On the basis of productivity:1. Directivity productive project2. Interactively productive project6. On the basis of nature of benefits:1. Quantifiable project2. Non-quantifiable project7. On the basis of government priorities:1. Project without specific priorities2. Project with specific priorities8. On the basis of dependency1. Independent project2. Dependent project9. On the basis of ownership1. Public sector project2. Private sector project3. Joint sector project10. On the basis of location1. Project with determined location2. Project with future impact 9. 11 On the basis of social time value of the project1. Project with present impact2. Project with future impact12. On the basis of National policy1. Project determined by inward looking policy2. Project determined by outward looking policy13. On the basis of risk involved in the project1. High risks project2. Normal risks project3. Low risks project14. On the basis of economic life of the project1. Long term project2. Medium term project3. Short tern project15. On the basis of technology involved in the project1. High sophisticated technology project2. Advance technology project3. Foreign technology project4. Indigenous technology project16. On the basis of resources required by the projects1. Project with domestic resources2. Project with foreign resources17. On the basis of employment opportunities available in the project1. Capital intensive project2. Labour intensive project18. On the basis of management of project1. High degree of decision making attitude2. Normal degree of decision making attitude3. Low degree of decision making attitude 10. 19. On the basis of sources of finance1. Project with domestic financing2. Project with foreign financing3. Project with mixed financing4. Project with financial institutions20. On the basis of legal entity1. Project with their own legal entity2. Project without their own legal entity21. On the basis of role played by the project1. Pilot project2. Demonstration project22. On the basis of speed required for execution of the project1. Normal project2. Crash project3. Disaster projectPROJECT LIFE CYCLEEvery programme, project or product has certain phases of development.The different phases of development in an investment proposal or project is calledlife cycle. A clear understanding of these phases permits entrepreneurs, managersand executives to have better control over existing and potential resources in theachievement of the desire goals.PHASES OF PROJECT LIFE CYCLEProject life cycle is complex process consisting of different stepsarranged in a sequential order. Different authors have described these steps Idifferent sequential manner but the concept of the cycle is almost similar in eachcase.According to United Nations Guidelines for Rural Centre Planning, thereare 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 andimplementation in Developing countries identified the following 12 steps in theproject life cycle. Project identification and definition, project formation, 11. preparation and feasibility analysis, project design, project analysis, projectselection, project activation and organization, project implementation andoperation, project supervision (monitoring and control) project completion ortermination, output diffusion and transition to normal administration, projectevaluation follow-up and action.World Bank Guidelines reveals the following six major steps in the projectlife 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 phaseA brief description of each of these phases in given below:PRE-INVESTMENT PHASEThe first phase of the cycle describes the preliminary evaluation of anidea. It consists of identification of investment opportunities, preliminary projectanalysis, feasibility study and decision-making. Project idea emanates from thefollowing problems; potential and the needs of the people of an area; planpriorities when planning is done by the government demand and supply projectionof various goods and services; Pattern of imports and exports over a period oftime; natural resources which can serve as the base for potential manufacturingactivity; scope of extending existing lines of activity; consumption pattern inother countries at comparable stages of economic stages of economicdevelopment.On the basis of the investment opportunities, it is possible to conceive anumber of projects out of which a particular project may be consistent withdevelopment objectives of the area. During this phase, the following aspects of aproject 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. Work packagingThis 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 andeconomic aspects of the project. It seeks to determine whether the project is primafacie worthwhile to justify a feasibility study and what aspects of the projects arecritical to its viability and hence call for an in depth investigation.More details, through and complete feasibility study results in areasonably adequate formulation of the projects in terms of location, productioncapacity production technology and material inputs. The feasibility study containsfairly 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 orfinanciers can decide whether to accept or reject particular project. In otherwords, the decision whether investment on the project should be made or not hasto made at this stage.IMPLEMENTATION PHASEThe implementation phase of an industrial project involves setting up ofmanufacturing facilities. After judging the worthiness, project needs to bedesigned for implementation. Drawing, blue prints and the sequences in which thevarious activities concerning the project need to be carried out. The mainactivities 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 projectfinancing, acquisition of technology, construction of building and civil works,provision of utilities supply of machine and equipment, marketing arrangementetc.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. OPERATION PHASEIt is the longest phase in terms of time span. It begins when the project iscommissioned and ends when the project is wound up. This is a transition phasein which the hardware built with the active involvement of various agencies isphysically handed over for production. This phase is basically a clean up phasefor project personnel. The main concern of this phase is on smooth anduninterrupted operation of machinery and plant, development of suitable norms ofproductivity, establishment of a good quality fo rhte product and securing themarket acceptance of the product. It aims to realize the projection made in theproject regarding sales, production, cost and profits. Project monitoring andproject evaluation are two vital activities under this phase.Project monitoring is a step towards achieving properly identifiedobjectives through a carefully laid down strategy. Each activity in the projectimplementation should be carefully watched so that, the progress may bemeasured and any deviation from the expected progress be identified in time.Project evaluation refers to post-investment analysis. It aims at finding outwhether the project has achieved the objectives for which it was taken up andwhether it has created the anticipated or intended impact. This helps in developingan 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 lifecycle. The various steps in the project life cycle are given in the followingdiagram. 14. Diagram 1PROJECT LIFE CYCLE1. Information input 2. Investigation oftechnology, feasibility etc. 3.Competition4. Preliminary evaluation1. Post-mortem2.Final de-manning3. Final reports4. CommissioningaftermathConception 1. Objectives2. Establish goals3.TQM procedures4. Setting upcontrolsystemsEvaluationApplicationDefinitionPlanning &DesigningDevelopment & Construction1. Install and fieldtest2. Quality control3. Advertising begins4. De-bug andredesign1. Establishstructure2. Engineering3. Model building4. Design review1. Prototype development2. First units to testmarked3. Begin campaign4. Progress reportPROJECT LIFE CYCLE CURVESThe project life cycle phases from an interesting pattern indicative ofgrowth, maturity and decline almost similar to product life cycle. The followingfigure shows the typical project life cycle curve. 15. Diagram 2TIMEIt can be seen from that curve that effort built up in a project is very slowbut effort withdrawals is very sharp. It can also be seen that time taken in theformative and clean up stages together is more than the implementation stage.This parabolic patterns of growth, maturity and decline itself in all phases of theproject life. This curve enable a project manager to ascertain the state of health ofany project at any point of time.Project managementProject management is an existing new profession which receives muchattention in these days. It is concerned with the management of resourcessuccessfully to complete the project, the resources being time, money, materialsand equipment and the most expensive resources of all- namely the humanresources.Project management is concerned with achieving a specific goal in a giventime using resources available for that period only.Project management can mean different thing to different people. Projectmanagement as regard ongoing project within a company refers the art of creatingthat illusion that any outcome is the result of a series of predetermined, deliberateacts when, in fact, it was dumb luck It is designed to make better use of existingresources by getting work to flow horizontally as will as, vertically within acompany.An overview definition of project management is the planning, organizing,directing and controlling company resources for a relatively short term objectivethat has been established to complete specific goals and objective. Further more,project management utilizes the system approach to management by havingfunction personnel assigned to a specific projectProject Management has been evolved as a distinct discipline ever sincethe Second World War. Though it is special discipline it got elevated only in therecent times, it has been in practice ever since the times of construction activitiesin this world. Constructions such as British Aisles, the Taj Mahal, Eiffel Tower,London Bridge etc., stand testimony to the fact that the doctrine of ProjectManagement are not new.Project management resembles functional management in all aspects forall practical purposes with a little difference. It is concerned with the management 16. of resources successfully to complete the project, the resources being time,money, materials and equipment and the most expensive resource of all namelythe human resource. To understand the project management one must firstunderstand the basic concepts and different approaches to the study ofmanagement. An overview of different management approaches with specificemphasis on System approach to management approaches with specific emphasison System approach to management and its relevance to project management,brief mention about the steps in project management, benefits and limitation ofproject management, and also an outline about effective project management arediscussed in this lesson.Thus, the project management is designed to manage or control companyresources on a given activity, within time, within cost and within performance.This has been depicted in the following diagram.OVERVIEW OF PROJECT MANAGEMENTGOOD CUSTOMER RELATIONSTIMECOSTRESOUCESPERFORMANCEProject management involves project planning and project monitoring andincludes 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 ofachieving the project objectives within the cost (budget), at the desiredperformance and within the allocated time.Development of a Project systemThe three major groups of management theorists the structuralists, thefunctionalists and the behavioruists differ some what on how the project 17. manager deals with problems shifting job environments but they are unanimouson the utility of the task force as a useful device in group problem solvingsituations.The structuralists argue that the project manager, as a unifying agent,integrates the parochial interests of autonomous organizational elements towardsa common objective through the formation of some standard organization insteadof functional or product departmentalization.The funtionalists argue that project management is in reality simply theapplication of the systems concept to organizational problems. They visualizeintegration into a separate organizational system of activities related to particularprojects or programmes, Management science techniques, computer simulationapproaches and information decision systems are just a few of the tools that willmake it possible for management to visualize the firm as a total system.The behaviouralists see the task force as organized around problems (notproducts, programmes, projects or tasks) arranged in an organic rather than amechanical model in which the executive becomes the link pin or coordinator buthuman speaking the diverse languages or research and who has skills to realayinformation and mediate between groups. People will be differentiated notvertically according to rank and status but flexibly and functionally according toskill and professional training and replacing bureaucracy as we know it.Components of a Project Management SystemThe vital components of a project from the systems perspective are: Objective: The fundamental rationale of a system that must beaccomplished. Requirement: A sine qua non or a fundamental and irreducible constidentof a whole system that may even satisfy the objective to some extent. Alternative: A surrogate, a secondary course of action, if one fails out theother will substitute and fulfill the needs of a system Selection criteria: The matter of carrying out is focused on assessing thechoice and selecting the best course of action. Constrain: A demarcation point which describes the frontiers of a systemwithin which the alternatives must move and devote their resources.It can be inferred that the basic theories and philosophies, governing theage-old corps and projects had a stormy attack by the systems approach tomanagement. Owing to the fact that project management is a subset of totalmanagement cult, it would be comforting oneself to describe the principles ofgeneral systems theory. The general systems approach can be squared with a 18. management approach which attempts to integrate and unify scientificinformation across many fields of knowledge. Systems theory attempts to strike atproblems with a holistic view rather than through and analysis of the individualcomponents.STEPS IN PROJECT MANAGEMENTProject 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 thesame goals and can be bound by definite time, cost and performance targets.Entrusting the whole project to a single responsibility centre known as theproject manager, for coordinating directing and controlling the project.Supporting and servicing the project internally within the organization bymatrixing or through total projectisation, andBuilding up commitment through negotiations, coordinating and direceingtowards goals through schedules, budgets and contracts.Ensuring adherence through negotiations, coordinating and directingtowards goals through schedules, budgets and contracts.Defining what is to be done, maintaining its integrity and ensuring that itis done and performed as desired, within time and cost budgets fixed for itthrough a modular work approach, using organizational and extra-organizationalresources is what is project management.PROJECT MANAGEMENT ENVIRONMENTProject management performance will largely depend on the real-worldenvironment. The project management environment in India, is very differentfrom any other country. There are many problems which are peculiar to ourcountry and these are experienced by all those who are concerned in the executionof both small and big projects. One has to aware of these problems in order to beable to cope with the same for successful implementation of a project.The most important problem is lack of mutual trust and respect amongstthe participating agencies: owner, financial institutions, consultants, vendors andcontractors. The owner believes that the agencies/contractors would take his for aride and, therefore, he should, as far as possible, do things himself. Whenconsultants are not appointed, projects are likely to have congenial weaknesssuch 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. prepare a report which he can sell to the bank. These reports often do not reflectreality as they are made without any in-depths study, and if cleared, would givebirth to defective projects. This, doubt, reflects on a consultants lack ofprofessional ethics and can be avoided if the financial institutions use a properaccreditation, system for consultants.However, accreditation of consultants may not set everything right. A sitemay often be selected purely on personal rather than on techno-economicconsiderations. The same may happen with the selection of technology or evenwith the selection of the consultant.It is often suggested that besides technical and financial appraisal of aproject the financial institutions should appraise the entrepreneur himself. It isalso suggested that the financial institutions should introduce an on-going auditsystem to prevent diversion of funds and other forms of financial irregularities. Inother words, the financial institutions may not trust the owner/promoter since anowner may disown a project and the financial institutions have more stake in theproject than the owner himself.Sometimes a promoter may intentionally underestimate the project costwith the intention of reducing his contribution. This would inevitably lead to costoverrun which normally the financial institutions are expected to finance. Ofcourse, the financial institutions can insist on proportional overrun finance by theowner, but since the promoters stake is low, the institutions take their own timeto decide to finance the overrun, meanwhile the project cost undergoes furtheroverrun. A project, thus faces a fund crisis leading to extension of projectcompletion time. With the extension of the project schedule further fund problemsoccur. Financing cost and inflation overtake the revised cost estimate. Sincecontingency provisions are too inadequate to meet the inflationary conditions ofthe economy, institutions have to provide further funds. But this again is noteasily 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 alsobe expected to be too enthusiastic about a project where fund problems areforeseen. A vendor, in such circumstance, may not start the work at all. This notonly delays the project but sours the relationship between the owner and thevendor.Over the years, a number of projects have been affected by enormousincrease in prices of cement, steel and transport and energy costs. These are non-controllable costs as far as the owner is concerned and, therefore, the owner lookstowards the financial institutions for relief. But the overruns even in such cases donot get automatically sanctioned as the financial institutions do not trust thepromoter and would first like to be satisfied about the reasons for overrun. 20. Financial institutions often hesitate to disburse their term loans unless thepromoters bring their entire contribution. Sometimes they withdraw theircommitments due to temporary resource constraint, or when the find a projectfacing serious technical problems. Thus, due to financial insecurity some projectscannot progress as desired and end up with huge time and cost overruns.The problems discussed above can broadly be grouped into four classes ofenvironmental problems: social, economic, technical and managerial. Asdiscussed before, if these problems are not tackled, time and cost overruns cannotbe stopped. Yet management of environment is beyond the scope of projectmanagement. There is no point, therefore, in discussing these problems in anyfurther 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 adverseeffect 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 engagesgood agencies, used good system and has adequate funds to meet therequirements of the project. Good system and good agencies will require goodfunds. However, the funds must be used properly otherwise a project cannot becompleted at least cost which is the ultimate criteria for measuring the efficiencyof project management. Unfortunately, at the moment, we are unable to providesuch a shield to all our projects that must be the only reason for our poorperformance in the execution of the project.Projects in India have to be executed in a highly unfavorable environmentbut project management must cope with the situation. It has been suggested thatproject must be insulated adverse environmental influences by mobilizing goodagencies, good system and all adequate funds.Benefits of project managementProject management helps to avail the following benefits:Identification of functional responsibilities to ensure that all activities areaccounted 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. Knowing when objectives cannot be met or will be exceeded.Obstacles in project managementTo enjoy the various benefits of project management given above, thefollowing obstacles be overcome carefully. Project complexities Execution of customers special requirements Organisation restructuring is a typical task Project risks Changes in technology Forward planning and pricing.Project Management A ProfessionProject management has been evolved as a distinct ever since the SecondWorld War. It has got elevation the recent times.Novelty is the hallmark of every project, hence it should exhibitfascination and dynamism. This requires professional approach in conceiving,implementing and controlling projects. Though the functional management andproject management are related, the degree of professional approach is highlyessential for the efficient management of project. The project management ismainly driven by intellectual operation and skilled and mechanical operations.Project management is covered by the matrix form of organization structurewhere a roles are defined according to a combination rather than functionalspecialization.Only managers with sufficient spirit and dynamism can withstand the overwhelmin 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 theassistance from projects consultants and project managers. A brief descriptionabout the role of project manager and need functions of project consultants aregiven below.Project Manager and his roleThis is to signify a person who has the overall control of the project andshoulders responsibilities for its execution and performance. Therefore, he isthoroughly involved in planning the work and monitoring, directing and leadingthe participants and seeks to reach the project goal in time-cost-quality 22. conundrum. The project manager is either a specialist or having predominantlytechnical background with sufficient experience, exposure, expertise onmultifaceted, multidimensional and multi disciplinary project. It is well evidentfrom the monumental constructions and project that have been around us sinceheydays, that the role of a project manager is quite distinct and demands an allround performance.A project manager is always found shard in the enternal circle of doing,learnig and changing. Only managers with sufficient spirit and dynamism canwith stand the overwhelming dizziness in these incessant operations. An idealcandidate for project managership should have some prominent personalcharacteristics 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 engineeringbusiness and psychology, sustained with a handful years of experience on similarnatured project officer occupying different positions, and should have physicalfitness to undertake such Machiavellian tasks with feeling of positive stress. Goodproject managers in industry today would probably be lucky to have 60% to 80%these traits. good project managers are willing to identify their shortcoming andknow heavy traffic, they have to balance between the wheels that are mutuallyexclusive and yet engineering to run coherently, they ensure that goal is reachedby properly accelerating the vehicle the vehicle to manager the traffic avoiding.Project ConsultantFor any developing country, project management hols the key fordevelopment. Without efficient project management neither cost control nor time 23. control is possible. The basis ingredient of successful project management is ahappy integration of three factor, appropriate estimate, competent contractor andeffective project management. The other important ingredient of successfulproject management is an effective management team.Consultant provide guidance as well as direction to the projects. From theformulation stage to the completion and post project evaluation stage, consultantsservices are essential ant are also available. Infect, the consultant is the part of theproject management team, though as a paid member on contractual terms andconditions.When a project is taken up for execution, the first task would be to assessthe requirements of the service of an outside consultant or the in-house expertiseavailable would be sufficient for the project.Need of consultantsNeed of consultant arises:i) When a project of new technology is undertaken.ii) When the in-house consultant is incapable of meeting the requirementsof 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 andknow how.v) To avail the advantages of expertise available with the outsideconsultants.Consultants may be of:a) In-house consultantsb) Outside consultants Indigenous Foreign consultants.As regards in-house consultant, it may be stated that in manyorganizations a separate department is maintained in the total orgainisationstructure. This department looks after the work of detailed engineering , drawingsand preparation of technical specifications, etc. An office order shall be issuedassigning the jobs along with scope of work, time schedule and jobresponsibilities to carried out. 24. When the jobs cannot be done my the in-house consultants, theappointment of outside consultants would become unavoidable. While assigningjobs 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 consultantWhile selecting outside consultants the various factors to be consideredare : job requirements, facilities available in their organizations, experience,performance, their organization structure, fees, the terms and conditions, pre andpost commissioning services etc.Job of consultantsThe functions of a project management consultant have been identified as1) Assisting the agency in appropriate site investigation and sourcing of materials.2) Assisting the agency in selecting the appropriate contractor; 3) Checking thequality of work, supervision control, testing monitoring and progress reporting,checking measurements and of bills.The project management consultant has to give periodic reports to theclient 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 additionalinput to correct slippages in future. If it is necessary, they can also recommendtermination of a contractor, after examining the legal implications. In India,engaging project management consultants for selection of contractors andsupervision of work is somewhat new. The project management consultantconcept makes available for project management the latest developments intechnical, engineering, management and information fields.Main jobs of the consultants are:i) Preparation of feasibility report 25. ii) Techno-economic reportiii) Preparation of detailed project reportiv) Detailed engineering and consultancy servicesv) Project monitoring and controlvi) Supervision of erection and commissioning ofproject.vii) Provide pre and post commissioning services.With the passage of time, there has been progress in Indianisation in the spheres ftechnology, know how etc. Many firms in public sector as well s in private sectorhave come up in have consultancy services. A few well known consultancy firmsare: 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.CONCLUSIONThus, this chapter has explained the various aspects of projects and projectmanagement. This conceptual knowledge will certainly helps you to know aboutthe features of project and project managements, which is an emerging uniquediscipline. And this chapter has also explained the various stages of project lifecycle, which helps the project manager to ascertain the strength and weakness ofany project at any point of time.SELF ASSESSMENT QUESTIONS1. Explain the significance of project approach for the economicdevelopment of the country.2. Give an outline about the project opportunities available in differentsectors of the economy.3. Describe the various resource potentials of out country. 26. 4. Explain the latest trend in the infra-structural project in India.5. Give a brief note about the various on-going social-welfare sectorprojects.6. Explain the role of project manager in successfully administering aproject7. Describe the need and functions of project consultants.*************************** 27. LESSON 2PROJECT IDENTIFICATIONOBJECTIVESTo know the importance of conceiving a good of project ideaTo ascertain the different sources from which a project idea can be generatedTo identify the steps involved in project identification and selectionPROJECT IDENTIFICATIONSCOUTING AND SCREENING OF PROJECT IDEASAn entrepreneur has an infinitely wide choice with respect to his project indifferent dimensions such as product/service, market, technology, equipment,scale of production, time phasing and location. Hence, the identification ofinvestment opportunities (projects) calls for understanding he environment inwhich one operates, sensitivity to emerging investments possibilities, imaginativeanalysis of a variety of factors and also chance luck. This chapter is concernedwith scouting and screening of project ideas, steps in the project identificationprocess and also consideration involved in identifying the new projects by anexisting company.PROJECT IDEASIt is the first and foremost task of an entrepreneur to find out suitablebusiness which is feasible and promising and which merit further examination andappraisal. Therefore, he has to first search for a sound of workable business ideaand give a practical shape to his idea. While doing so, the entrepreneur has totackle 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 tostimulate 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. 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 unitsThe various sources from which the project idea can be generated are explainedbelow:Analysis the performance of existing industriesA study of existing industries in terms of their profitability and capacityutilization is helpful. The analysis of profitability and break even level of variousindustries indicates promising investment opportunities. Opportunities which areprofitable and relatively risk free. An examination of capacity utilization ofvarious industries provides information about the potential for further investment.Such a study becomes more useful if it is regionwise, particularly for productswhich have high transportation costs.Examine the inputs and outputs of industriesAn analysis of the inputs required for various industries may throw upproject ideas. Opportunities exist when (I) materials purchased parts, or suppliesare presently being procured from different sources with attendant time lag andtransportation costs and (ii) several firms produce internally somecomponents/parts which can be supplied at a lower cost by a single manufactureswho can enjoy economies of scale.A study of the output structure of existing industries may revealopportunities for further processing of output or even processing of wasteExamine imports and exportsAn analysis of import statistics for a period of fie to seven years is helpfulin understanding the trend of imports of various goods and the potential forimport substitution. Indigenous manufacture of goods currently imported isadvantages for several reasons: 29. It improves the balances of payments situationsIt provides market for supporting industries and servicesIt generates employmentLikewise, an examination of export statistics is useful in learning about theexports possibilities of various products.Plan outlays and government guidelinesThe governments plays a very important role in out economy. Its proposedoutlay in different sector provides useful pointers toward investmentopportunities. They indicate the potential demand for goods and service requiredby 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 otherdevelopmental bodies conduct studies, prepare feasibility reports and offersuggestions to potential entrepreneur. The suggestions of these bodies are helpfulin identifying promising projects.Investigate local materials and resourcesA search for project ideas may begin with an investigation into localresources and skills, various ways of adding value to locally available materialsmay be examined. Similarly, the skills of local artisans may suggest products thaymay be profitably produced and marketed.Analysing economic and social trendsA study of economic and social trends is helpful in projecting demand forvarious goods and services. Changing economic conditions provide new businessopportunities. 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 andpowered vehicles has been increasing. Another change that we are witnessing isthat the desire for leisure and recreational activities has been increasing. This hascaused and growth in the market for recreational products and servicesExplore the possibility of reviving sick unitsIndustrial sickness is rampant in the country. There are over 20,000 unitswhich have been characterized as sick. These units are either closed or face theprospect of closure. A significant proportion of sick units, however, can be nursedback to health by sound management, infusion of further capital and provision ofcomplementary inputs. Hence there is a fairly food scope for investment in this 30. area. Such investments typically have a shorter gestation period because one doesnot have to begin from scratch. Indeed, in many cases marginal efforts wouldsuffice to revive such units.Identify unfulfilled psychological needsFor well established, multi brand product groups like bathing soaps,detergents, cosmetics and tooth pastes, the question to be asked is not whetherthere is an opportunity to manufacture something to satisfy an actual physicalneed but whether there are certain psychological needs of consumers which arepresently unfulfilled. To find whether such an opportunity exists, the technique ofspectrum analysis may be followed. This analysis is done somewhat as follows.(i) Important factors influencing brand choice are identified (ii) respect of thefactors identified in step (iii) gaps which exist in relation to consumerpsychological needs are identified.Visit to trade fairsAttending the National and International trade fairs provides an excellentopportunity to know about new products and new development.The above said sources of project ideas may be generated by theGovernment agencies, credit institutions, non-governmental organizations andalso by public.The Governments has largest resources and have the necessaryinformation to generate project ideas and it plays a predominant role in thissphere. The government has the required facilities and manpower to conductdetailed studies which may lead to making investment decisions. Banks and otherfinancial institutions are actively involved in sharing the social responsibility ofachieving the national objectives of economic development. The co-operativesand non-governmental organizations as well s individual entrepreneurs are nowactively participated in identification of projects. The awareness of involving thepeople or the beneficiaries in project identification is now increasing fast. Sincethe local people have the first hand knowledge of the potentials and problems ofthe area to which they belong, more realistic project identification has becomepossible with their involvement. It needs no emphasis the project ideas would begenerated in better manner both in the qualitative as well as quantitative termswhen the knowledge and ideas of the Gove. Functionaries, people, the financialinstitutions and other experts are pooled together.PURPOSE AND NEED FOR PROJECT IDENTIFICATIONThe entire economic management planning is based on two fundamentalassumptions. i.e. a) limited means and b) unlimited ends. A planner has to selectfew important needs to cut it into size of his/her means. This may be treated as 31. fixing the priority is called identification of project. It helps in eliminationprocess. Identification and selection of a project is a scientific process. Thisprocess is based on certain essential conditions. It may differ from project toproject. The essential conditions which should be taken into consideration foridentification 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 adverseimpact.The input-output ratio should be optimum.The purpose of the project is to increase the production and employmentof 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 shouldalso consider certain national priorities.STEPS IN PROJECT IDENTIFICATIONProject ideas are like other ideas which dont take concrete shapeimmediately. There are several stages of making propositions their considerationsand scrutiny for their soundness.An idea is first born, it is under incubation for sometime and subsequentlyis begins to take some definite shape. The project ideas to develop take almost thesame course. This project identification may be broadly divided into four stages,viz.,A. Conceptual stage where project ideas are generatedB. Screening stages at which unviable ideas are eliminated.C. Identification stage at which viable projects are selectedD. Pre-feasibility state at which pre-feasibility studies are taking up.Conceptual stageA number of project ideas may be generated either by those officials or non-officials and entrepreneurs individually or collectively who are conversant withthe area. In this context, one has to examine the potentialities of development andthe problems, needs and aspirations of the people of the concerned area. 32. Screening stageIn the second stage project ideas generated above are screened n apreliminary exercise to weed out the bad or unviable ides. All project ideas wouldnot pass the screening test. Some project ideas may be imaginary to warrant anyserious consideration.The third & fourth stages may be called as investment opportunity study.This study is necessarily preliminary and the broad one and has a limitedobjective of providing planners with a choice of projects from which they canmake a selection. Pre feasibility study and these can be differentiated opportunitystudy and a detailed feasibility study and these can be differentiated mainly on thebasis of information required for respective stages.SCREENING PROJECT IDEASAfter gathering the project ides from the various sources as aforesaid, it isessential to eliminate ideas which prima facie are not promising. This process feliminating the irrelevant and unviable ideas is called screening of project ideas. Itcan be done with the help of testing the following conditions of the propositions.a.) Compatibility with the promoterb.) Consistency with governmental prioritiesc.) Availability of inputsd.) Adequacy of markete.) Reasonableness of costf.) Acceptability of risk level etc.The project idea must be compatible wit interest personality and resourcesof the entrepreneur. It should be accessible to him and also it offers him theprospects 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 regulationsEasily accommodation foreign exchange requirementsNo difficulty in obtaining license. 33. The resources and inputs required for the project must be reasonablyassured. This feature of the project can be assessed with the help of determiningthe 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 supplyIdentifying the adequacy of market is the key factor to select, the viableproject idea. To judge the adequacy of market the following factors have to beexamined. 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 increasedconsumption Patent protectionReasonableness of cost is another factor to screen the project ideas. Thecost structure of the proposed project must enable it to realize and acceptableprofit with a competitive price. The following cost factors must be carefullyconsidered 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 theproject ideas and hence determine the desirability of a project. 34. METHODOLOGY FOR PROJECT IDENTIFICATIONTo make a viable project it should be linked with the actual circumstancesprevailing in the area. Without knowing the basic information relating to socio-economic conditions of the area, it is difficult to draw a suitable project for thearea. Development needs and potentials vary from area to area. For specific area,before drawing a project, local condition and other relevant factors must be takeninto consideration. Most of the project fails because they were not based on localproblems. Assumptions based on macro level information may fail to watch atmicro level. Survey is a technique to unearth the hidden information which arevital to identify the basic requisites of project i.e , need, resource and priorities. Italso helps in making right choice between different alternatives. Secondly itpresents lot of information to be used as bench mark information which will helpat the later stage for evaluation of the project.PROJECT IDENTIFICATION FOR AN EXISTING COMPANYExisting companies essentially large scale company form of organizationsare continuously developing various projects for their developmental purposes.While doing so, the existing company has to make a more intensive analysis of itsresources and environment and conceive of projects on the basis of its existingactivities. An existing company which seeks to identify new project opportunitiesshould undertake a SWOT analysis, It is an acronym law of strengths andweakness and opportunities and threats. This analysis evaluate all these fourcharacteristics 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 intoaccount the need for replacement expenditure, increase in working capital,repayments of borrowings and dividend payments.Capability of raising external financial resourcesAvailability of production facilitiesTechnological capabilities of the companyAvailability of different sources of raw materials and its utilizationAvailibility of infrastructural facilitiesCost structure and profit margins of the companyDistribution network of the company 35. Market share of the companyCapability of top management of the companyState of industrial relations in the companyImpact of corporate laws on the growth of the company especially (MRTP ACT)etc.,Likely changes in the governmental policiesPossibility of evolving new technology and its impact on the cost structure of thecompanyExistence and severity of competitionChanges in the customers preferences, tests etc.,By considering the above said information keenly the SWOT analysishelps to provide the basis for the corporate strategy to be followed and indicatethe major areas of thrust. These may include expansion of the capacity of existingproduct range, vertical integration, diversification in related areas and mergers.CONCLUSIONThus this lesson has explained to you the significance and mode of conceivinggood project idea. It also explains to you the various sources from which theproject ideas can be generated and how one should select the project ides.SELF ASSESSMENT QUESTIONS1. What factors would you take into account for identifying promisinginvestment opportunities?2. What is SWOT analysis and how it can be done?3. Explain the process of project identification 36. LESSON 3PROJECT FORMULATIONOBJECTIVESTo impart the need for project formulationTo describe the project formulation processTo know the criteria to be followed in project formulationINTRODUCTIONProject formulation is an investigating process which precedes investmentdecision. The purpose is to present relevant facts before the decision-makers toenable them to decide as to whether to go ahead signal should be given for theproject or not.Formulation of projects involves scientific procedure. The task of anyformidable project is too many. It has to present several information subjectiveand objective in nature. It explains the objectives, goals and justification for theacceptance of the project. The major task of the project is to assess the financial,technical and managerial involvement and its justification considering theresource constraint. The project formulation stage involves the identification ofinvestment options by the enterprise.Project formulation is designed to bring the project sponsoring authorityand the agencies from whom it has to gent concurrence, support etc., on onewavelength. Project formulation by providing a scientifically developedprocedure for developing the contend as well as the format of the investmentproportions, seek to streamline the process of appraisal of project at governmentand the aiding agencies level. So, the project formulation is a process involvingthe joint effort of a team of experts including the economists, the financialanalysis and specialists in various fields. A well formulated project provides amedium which out across scientific, social and positional prejudices and providesa common meeting ground for all those who have a contribution to makesuccessful implementation of a project.STAGES IN PROJECT FORMULATIONThe different stages in the project formulation process are briefly describes asfollows; 37. A. Feasibility analysisB. Techno-economic analysisC. Project design and network analysisD. Input analysisE. Financial analysisF. Social cost-benefit analysisG. Project appraisalFEASIBILITY ANALYSISFeasibility analysis is the first stages in the process of projectdevelopment. The purpose of the analysis is to examine the desirability ofinvesting in pre-investment studies. For this purpose it is essential to examineproject idea in the light of the available internal (inputs, resources & outputs) andexternal constraints (environment). When a project idea is taken up fordevelopmental 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 forarriving at reasonable decision regarding further investment. In the last mentionedcase, investment in pre-investment studies will obviously have to be adequate forarriving at reasonable decision regarding further investment. In the last mentionedcase, investment in pre-investment studies will obviously have to e deferred tillsuch time s adequate date regarding the project feasibility is available. The projectsponsoring body will therefore have to invest in collection additional data andrefer the investment decision for the time being. In the second situation when theproject is found to e not feasible, further investment in the project idea iscompletely ruled out. In the third situation, when the project idea is found to befeasible, the decision-makers can proceed to invest further resources in pre-investment studies and design development.TECHNO-ECONOMIC ANALYSISTechno-economic analysis is primarily concerned with the identificationof project demand potential and the selection of the optimal technology which canbe used to achieve the project objectives. The analysis provides necessarymaterial on which the project design can be based. It also indicates whether theeconomy is in position to absorb the output of the project or not.PROJECT DESIGN AND NETWORK ANALYSISProject design is the heart of the project entity. It defines the individualactivities which go into the corpus of the project and their inter-relationship witheach other. It identifies the flow of events, which must take place before a projectcan start yielding the results for which it has been set up. The inter-relationship 38. between various constituent activities of a project in most conveniently expressedin the form of a network diagram. Project design and network analysis areconcerned primarily with the development of the detailed work plans of theproject and its time profile, and the presentation of this plan is form of a detailednetwork drawing. Project design and network analysis make available to theproject formulation team a clear picture of the work elements of the project andalso their sequential relationship. This presentation the way for detailedidentification and quantification of the project inputs, an essential step in thedevelopment of the financial and cost-benefit profile of the project.INPUT ANALYSISThe objective is to identify and quantify the project inputs and to assessthe feasibility of a sustained supply of these inputs all through the effective lifespan of the project. Resources are consumed in project constituent activities. Thebest method of identifying the project constituent activities. The best method ofidentifying the project inputs is therefore to identify these activities determine theresources which each activity will consume individual requirements. Inputanalysis uses the network plans for developing the input characteristics of theproject. If thereafter proceeds to evaluated the availability of the inputs both inquantitative as well as qualitative terms. Resources require for a successfulimplementation of a project include not only the material inputs but also humanresources which are necessary both for the setting up of the project as also itssuccessful normalization run. Resources requirements estimates form the basis ofcosts estimates of the project and are, therefore, essential for developing thefinancial profile and cost-benefit profile of the project.FINANCIAL ANALYSISThe objectives of financial analysis is to develop the project from thefinancial angle and to identify these characteristics. Financial analysis concernsitself with the estimation of the project costs, estimation of project fundsrequirements, It also involves appraisal of the financial characteristics of theproject so as to establish the relative merits and demerits of the project ascompared to other investment opportunities. Financial analysis reducesinvestment proposition in diverse fields of human activity to one common scale,thereby simplifying the project is developing project financial forecasts.COST BENEFIT ANALYSISIn judging the overall worthiness of the project, the effect of the project onsociety as a whole is very essential. While financial analysis evaluates a projectfrom the profitability point of view, social cost benefit analysis views it from thepoint of view of national viability. The cost-benefit analysis however takes intoaccount not only the direct costs and benefits which will accrue to the projectimplementing body but also total costs which all entities connected with the 39. project will have to bear and the benefits which well be enjoyed by all suchentities. The idea here is to evaluate the project in terms of absolute costs andbenefits rather than in terms apparent costs and benefits.PRE-INVESTMENT APPRAISALPre investment appraisal is the process of consolidating the results offeasibility analysis, the techno-economic analysis, the design and networkanalysis, the input analysis, the financial analysis and the cost benefit analysis, soas to give the investment proposition a final and formal shape, It naturallyinvolves selection of appraisal format, the material which should go into pre-investment report and the form of presentation of various conclusions. The suntotal of the pre-investment appraisal is to present the project idea in a form inwhich the project sponsoring body, the project implementing body and the outsideagencies can take investment decision regarding the proposals.CRITERIA TO BE FOLLOWEDThe 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 sustainedbasis.Setting up priorities and choosing the goals that are more urgentSearching for alternations and carrying out feasibility studies to pick up projectsthat appear most beneficial and desirable.Carrying out detailed studies of the project so selectedEstimation the needed resources (human and physical) and finding the yearly costand benefit of projectArranging funds both approval and allocation. The successful implementationof any project depends upon the timely availability of the required resource as perprojections.Preparing of time schedule for all hobs so that the physical and financial targets ofthe projects are passed appropriatelyDistributing the works to various departments or agencies having the appropriatetechnical expertise 40. Execution and controlling the project. This requires frequent reviewing, updatingand constant action to restore the operation to its planned characteristics.Evaluating the performance of each project to ensure the worth of good or servicefor each rupee to be spent.CONCLUSIONThus the process of project formulation involves a stage by stagedevelopment of the project idea into an investment proposition. The conclusiondown at the end of each stage forms the basis of development of the ensuingstage. These conclusions also provide necessary materials for re-checking of theinitial premises from which a beginning was made. There must be forward andbackward look at the completion of every stage. So the project formulation teamhas to be ready to revise its opinions and conclusions in the light of furtherevidence.SELF ASSESSMENT QUESTIONS1. What do you mean by project formulation? Explain the several aspects ofproject 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. LESSON 4FEASIBILITY STUDY AND PREPARATION OF FEASIBILITY REPORTOBJECTIVES1. 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 bechecked.INTRODUCTIONA feasibility report is an investment proposal base on certain informationand factual data appraising the project. This type of feasibility study may berequired by the financing institutions, project sponsor, project owner. Thefeasibility report enables the project holder to know the inputs required and ifrightly prepared confirms to the convictions that he is proceeding in the rightdirection. In other words, a project needs to be fully defined in order to provideterms of reference for the management of the project.A project can be considered to have been fully established when thefollowing conditions are fulfilled.The technical configuration of the project has been fully defined.The performance requirement for the various technical system and the keyequipment have been specified.Cost estimate for the project is frozen.Techno-economic viability of the project has been examined, appraisedand 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 isprepared to present an in-depths techno-commercial analysis carried out on theproject idea for consideration of the financial institutions and other authoritiesempowered to take the investment decision. 42. NATURE OR PROJECT FEASIBILITY ANALYSISIn the broadest sense, every rational decision t make new investment isproceeded by an investigation of the feasibility of the project, whether or not thiscarried out in a formal manner. The larger the project and greater the investment,the more formalized the investigation. Assurance is needed that the market existsor can be developed, that raw materials can be obtained, that sufficient laboursupply is available, that local services vital to the project are at hand, and that theoverall costs for plant equipment, labour and raw material input will be of acertain order. Most importantly it must be determined that income will exceedcosts by a margin sufficient to make the project financially attractive. When theproject is small, the study format may be quite informal, perhaps there will be noformal study at all and little accumulation of actual data. Nevertheless, thefeasibility calculations will have to be computed and evaluated, even if aninformal manner before the ultimate step of actual investment is taken.NEED FOR FEASIBILITY STUDIESA company is incorporated for the purpose of setting up a project. Thepromoters obviously have, to start with, some broad idea about the proposedindustrial activity. They make mental picture as to how the idea, when translatedinto 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 attractedby the favorable aspects of the project known to them, while they may haveoverlooked the dark side of the picture, which can only be revealed by a detailedobjective study. Too many projects have floundered, at considerable loss to theinvestors and indeed to the national economy through waste of scarce resources,because the investment decisions were taken without objective and in depthtechno-economic feasibility studies. The need for such careful studies is furtherunderscored on two counts:In modern times, business operations are complex, requiring carefullyprepared plans.The shareholders, creditors, term leaders etc., insist on as complete ananalysis of the scheme as possible without their co-operation, it would not bepossible to translate the ide into action.This feasibility study helps the promoter to make the investment decisionscorrectly and to obtain funds without much difficulties.It allows the promoters to anticipate the problems likely to be encounteredin the execution of the project and phases them in a better position to answer thequeries that may be raised by the financial institutions and others who would haveto be involved in the project. 43. COMPLEMENTS OF FEASIBILITY STUDYProject feasibility study comprises of market analysis, technical analysis,financial analysis, and social profitability analysis. The analysis is mainlyinterested only in the commercial profitability and thus examining only themarket, technical and financial aspects of the project. But, generally the gamut offeasibility of a project covers the following areas: Commercial and economic feasibility Technical feasibility Financial feasibility Managerial feasibility Social feasibility or acceptabilityThese areas are briefly described below:COMMERCIAL AND ECONOMIC FEASIBILITYThe economic feasibility aspect of a project relates to the earning capacityof the project. Earnings of the project depends on the volume of sales. If takeninto consideration the following important indicators.Present demand of the goods produced through the project. i.e. marketfacility (or) getting a feel of the market.Future demand: a projection may be made about the future demand. Theperiod normally depend upon the scale of investment.Determining the extent of supply to meet the expected demand andarriving at the gap.Deciding in what way the project under consideration will have areasonable chance to share the market.Anticipated rate of return on investment. If it is positive the projectjustifies the economic norm in the relationship between cost and demand.Future demand can be estimated after failing into consideration thepotentialities of the export market the charges in the income and prices, themultiples use of the product, the probable expansion of industries and the growthof new industries. The share of the proposed project n the market could beidentified by considering the factors affecting the supply position such ascompetitive position of the unit, existing and potential competitors, the extent of 44. capacity utilization, unit cost advantages and disadvantages, structural changesand technological innovations bringing substitute into the market.The commercial feasibility of a project involves a study of the proposedarrangements 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 rawmaterials, power, labour etc., at various level of output and converting them intocost. In other words, deciding costing pattern.Matching costs with revenues with a view to estimating the profitability ofthe project and the break-even point. The possibility ultimately decides whetherthe project will be a feasible proposition.The technical analysis of a project feasibility study serves to establishwhether or to the project is technically feasible ant it also provides a basis for costestimating.TECHNICAL FEASIBILITYThe examination of this aspect requires a thorough assessment of thevarious requirements of the actual production process and includes a detailedestimate of the goods and services needed for the project. So, the feasibility reportshould give a description of the project in terms of technology to be used,requirement of equipment, labour and other inputs. Location of the project shouldbe given special attention n relevance to technical feasibility. Another importantfeature of technical feasibility relates the types of technology to be adopted for theproject. The exercise of technical feasibility is not done in isolation. The schemehas also to be viewed from economic considerations; otherwise, it may not be apractical proportion however sound technically it may be.The promoter of the project can approach the problem of preparation oftechnical feasibility studies in the following order:Undertaking a preliminary study of technical requirements to have a quickevaluation.If preliminary investigation indicate favourable prospects working outfurther details of the project. The exercise begins with engineering and technicalspecifications 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 projectbasically from a technicians angle. The main aspects to be considered under this 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 theproject. Emergency or stand-by facilities required by the project sophisticationsuch as automation, mechanical handling etc. required collaboration agreements,production inputs and implementation of the project.FINANCIAL FEASIBILITYThe main objectives of this feasibility study is to assess the financialviability of the project. Here, the main emphasis is in the preparation of financialstatement, so that the project can be evaluated in terms of various measures ofcommercial profitability and the magnitude of financing required can bedetermined. The decision about the financial feasibility of project should bearrived at based on the following consideration:For existing companies, audited financial statements such as balancesheets, 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 incomestatements, cash flows and balance sheets.Supporting schedule for financial projections stating assumptions used asto collection period of sales, inventory levels, payment period of purchases andexpenses and elements of production cost, selling administrative and financialexpenses.Financial analysis showing return on investment return on equity, break-even volume and price analysis.If necessary sensibility analysis to identify items that have a large impacton profitability or possibly a risk analysis.MANAGERIAL FEASIBILITYThe success or failure of a project largely depends upon the ability of theproject holder to manager the project. Project is a bundle of activities and eachactivity has its own role. For the success of a project, a project holder has to co-ordinate all the activities in such a way that the additive impact of different inputscan produce the desired result. The ability to manage and organize all such interrelated activities come within the concept of management. If the person in-chargeof the project, has the ability, has the ability to manage all such activities, thedesired result can be anticipated. 46. There are three ways to measure the managerial efficiency:a. Hereby skillb. Skill acquired through trainingc. Skill acquired course of workSOCIAL FEASIBILITYA project may cross all the above barriers mentioned above an found verysuitable but is will lose its entire creditability, if it has no social acceptance.Though the social customs, conventions such as caste community, regionalinfluence etc. are creating hindrance for development of a project should avoid allsuch social conflicts which will stand on the successful implementation of theproject,(e.g.) Considering the interests of the general public; projects which offerlarge employment potential, which channelise the income from less developedareas will stimulate small industries.In a nut shell, the feasibility report should highlight on these five testingstones before it can be declared as complete and only after judging through theseindicators a project can be declared as viable and can be submitted for finance orany other assistance from any institutions.FORMAT OF FEASIBILITY REPORTThe sketch of feasibility report of the project covers the following1. Introduction2. Summary and Recommendations3. Project Capacity, Chemistry of the product, specifications, properties,application and uses.4. Market potential5. Process and know-how6. Plant and machinery7. Location of the unit8. Plot plan and building9. Raw materials availability10. Utilities, requirements 47. 11. Effluents treatment12. Personel requirement13. Capital cost14. Working capital15. Mode of finance16. Manufacturing cost17. Financial analysis18. Implementation scheduleCHECK FOR FEASIBILITY REPORTThe following key elements must be presented in the feasibility report,Examination of public policy with respect to the industry projectBroad specification of outputs and alternative techniques of productionListing and description of alternative locationsPreliminary estimates of sales revenue, capital costs and operating costs ofdifferent alternativesPreliminary analysis of profitability for different alternativesMarketing analysisSpecification of product pattern and product pricesListing of major equipment by type, size and costListing of auxiliary equipment and process know-howSpecification of site and completion of necessary investigationListing of buildings, structures and yard facilities by type size and costSpecification of supply sources connection costs and other costs and other costsfor transportation services, water supply and powerPreparation of layoutSpecification of skill-wise labour requirements and labour costs.Estimation of working capital requirementPhasing of activities, and expenditure during constructionAnalysis of profitabilityDetermination of measures of combating environmental problemsState the preparedness to implement the project rapidly 48. CONCLUSIONThus, this chapter narrates the very purpose of a feasibility report in a lucidmanner, covering components of feasibility reports, principal feature of projectfeasibility study and also checklist for feasibility study. It helps in defining andanalyzing the alternative approaches to production processes and outcomes. Itfocuses attention on the material inputs and various other techno-economicvariables. It describes the optimization process, justifies the assumptions andhypothesis set thereby selection the better alternative solutions and defines treclear boundaries of a project viability.SELF ASSESSMENT QUESTIONS1. What do you mean by feasibility study? Explain its significance in projectformulation?2. Explain the different components of feasibility study3. Suggest a suitable outline of feasibility report for setting up a small scaleindustry.4. How a technical feasibility of a project can be ascertained?5. Analyse the significance of managerial competence and commercialviability of project in the feasibility study.6. What the elements to be covered in the feasibility report? 49. LESSON 6PROJECT REPORTOBJECTIVES1. To know the need for preparing a project report2. To explain the content of an ideal project reportINTRODUCTIONA project at the outset must bear a logical appearance, which it can getonly after the feasibility test. Project report is a document, which clearly narratesthe various aspects f project in a prescribed form. Project report preparation is apost investment decision exercise. It involves the preparation of detailedspecifications and designs for the project premises, detailed design of the processor 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 aproject once an investment decision is arrived at.A project report is meant to provide the necessary information, which maybe required for the purpose of processing and assessing the proposal for gettingthe financial assistance from the financial institutions. This is essentially preparedin order to provide a complete information with proximate values of the projectand presented to the financial institution for appraisal. A project report preparedwith utmost care care would not only give a clear idea to the banker but also itrelives the entrepreneur from the normal objections and formal queries of thebanker.In a developing economy like India, where the development banking isvigorous, an entrepreneur gets a lot of published materials with data relating tovarious feasibilities and promotional institutions engaged in entrepreneurshipdevelopment produce good literature covering various aspects of producing aproject or products in the country. The Director General of TechnicalDevelopment (DGTD), National Small Industries Corporations (NSIC) are someof the pioneer institutions providing variety of information for small scaleenterprises to manufacture. They are guidelines for industries indication thoseitems, in which good scope exists for manufacturing.With these available information, an entrepreneur has to do the followingfor 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. To prepare a nice project report containing all relevant information.Many of the institutions like SISI, State Financial Institutions also help inpreparation of project report and later on recommend they to the banks. Besidesthese institutions, several commercial banks help the entrepreneurs to get a goodproject report.Components of Project ReportThe following are the important headings under which the completeinformation on relevant aspects should be included for a small scale industrysproject report.General informationRationaleProject descriptionMarket potentialCapital expenditure and sources of financeAssessment of working capital requirementsOther financial factorsGovernment and other statutory approvalsEconomic and social variables1. GENERAL INFORMATIONThe following aspects should be given in the stage, which are of generalnature:Name and address of the entrepreneurThe qualifications, experience and other capabilities of the entrepreneur. Ifit 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 enterpriseThe utility of the product and the range of products to be manufactured 51. 2. RATIONALEAs mentioned earlier a project may have several objectives subsidiary tothe prime objective of making profit. As a first step in project evaluation, it isessential that one looks at the broad rationale of the project proposal to ensure thatthe project is appropriate and justified. As an example, one could say thatmodernization or pollution control may be fully justified on grounds of survivaland environmental protection even if, in the short-term the project expendituremay adversely affect the financial criteria of project evaluation. On the otherhand, a project which would improve the earnings per share or the debt servicecover or the production efficiency may not necessarily be justified if all this is tobe achieved at the expense of national interest or public interest.3. PROJECT DESCRIPTIONA brief description of the project covering the following aspects should begiven in the project report.SITE: Location (Town, Complete address) whether owned or leaseholdland whether the site is approved industrial area? Is it suitable for the productunder review.4. INPUT FACTORSRaw materials: What are the sources of raw materials? Are they locallyavailable? Whether imported raw material is also required? If so, whether licensehas been obtained? Is it suitable to get quality raw materials continuously atreasonable prices?The availability, quality critically and quality compatibility of the rawmaterial with the technology as well as the plant and machinery are importantfactors to be clearly understood while evaluating a project especially those in hi-tech area. This element is also intimately linked to many other elements in aproject and can force necessary changes in them to ensure the viability of theproject.As a simple example, one can easily surmise that a raw material with ahigh volume to weight ratio will indicate the plant is located near the source ofraw material. e.g. Cement, power (coal based). On the other hand, if the valuesadded in such a case is very high, then it may be possible or even necessary tolocate the plant away from the source or raw materials. Textiles, power (gas basedof oil based), processed foods like snack foods, ice creams are some the pertinentexamples.The characteristics of the raw materials are multivariate and not just on thevolume weight ratio. It is imperative therefore that this elements gets a careful 52. consideration while assessing a project. The market, the management, and theutility needs of the projects also influence the locational decisions.Labour: What is the type of labour required? Whether skilled or unskilled? Arethey available in that area? If not, what arrangement have been made to recruitand train the labour in various skills?Power: I