Project Appraisal Analysis1

8/3/2019 Project Appraisal Analysis1

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To understand the fundamentals of Analysis

in Project Appraisal.

Consists of three key components: Market and Demand Analysis

Technical Analysis

Financial Estimates and Projections


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To estimate the potential size of the market

for the proposed product/service.

To get an idea about the market share that islikely to be captured.

Two Broad Issues: L

ikely aggregate demand for theproduct/service? Market share of the proposed project?


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Orderly and systematic manner

The key steps in this analysis are:

Situational Analysis and specification ofobjective

Collection ofSecondary information

Conduct of market survey Characterization of the market Demand forecasting

Market planning


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Project Analyst may Informally talk to:

Customers

Competitors Middlemen

Others in the industry

Preferences and purchasing power of thecustomers Actions and strategies of competitors

Practices of the middlemen


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To conduct a Formal study, it is necessary to

spell out its objectives clearly and

comprehensively. An effective approach is to structure them in

the form of relevant Questions.


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Is information that has been gathered in someother context and is already available.

Provides the starting point for the market and

demand analysis. General sources ofSecondary Information in

India are: Census of India

NationalS

ampleS

urvey Reports Plan Reports Statistical Abstract of the Indian Union India Year Book And many more..


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The market survey can either be:

Census Survey

SampleSurveyCensus Survey- The entire population is

covered.SampleSurvey- A sample of the population is

contacted or observed for relevantinformation.


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Steps in Sample Survey are:

Define the target population

Select the sampling scheme and sample size Develop the questionnaire

Recruit and train the field investigators Obtain information from the sample of

respondents Scrutinize the Information gathered

Analyse and Interpret the information


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Limitations of a market researcher:

Heterogeneity of the country

Multiplicity of languages Design of questionnaire


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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.


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Effective demand in the past and present:

The starting point is apparent Consumption

which is: Production + Imports Exports Changes in

stock level.

In a competitive market apparent

consumption and effective demand areequal.


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Breakdown of demand:

Market demand may be broken down into

demand for different segments of market. Nature of Product

Consumer Groups Geographical Division


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Price:

Different types of prices are

Manufacturers price Landed price for imported goods

Average wholesale price Average retail price


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Methods of Distribution and sales promotion:

May vary with the nature of the product.

Supply and competition: The sources of supply may be foreign or

domestic. Competition from the substitutes and

near-substitutes should be specified.

Government policy.


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QUALITATIVEMETHODS:

Rely essentially on the judgment of the

jury/experts to translate qualitativeinformation to quantitative estimates.

Types of QualitativeMethods are:1. Jury of executiveMethod.2. DelphiMethod


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TIMESERIES PROJECTIONMETHODS:

These methods generate forecasts on the

basis of an analysis of the historical timeseries.

The important methods are:1. Trend projectionMethod.2. Exponential smoothingMethod.3. Moving averageMethod.


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CAUSALMETHODS: They seek to develop forecasts on the basis

of cause-effect relationships. The important methods are:1. Chain ratio method.2. Consumption level method.

3. End use method.4. Bass diffusion method.5. Leading indicator method.6. Econometric method.


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Demand forecasts are subject to error arising

from three principal sources:

Data about past and present market. Methods of forecasting.

Environmental change.


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Marketing plan has the following

components:

Current marketing situation. Opportunity and issue analysis.

Objectives. Marketing strategy.

Action programme.


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CurrentMarketing Situation:

Deals with the different dimensions and facts

of the current situation. It examines the following:1. MarketSituation.2. CompetitiveSituation.3. DistributionSituation.4. Macro-environment.


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Opportunity and Issue Analysis:

This primarily deals with SWOT analysis

S=Strength W=Weakness

O=Opportunity T=Threat

Objectives: They have to be clear-cut, specific and

achievable.


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Marketing Strategy:

The marketing Strategy covers the following:

1. Target segment.2. Positioning.3. Product line.4. Price.5. Distribution.6. Sales promotion.7. Advertising.


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Action Programme:

Action Programmes operationalise the strategy.

This primarily deals with the implementation ofthe plan developed from the information

gathered.

To enable the product to reach a desired level of

market penetration, a suitable marketing plan,covering pricing, distribution, promotion, and

service needs to be developed.


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Technical analysis: The broad purpose of technical analysisis

1. To ensure the project is technically feasible2. To facilitate the most optimal formulation of the project in

terms of technology,size,location

Manufacturing process/Technology: For manufacturing aproduct/service, often two or more alternative technologiesavailable.

Example: Cement can be either by the dry process or the wet process. Choice of technology: Plant capacity Principal inputs(the quality of determines whether the

wet or dry process should be used for cement) Investment outlay and production cost Use by other units Product mix


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Appropriateness of technology

Materials inputs and utilities: An important aspect oftechnical analysis is concerned with defining the materials

and utilities reqd. Material inputs and utilities may be classified into four broad

categories:

Raw materials Processed industrial materials and components

Auxilliary materials and factory supplies

Utilities


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Utilities: A broad assessment of utilities

(power,water,steam,fuel) may be made at the

time of input study though a detailedassessment can be made only after

formulated the project w.r.t location,technology and plant capacity.


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ProductMix

PRODUCTMIX: Example: A toilet soap manufacturing unit may,by variation

in raw material ,packaging and sales promotion. Plant capacity:( referred to as production capacity) plant

capacity may be defined two ways: Feasible normal capacity (FMC) Nominal maximum capacity(NMC) Focus on feasible normal capacity Several factors have a bearing on the capacity decision. Technological requirement

Input constraints Investment cost Market capacity Resources firm


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This follows an assessment of demand, size andinput requirements.

It is influenced by a variety of considerations: Proximity to raw materials and markets. Availability of infrastructure. Labour situation. Government policies. Other factors like:1. Climatic conditions.2. General living conditions.3. Proximity to ancillary units.4. Ease in coping with pollution.


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The following procedure is followed:

Estimate the likely levels of production over

time. Define the various machining and other

operations. Calculate the machine hours required for

each type of operation. Select machineries and equipments required

for each function.


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The equipments are classified in to:

Plant equipments.

Mechanical equipments. Electrical equipments.

Instruments. Controls.

Internal transportation system. And others


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May be divided in to three categories:

Site preparation and development.

Buildings and structures. Outdoor works.


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The key issues that need to be considered in

this respect are:

Types of effluents and emissions generated? Needs to be done for proper disposal of

effluents and treatment of emissions? Ability to secure all environmental clearances

and comply with all statutory requirements?


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The important charts and layouts drawingsare as follows:

General functional layout. Material flow diagram. Production line diagrams. Transport layout.

Utility consumption layout. Communication layout. Organisational layout. Plant layout.


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The following information is required: List all possible activities from project planning

to commencement of production. The sequence in which all the activities have tobe performed. The time required for performing various

activities. The resources required for performing various

activities. The implications of putting more resources or

less resources than are normally required.


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There are alternative ways of transforming an

idea into a concrete project.

There are alternatives may differ in one ormore of the following aspects:

Nature of project. Production process.

Product quality. Scale of operation and time phasing.

Location.


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THANK YOU

Documents

Project Appraisal Analysis1