Technical Study Phase Notes

8/9/2019 Technical Study Phase Notes

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1. Objectivesa. Establish whether or not the project is technically feasible and make tentative choices among technical

alternatives.

i. Level of production technologyii. Raw material inputsiii. Equipment, methodsiv. Organizationv. Facilities design

b. To provide cost estimates of:i. Fixed investments: cost of land, building, auxiliary installations, equipment and installationii. Production costs and expenses: direct material, direct labor and overhead

iii. Start-up costs and expenses: patent, licenses2. Depth of Technical Analysis

a. Dependent on:i. Project sizeii. Technological newness and complexity of the product

iii. Number of technical alternatives to manufacture the productiv. Desired accuracy of cost estimates

b. Inadequate technical analysis may result in:i. Costly trial and error modification in facilities and processes

A. May eat into your capitalB. Downtime

ii. Erroneous and misleading cost estimates.A. If you miss out on an important aspect/costB. May make your project infeasible

c. Causes of mistakes in technical analysisi. Inadequate preliminary analysis of technological requirements

A. Ex. Your competitive advantage is the type of material you use to make a certain product.But it turns out, the supplier for that kind of material does not exist. You just lost your

competitive advantage.

ii. Failure to consider alternativesA. Presenting alternatives is a requirementB. So you can have a fallbackC. Find out the implications is youre forced to switch to another alternative

iii. Neglect of secondary factorsA. Study the entire supply chain to source for suppliersB. Plan for the production in the intention to deliver to consumers

3. Preliminary Information Requirementsa. Product/Service information

i. Design and Performance SpecificationsA. Make sure our bags can really perform its designed functionsB. When it transforms, can it perform the functions of a bag?C. Is it easy to transform?

ii. Quality/Service LevelA. Service Level Agreementhow quickly will they be able to respond to you when you have

a concern? (response: send a technician/get a replacement part/etc.)

terms and conditions

after sales support response and resolution time


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continued business

iii. Service Requirementsb. Market information

i. Demand forecastii. Delivery service requirements (transportation)

iii. Customer location (ex. On-site production)c. Materials Information (i.e. types if materials: strategic, bottleneck, critical)

i. Specifications (present, substitutes, type of mix)ii. Availability (supplier capacity)

iii. Delivery lead timeiv. Source location (ex. Pampanga-sand, Bulacan-cement, gravel)

d. Othersi. Capital availability (running capital)ii. Labor availability (present workforce)

4. Technological Alternativesa. Are there one or more viable technological alternatives that could produce the product?b. Purpose :

i. To avoid the unquestioned use of an inappropriate technologyii. To ensure that all alternatives are considered

iii. Availability of the technologyc. Variation in product type:

i. QualityBus and light rail provide the same function but different service levelsii. Product range (by-product)

A. Coconut residue into confectionary use and also coconut shells into charcoal and processthe husks into coir fiber

B. School providing primary, tertiary, secondary levelsC. Fishing port for small, medium and large fishing vesselsiii. Stages of processing

A. Meat products may be sold as hogs, pork, sausages, etc.B. Power distribution may include generation, distribution and service

d. Variations in production techniquei. Technical process or method

A. Cement can be produced using either wet or dry methodB. Technical skills may be developed through formal instructions, vocational workshops or

actual on the job training

C. Power may be generated by various means such as hydro, coal, thermal, geothermal, orcogeneration

ii. Equipment (capacity)A. Data processing- micro, mini or mainframe computersB. Bus systems- air-conditioned, double deckers, ordinaryC. Cargo handling- industrial trucks, conveyers

iii. Raw materials and suppliesA. Hollow blocks- different combinations of cement and sand, cement and soil, cement and

fly ash, cement and rice hull

B. Power generation- using steam processes, different kinds of fuel such as oil or coal.iv. Level of technology

A. Fully automated manufacturing systemB. Different methods of crop production in a given farmC. Self-programmed or video-based instruction for trainings

v. Alternative sizes or scaleA. Small, medium, large scale of project


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B. Refers to its capacity to supply goods/services demanded over a period of timeC. Project costD. Geographical scopeE. Employment createdF. Volume and nature of demand

a. Choose capacity large enough to service an increasing net demand over a longperiod of time

b. Choose a smaller capacity to cover net demand over a shorter period withprovisions for expansion

Project type Capacity (scale) measure

- irrigation Hectares to be irrigaged

- school # of classrooms

- road # of vehicles

- housing Floor area/unit

- piggery # of heads

NO Sweat! volume

Process of eliminating alternatives that are inappropriate for producing the producta. Is the estimated cost of any alternative such that it must be excluded?b. Conduct research and make tests to ensure technical feasibilityc. New products that depend on utilization of new tech for production obviously require tests and research to

ensure that such tech is available in suitable state of perfection

d. Are satisfactory estimates available for the following: (1) fixed investments, (2) manufacturing costs andexpenses

G. Production processesa. Economies of scale

H. Physical resource bases: availability and cost of primary and intermediate productioninputs (i.e. capital, labor, power, water, raw materials)

I. Location and transport costs: there is trade-off between and location of project re theside-effects of each alternative consistent with the national and company policies, goals

and restrictions?

a. Factors to be considered side effects include: i.contribution to employmentii.requirements for scarce skills, expatriates

iii.energy requirementsiv.capital requirementv.environmental requirementvi.need for imported equipment

vii.support of indigenous industryviii.multiplier effect of the venture operation

ix.safety and health hazards5. Production Process

a. Sequence of operation, moves, inspectionsb. Choose the production methods, equipment requiredc. Use process or operations chart, flow diagrams, materials flow diagram, quality flow diagrams, production

line diagrams

d. Transport layout, utility consumption layout, etc.6. Materials Requirements

a. Primary purpose of inventories is to absorb the shocks of fluctuating demand; buffer


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b. Types of inventories: raw materials and purchased parts, WIP, finished goods, suppliesc. Supply programme:

i. Prepare supply program, show alternatives, selection, cost estimatesii. When setting up the supply program, consider the following based on the production program:

a. Availability of supplies/suppliersb. Characteristics of suppliersc. Delivery schedulesd. Storage measures and capacitye. Losses, replacementsf. Cost estimates: annual costs

7. Equipment and Toolinga. Equipment and tooling requirements

i. Should be classified into production, auxiliary, service equipment, spare parts and toolsb. Evaluation of equipment and tooling suppliersc. Summary of equipment and tooling suppliersd. Select equipment and toolinge. Production Equipment and tooling selection is facilitated by the process chartf. For each operation, determine the alternative methods and Equipment to accomplish the work

Sources: existing manufacturers of the product, trade publications, trade associations and

organizations, equipment manufacturers

As the process chart can verify, material handling is an important part of the production process

Transportation of material usually follows each operation

Civil Engineering works; set-up, installation of equipment, etc.

Cost estimates, investment costs, site preparation, annual maintenance and repair, etc.

8. Capacity Planninga.

Determine the production capacity needed by an organization to meet changing demands for its productsb. Capacity is the maximum amount of work that an organization is capable of completing in a given periodof time

9. Production Labor NeedsDesign the production/service organization

a. How many and what type of supervisory and staff employees are required in the production/serviceorganization? Factory overhead

b. Includes: receiving, packaging, shipping, maintenance, tool room, inspection, methods analysis, janitorial,production planning and control, supervision.

c. Estimate production labor needsd. How many employees/workers are needed?e. What skills must these employees/workers possess? (competencies)

i. Ex. Soft skills- communication, customer service, leadership, people skillsii. Ex. Technical

f. Type and level of training needed?g. Salaries?

i. What salary skill will you adopt?A. At market rate?B. Below market rate? But there are better benefits, and the learning experience is assured.C. Higher than market rate? Pirate employees, buy the skills

10. Production Planninga. Describes the overall detailed manufacturing (5 years) plan of the project

Includes:

i. Product/service plan over the project horizonA. Ex. In our case, 5 years

ii. Materials plan


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iii. Manpower and equipment planiv. Utilities plan

A. ElectricityB. Web accessibility/connectivityC. water

b. Production budgeti. Includes schedules (amount and the timing), especially if there is seasonality

11. Facilities Designa. Estimate production space requirement: space directly used for manufacturing

i. Work station areasA. Machine spaceB. Auxiliary equipmentC. Operator spaceD. In-process material storage

ii. Inspection areasA. Space for inspector and his work areaB. Storage space for materials awaiting inspection, materials inspected and rejected

iii. Storage areasA. Quantity of materials and space requirements

b. Estimate office/service space requirementsi. General administrativeii. Marketing

iii. Financialiv. Plant servicesv. Personnel

vi. Product engineeringvii. Manufacturing

c. Estimate building needs/requirements (for really big facilities)i. High bays and adequate column support for overhead cranesii. Multi-storey construction to facilitate gravity flow of materialsiii. Special flooring construction for heavy equipmentiv. Shock and vibration isolation of certain areas where delicate processes are to be located

(assuming youre not the only one in the area)

v. clean rooms or other controlled-environment areasvi. Sound-proof walls constructionvii. Explosion-proof walls construction

viii. Heavy-duty columns to support overhead handling and storage systemsix. Large areas of unobstructed floor spacex. Heavy-duty electrical service

xi. Fuel storaged.

Site selection

i. Data and alternatives: possible locations, maps of appropriate scale, selection criteriaii. Choice of location, description. Local conditions

iii. Requirements such as rights of way, obstacles, required structures, waste disposal, etc.iv. Cost estimates: cost of land, taxes, site preparation, utilitiesv. Legal, zoning restrictions, etc.

12. Cost analysisintegral to the study of the technical alternative schemes. Only by introducing prices can the various solutions

be rendered comparable

a. Major cost items:i. Investment expendituresii. Operational expenditures

b. Methods of estimating costs:i. Different sources of information include:


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A. Cost structure of similar projects previously undertakenB. Price survey among possible suppliersC. Tariff publications, industry or sector surveys of salaries and wages, materials cost and

utility rates, official rates regulating industry pricing (ex of regulated industries.

Telecommunications, food)

D. Expertise of technical consultantsc. Principal sources of errors

i. Inadequate technical analysisii. Underestimation of investment expenditures

iii. Exclusion of working capitaliv. Overoptimistic estimates of costs and outputs in the early years of operationv. Absence of explicit assumptions about the future trends of costs (inflation)

13. Total Project Costsa. Investment expenditure

i. Preliminary expenditureii. Initial investigation, research and technical studies, economic studies, marketing studies,

profitability studies, design studies, financial studies, legal advice

iii. The site and its preparationsiv. Cost of land, notarys fees, registration duties and fees, drainage, access roads, etc.v. Construction: foundations, buildings, wells, water pipes and connection to electricity mains, the

telephone systems

vi. Equipment and materials: machines, foundation for machines, machine installation cost, testingand start-up, prime-movers, electricity and telephone, electrical equipment

vii. Replacement parts: cost a basic stock of spares may be estimated at approximately 20% of thetotal cost of the equipment and materials listed above

viii. Consulting engineersix. Incorporeal fixed assets

A. Patent, license, goodwill, reproduction rightsx. Costs of establishment

A. Costs of forming the company, costs of issuing shares, interim interests, setting up asales network, advertising, recruiting personnel, personnel training (wages, salaries,teaching, traveling expenses)

xi. Provision for contingent expenditureb. Technical operating expenditure

i. Purchasesii. Personnel expenses

A. Wages and salariesB. AllowancesC. Benefits in kindD. CommissionsE.

Social security commitments

F. Directors feeiii. Taxes and duties

A. Direct duties and taxes:licensing tax, land tax, municipal and regional taxesB. Indirect duties and taxesC. Registration taxesD. Customs dutiesE. Trade taxesF. Duties levied by international bodies

iv. Works, supplies and external servicesA. RentsB. Maintenance and repairsC. Works by outside firms on contract basisD. Water, gas, and electrical suppliesE. Fees for patents, license, brand marks


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F. Studies, research and documentationG. Payment for agentsH. Fees, insurance premiums

v. Transport and travellingA. Personnel TransportB. Travel and removal expensesC. Freight and transport purchasesD. Freight and transport expenses

vi. Miscellaneous management expensesA. AdvertisingB. Office suppliesC. TelephoneD. Legal document and litigationE. Grants and contributions and meetings

14. Evaluation of Technical FeasibilityBy integrating the results of the foregoing technical studies, an overall conclusion can be drawn regarding the

technical soundness of each alternative scheme.

*3 key areas: scope, cost, time

In summary, a project is considered technically justified if:

1. Its size, location and production process are commensurate with the demand.2. All of its engineering features are reasonably defined and found to be architecturally and structurally

adequate.

3. Input sources are available in the required quantities and qualities4. There is assurance that the facilities will produce the quantities and qualities of the goods/services

required on a continuing and dependable basis

15. ConclusionIf one of the conditions is not met, conclude that the project is not technically feasible. Thus, if it is not feasible,

adjust scope, costing or timeline

Documents

Technical Study Phase Notes