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fproject - management.docxIf there are images in this attachment, they will notbe displayed. Download the original attachmentUNIT - IWHAT IS A PROJECT?

The various scholars and practitioners dealt with the concept of Projectin their own way. Simply stated, a project pre supposes commitment of task(s)to be performed within well defined objectives, schedules and budget. Webster

New 20th Century Dictionary refers it as a scheme, a design, a proposal ofsomething intended or devised. The Dictionary refers it as a scheme, a design, aproposal of something intended or devised. The Dictionary of Management regardsit as an investment project carried out according to a Plan in order to achievea definite objective within a certain time and which will cease when theobjective is achieved. Similarly, a project according to the Encyclopedia ofManagement is an organized until dedicated to the attainment of a goal thesuccessful completion of a development project on time, within budget, inconformance with pre-determined programme specification.

Another school of thought looks upon a project as a combination ofinterrelated activities to achieve a specific objective. For instance, a project

according to Project Management Institute, USA, is a system involving theco-ordination of a number of separate department entities throughout theorganization, and which must be completed within prescribed schedules and timeconstraints. To Sinhas, a project is not a mere action or an activity or anattempt towards a particular aim; it is rather in integrated effort, includingmultifarious actions and activities, towards that aim.

One group of scholars emphasize that a project a unique andnon-repetitive activity aims at systematically co-ordinating inputs in thedirection of intended outputs. To quote Harrison, a project can be defined as anon-routine, non-repetitive one-off undertaking, normally with discrete time,financial and technical performance goals. A development project, saysHirschman, connotes purposefulness, some minimum size, a specific location, the

introduction of something qualitative, new, and the expectation that a sequenceof further development moves will be set in motion.

These are still others whose primary emphasis is on appraising investmentproposals form the economic Social profitability angles. According and to Littleand Merles, We mean by a project any scheme, or part of a scheme, for investingresources which can reasonably be analyzed and evaluated as an independentunit. The Manual on Economic Development Projects too defines a project as thecompilation of data which will enable an appraisal to be made of the economicadvantages and the disadvantages attendant upon the allocation of countrysresources to the production of specific goods and services. All the abovedefinitions thus suggest that a project is an action oriented enterprise.

Banks and financial institutions have to examine the viability of aproject before providing financial assistance. They have to ensure that theproject will generate sufficient return on the resources invested in it. Withthe shift form security oriented lending to purpose-oriented lending, thestudy of viability of a project Disbursement of funds according to therequirements of the project and close supervision and follow-up are also equallyessential to recover the financial assistance provided. In order to developproper co-ordination with the entrepreneurs, many banks and financialinstitutions are not only providing financial assistance to viable projects butalso assist the entrepreneurs during all phases of a project viz.,identification, selection, appraisal, implementation and follow-up. All thephases are inter-related and the experience gained during appraisal and

supervision of projects helps the banks and financial institutions to guide theentrepreneurs in identification and selection of new projects. The projectswhich are coming to banks and financial institutions for financing may be


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divided into following categories: -New Projects For setting up new units.Expansion For increasing the capacity of existing units.Diversification Projects For manufacturing new products byexisting units.Backward Integration projects For manufacturing certain productswhich are being used as raw material by the existing unit.

Forward Integration Projects For manufacturing certain productswhich require the products of the existing unit as raw material.Modernisation Projects. It can be for any one or more than one ofthe following objects

Changing obsolete machineryEnlarging the product mix product range to meet changing requirements of the

market.Reducing the manufacturing cost or for improving the quality of the product

Changing the requirement of raw material (shifting from present raw materialto some other raw material)Rehabilitation For reviving sick units and making them viable to complete

with normal / healthy units.DEFINITION 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 as a combination of human and non human resources pooled together intemporary organization to achieve a specific purpose.

The purpose and the set of activities which can achieve that purposedistinguish one project from another.Project Management Institute, U.S.A.

We mean by a project any scheme, or part of a scheme, for investingresources which can reasonably be analyzed and evaluated as an independent unit.The definition in thus arbitrary. Almost any project could be broken down into

parts for separate consideration, each of these parts would then by definition aproject

I.M.D. Little and J.A.Mirries.A specific activity with a specific starting point and a specific ending

point 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 Gittinger.

Compilation of data which will enable an appraisal to be made of theeconomic advantages and disadvantages attendant upon the allocation of countrysresources to the production of specific goods and services

United Nations.It may, therefore be summarized that a project in essentially a self

contained, independent entity.FEATURES OF A PROJECTA Project can be identified by its features. The special features of a project

that would differentiate from any other on going activity are given below :A Project fixed set of objectives. Once the objectives have been achieved theproject ceases of exist.It has a specific life span.Project has a separate entity and normally entrusted to one responsibilitycentre.Project calls for a teamwork.Project has a life cycle reflected by growth, maturity and decline.

Uniqueness is a salient feature of any project. No two projects are exactlysimilar.Change is an inherent feature in any project out its life.


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Project is based on successive principle and hence it is difficult to learnfully the end results at any stage.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 sweet

dream becomes realizable.TYPES OF PROJECTS

Much 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 effortneeded in executing a project. Though the characteristics of all projects arethe same, they cannot be treated alike. Recognition of this distinction isimportant for management. Classification of project helps in graphicallyexpressing and highlighting the essential features of the project.

Projects are often categorized in terms of their speed of implementationas follows :

NORMAL PROJECTSAdequate time is allowed for implementation.All the phases in a project are allowed to take their normal time.Minimum requirement of capital.No sacrifices in terms of quality.

CRASH PROJECTSRequires additional costs to gain time.Maximum overlapping to phases in encouraged.

DISASTER PROJECTSAnything needed to gain time is allowed in these projects. Round the

clock work is done at the construction site. Capital cost will go up veryhigh. Project time will get drastically reduced.

Besides that, projects in general are classified on several basis as

given in the following illustrative list.United Nations Asian and Pacific Development Institute Categories of projects.

CLASSIFICATION OF PROJECTThe project can be classified on several bases. Major classifications of

the projects are given below :

1. On the basis of Expansion :Project expanding the capacity.Project expanding the supply of knowledge.

2. On the basis of Magnitude of the resources to be invested :Giant projects affecting total economyBig projects affecting at one sector of the economy.Medium size projectsSmall size projects (depending on size, investment & impact)

3. On the basis of Sector :Industrial projectAgricultural ProjectEducational ProjectHealth ProjectSocial Project

4. On the basis of objective :Social objective projectEconomic objective project.

5. On the basis of productivity :Directivity productive project.Indirectively productive project.


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6. On the basis of nature of benefits :Quantifiable projectNon-quantifiable project

7. On the basis of government priorities :Project without specific prioritiesProject with specific priorities

8. On the basis of dependency :

Independent projectDependent project

9. On the basis of ownership :Public sector projectPrivate sector projectJoint sector project

10. On the basis of location :Project with determined locationProject where location is open.

11. On the basis of social time value of the project :Project with present impactProject with future impact

12. On the basis of National Policy :Project determined by inward looking policyProject determined by outward looking policy

13. On the basis of risk involved in the project?High risks projectNormal risks projectLow risks project

14. On the basis of economic life of the projects :Long term projectMedium term projectShort team project

15. On the basis of technology involved in the project :High sophisticated technology project

Advanced technology projectForeign technology projectIndigenous technology project

16. On the basis of resources required by the projects :Project with domestic resourcesProject with foreign resources

17. On the basis of employment opportunities available in the project :Capital intensive projectLabour intensive project

18. On the basis of management of project :High degree of decision making attitudeNormal degree of decision making attitudeLow degree of decision making attitude

19. On the basis of sources of finance :Project with domestic financingProject with foreign financingProject with mixed financingProject with financial institutions

20. On the basis of legal entity :Project with their own legal entityProject without their own legal entity

21. On the basis of role played by the project :Pilot project

Demonstration project22. On the basis of speed required for execution of the projects :Normal projectCrash project


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Disaster projectPROJECT LIFE CYCLE

Every programme, project or product has certain phases of development. Thedifferent phase of development in an investment proposal or project is calledproject life cycle. A clear understanding of these phases permits entrepreneurs,

managers and executives to have better control over existing and potentialresources in the achievement of the desired goals.PHASES OF PROJECT LIFE CYCLE

Project life cycle is a complex process consisting of different stepsarranged in a sequential order. Different authors have described these steps indifferent sequential manner but the concept of the cycle is almost similar ineach case.

According to United Nations Guidelines for Rural Centre Planning, thereare 7 steps in the project life cycle such as project identification andappraisal, pre-feasibility study, feasibility study, detailed design projectimplementation, operation maintenance, monitoring and evaluation.

Rondineli, Dennis & Apsy Palia in their book Project Planning and

implementation in Developing countries identified the following 12 steps in theproject life cycle. Project identification and definition, project formation.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, projects,evaluation, 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 phaseImplementation phase andOperational phaseA brief description of each of these phases if given below :

PRE-INVESTMENT PHASEThe first phase of the cycle describes the preliminary evaluation of an

idea. It consists of identification of investment opportunities, preliminaryproject analysis, feasibility study and decision-making. Project idea emanatesfrom the priorities when planning is done by the government demand and supplyprojection of various goods and services; Pattern of imports and exports over aperiod of time; natural resource which can serve as the base for potentialmanufacturing activity; scope of extending existing lines of activityconsumption pattern in other countries at comparable stages of economic stage ofeconomic development.

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 ofthe project must be carefully designed so as to enabling services

Project infrastructure and enabling servicesSystem design and basis engineering packageOrganisation and manpowerSchedules and budgets

Licensing and governmental clearancesFinanceSystems and procedure


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Identification of project managerDesign basis, general condition for purchase and contractsConstruction resources and materials.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 isprima facie worth wide to justify a feasibility study and what aspects of theprojects are critical to its viability and hence call for an in depthinvestigation.

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 studycontains fairly specific estimates of project cost, means of financing salesrevenues, production costs, financial profitability and social profitability.

Based on the thorough feasibility study the project owner or sponsors of

financiers can decide whether to accept or reject a particular project. In otherwords, the decisions whether investment on the project should be made or not hasto be made at this stage.IMPLEMENTATION PHASE

The implementation phase of an industrial project involves setting up ofmanufacturing facilities. After judging the worthiness, project needs to bedesigned for implementation. Drawings, blue prints and the sequences in whichthe various activities concerning the project need to be carried out. The mainactivities under this phase are :

Project and engineering design : It consists of site probing andprospecting; preparation of blue prints, plant design, plant engineering,

selection of machinery, equipment.Negotiations and contractions : It covers the activities like project

financing, acquisition of technology, construction of building and civil works,provision of utilities supply of machine and equipment, marketing arrangement.

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.OPERATION PHASE

It is the longest phase in terms of time span. It begins when the projectis commissioned and ends when the project is wound up. This is transition phasein which the hardware built with 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 for the product and securing themarket acceptance of the product. It aims to realize the projections made in theproject regarding sales, production, cost of 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 be measuredand any deviation from the expected progress be identified in time.

Project evaluation refers to post-investment analysis. It aims at findingout whether the project has achieved the objectives for which it was taken upand whether it has created the anticipated or intended impact. This helps in


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developing an insight for future investment and better planning.PROJECT PLANNING

Project Planning is foreseeing with blue print towards some predictedgoals or ends. Projects plan is a skeleton which consists of bundle ofactivities with its future prospects; it is a guided activity. It is a plan forwhich resources are allocated and efforts are being made to commence the project

with great amount of preplanning, project is a way of defining what we arehoping to do about certain issue. The project alone is not responsible for whathappens during the course of a planning. Project is a final form of writtendocuments that guides us as to what steps need to be taken next.NATURE OF PROJECT PLANNING

One cannot conceive a project in a linear manner. It involves fewactivities, resources, constrain and interrelationships which can be visualizedeasily by the human mind and planned informally. However, when a projectscrosses a certain threshold level of size and complexities, informal planninghas to be substituted by formal planning. Besides that it is an open systemoriented planned change attempt which has certain parameters and dimension. So

that, the need for formal planning is indeed much greater for project work thanfor normal operations. The pre-defined and outlined in detail plan of actionhelps than managers to perform their task more effectively and efficiently.

There are always competing demands on the resources available in a regionor a country because of the limited availability and ever expanding, humanneeds. Planning for the optimum utilization of available resources becomes apre-requisite for rapid economic development of a country or a region. Projectplanning makes a possible to list out the priorities and promising projects witha view to exercising national choice among various alternatives available. It isa tool by which a planner can identify a good project and to make soundinvestment decision.

NEED FOR PROJECT PLANNINGOne of the objectives of project planning is to completely define all work

requested so that it will be readily identifiable to each project participant.Besides that there are four basic reasons for project planning.

To eliminate or reduce uncertainty.To improve efficiency of the operation.To obtain a better understanding of the objectives.To provide a basis for monitoring and controlling work.

FUNCTIONS OF PROJECT PLANNING :The following functions are to be performed carefully in the Project

Planning process.It should provide a basis for organizing the work on the project andallocating responsibilities to individuals.It is a means of communication and co-ordination between all those involvedin the project.It induces the people to look ahead.It instills a sense of urgency and time consciousness.It establishes the basis for monitoring and control.In planning a project, the project manager must structure the work into

small elements that are :Manageable, independent, integratable and also measurable in terms of

progress. Planning must be systematic and flexible enough to handle uniqueactivities, disciplined through reviews and controls and capable of acceptingmultifunctional inputs.

AREAS OF PROJECT PLANNINGComprehensive project planning covers the following. Planning the project

work : the activities relating to the project must be spelt out in detail. They


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should be properly scheduled and sequenced.Planning the manpower and organizations; The manpower required for the

project must be estimated and the responsibility for carrying out the projectwork must be allocated.

Planning the money; the expenditure of money in a time-phased manner mustbe budgeted.

Planning the information system. The information required for monitoring

the project must be defined.PROJECT CHARACTERISTICS

Organizational structures and processes are custom made to produce aspecific product of service, organizations have to take up new tasks that theyare not equipped to handle. These tasks are new to the organization as they arenot preformed earlier or they may not be repeated in the future again. Toperform such unique tasks, organizations adopt the project approach. The projectapproach is adopted when the existing systems in the parent organization are notequipped to handle the new task. Some of the characteristics of the tasks thatqualify to be projects are :

Unique activitiesAttainment of a specific goalSequence of activitiesSpecified timeInterrelated activities

Unique ActivitiesEvery project has a set of activities that are unique, which means it is

the first time that an organization handles that type of activity. Theseactivities do not repeat in the project under similar circumstances i.e. therewill be something different in every activity or even if the activity isrepeated, the variables influencing it change every time. For example, considera ship building yard that builds ships for international clients. Even thoughthe organization builds many ships, each time there will be a difference in some

variable such as, the vessels design, time allowed for construction etc.Attainment of a Specific Goal

Organizations take up projects to perform a particular task or attain aspecific goal. These tasks differ from project to project. The projects in anorganization could be constructing a new facility, computerizing the accountsdepartment or studying the demand for a new product that the organization plansto launch in the market. All these projects have a specific goal or result toattain and hence we can say that every project is goal oriented.Sequence of Activities

A project consists of various activities that are to be performed in aparticular sequence to deliver the end-product. This sequence depends on thetechnical requirements and interdependency of each of the activities.Specified Time

Every project has specified start date and completion date. This timelimit is either self-imposed or it is specified by the client. The life span ofa project can run from a few hours to a few years. A project comes a close whenit delivers the product or service as per the clients requirements or when it isconfirmed that it is no longer possible for the project to deliver the finalproduct or services as required by the client.

Interrelated ActivitiesProjects consist of various technically interrelated activities. These

activities are considered interrelated as the deliverable (output) of one

activity becomes the input for another activity of the project. Consider theproject of building a multistoried luxury hotel. This project consists ofvarious activities such a making a building plan, landscaping, constructing the


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building, designing the interiors, furnishing the rooms etc., All theseactivities are interrelated and are equally important for the completion of theproject.PROJECT PARAMETERS

The primary aim of a project is to deliver a product or service to aclient within the specified time, budget (resources and cost) and according to

quality and performance specifications. The clients often ask for too much to bedelivered within limited resources. Therefore, it is important for the projectmanager to make the clients aware of the limitations of time, budget, technicalstrategy etc, that he is working under. The success of a project depends on theproject managers ability to strike a balance between these interrelatedvariables or constraints. Some common constraints that influence a project are :

ScopeQualityCost

TimeResourcesScope

Scope is a brief and accurate description of the end products ordeliverables to be expected from the project that meet the requirements. Scopedescribes all the activities that are to be performed, resources that will beconsumed and the end-products from the successful completion of the project,including quality standards. The scope also includes the target outcomes,prospective customers, outputs, work, financial and human resources required tocomplete the project. The various issues related to management of project scopeare discussed in Chapter 10.Quality

Every project has to satisfy the quality requirement at two levels

product quality and process quality. The first quality requirement relates toproducts resulting from the project and the second relates to the managementprocesses that have to be in place to implement the project. A comprehensivequality management system ensures effective utilization of scarce resources toachieve the project objective of delivering products or services to the clientssatisfaction. The various tools and techniques that are needed to ensure qualityare discussed in Chapter 19 (Project Quality Management).

TimeTime is one of the important resources available to a project manager. At

the same time, it is one of the major constraints within which a project has tobe completed. Generally, the client of the sponsor of the project specifies thetime limit for the completion of the project. The time required to complete aproject is inversely related to the cost of the project. Therefore, the cost ofa project increases as the time available for its completion decreases. Sincetime cannot be stored as inventory, it is the duty of the project manager tomanage time by carefully scheduling the various activities in time.Cost

Cost plays a major role in the various stages of a project life cycle.Project cost include the monetary resources required to complete the activitiesmentioned in the scope of the project. Project costs are cost associated withall the activities in the planning and implementation phases. The client or thesponsor of the project activities, within which the project manager has todeliver the product.

ResourcesResources include the people, finances and the physical and information

resources required to perform the project activities.


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PROJECT MANAGEMENTProject management is a system of procedures, practices, technologies and

know-how that enables the planning, organizing staffing, directing, andcontrolling necessary to successfully manage a project.

According to PMI, Project Management is the application of knowledge,skills, tools and techniques to project activities in order to meet or exceedstakeholder needs and expectations

Project management is a carefully planned and organized effort toaccomplish a specific (and usually) one-time effort, for example, constructing aresidential complex or implementing, a new computerized banking system. Projectmanagement includes developing a project plan that includes defining projectgoals, specifying how the goals will be accomplished, what resources are needed,and relating budgets and time for completion. It also includes implementing theproject plan, along with careful controls to ensure that the project is beingmanaged according to the plan, Project management usually follows five majorphases including feasibility study, project planning, implementation, evaluation

and closing. These aspects of project management will be discussed later in thisbook.

PROJECT MANAGEMENT RELATIONSHIP WITH OTHER MANAGEMENT DISCIPLINESAlthough project management has derived most of its knowledge from other

management disciplines, it has evolved as a specialized science over a period oftime. It has its own management techniques such as critical path analysis andwork breakdown structures (discussed later) that are unique to projectmanagement. Like general management, project management also involves allaspects of planning, organizing, implementing, and controlling.

In many strategic projects, the function of project management will

involve disciplines like :Finance : Preparing the financial statement while sending the project

proposal and managing the costs of the projectPersonnel : Identifying the skills required to carry out the project,

selecting the project team and maintaining a good work environment.Operations : Managing the activities / operations that are repetitive in

naturePurchase and logistics : Identifying resources (raw materials, equipments

and services) required for the project. Preparing a list of eligible suppliersand negotiating with them for procuring the right materials. Managing thelogistics for a smooth implementation of the project.

R & D : New product development, and quality assuranceMarketing : Marketing the project idea to internal and external sponsors.

RELATIONSHIP BETWEEN PROJECT MANAGEMENT AND LINE MANAGEMENTAccording to the definition of project management, a project manager has

to control variables such as time, cost and other resources allocated for theproject. But in practice, he only has indirect managers. Therefore the projectmanager has to maintain good relations with line managers to ensure a smoothflow of resources. Thus, a project manager should exercise judicious controlover the resources (money, manpower, machinery, facilities, materials,technology and information) allocated to the project from various functionaldepartments.

The success of a project depends on the various aspects of project andline managers relations. The characteristics of a good relationship are;Amicable working relations between the project manager and the departmental

heads who allocate resources to the project.Functional project members ability to report to the functional manager of thedepartment from where he come and the project manager for whom he currently


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works.Employees of various functional departments who are selected tow work on a

project usually face difficulty in reporting to multiple bosses. The issue ofwho should have control over the functional employees becomes a source ofconflict between the line and the project managers. The relations can bestrained further if any one of them claims sole credit for the success of the

project or rewards for the profits generated by the project. These conflicts canbe resolved when the managers understand their distinct roles in achieving theoverall objectives of the organization.PROJECT MANAGEMENT ENVIRONMENT AN OVERVIEW

Many project managers wonder why they should be concerned about theproject environment when the objective of project management is to get theproject completed within scope, cost and schedule. They fail to understand thata project operates in an environment broader than the project, and managing theday to day activities efficiently will not alone guarantee the success ofthe project. Todays project managers need to be aware of the cultural,organizational and socioeconomic influences on projects, Understanding these

influences involves identifying the project stakeholders and examining theirability to influence the projects success. This chapter discusses variousaspects of project management like the role of project stakeholders,organizational and socioeconomic influences and project time environment.PROJECT STAKEHOLDERS

According to the Project Management Institutes (PMI) Guide to the ProjectManagement Body of Knowledge, project stakeholders are individuals andorganizations who are actively involved in the project, or whose interest may bepositively or negatively affected as a result of project execution or successfulproject completionTypes of Stakeholders

The major stakeholders of any project includeProject managerCustomerProject team membersSponsorParent organization.

ORGANIZATIONAL INFLUENCESProjects are usually taken up by organizations larger than the projects

themselves. These organizations can be business corporations, governmentorganization, professional associations, research and development centers etc.,Organizations that initiate a project will have an influence on theimplementation of the project. These organizational influences even act onprojects that have been initiated by joint ventures or partnerships. Some of themajor aspects of large organizations that influences projects are :

Organizational systemsOrganizational cultures and styleOrganization structure

Organizational SystemsOrganizations, which primarily carry out projects, are known as project

based organizations. They earn revenues mainly by undertaking projects. Someexamples of project-based firms are : consultancy firms, architecture firms,

software development firms, infrastructure contractors etc.Some organizations adopt a management by project approach to manage their


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ongoing operations. These organizations treat various aspects of ongoingoperations as projects and apply project management principles to them.

Project-based organizations have well designed management systems (such asfinancial systems, control systems etc). to help them manage projectseffectively. These organizations have a number of specifically designed systemsin place to monitor the progress of the activities of a project. For example,

finance systems are designed to take care of accounting, tracking and reportingactivities of multiple projects.

Non-project-based organizations, such as manufacturing firms, hotels etc.,may not have any management systems for addressing project needs. Managingprojects in these organizations is a difficult activity. But somenon-project-based organizations will have separate divisions or sub-divisionsthat work as project-based organizations with project oriented managementsystem. So, the project management team should be capable of understanding theinfluence of various management systems on the project.Organizational Culture and Style.

Each organization has its own culture, i.e., its shared values, norms and

beliefs. An organizations policies, procedures and attitude towards authorityalso reflect its culture. Organizational culture and management styles have adirect impact on the functioning of the project team. As a result organizationsthat have a aggressive, risk-taking culture will not employ conservative,cautions project managers.

Organizational StructureSometimes, the organization structure obstructs the free flow of resources

from the parent organization to the project. The organizational structure canbe functional, matrix or project-based.

A functional organization has a hierarchical structure. In such astructure, superior subordinate relationships are clear, i.e., the line of

control is clearly defined. The employees are grouped into departments accordingto their areas of specialization, e.g., mechanical, engineering, electricalengineering, production, marketing, accounting etc. Functional organizationsalso work on projects, but their project activities are limited to a singlefunction. e.g., engineering, manufacturing, marketing etc. For example, when afunctional organization takes up the project of new product development, theengineering department will handle the design development phase of the project.The activities carried out by this department will be strictly limited to theengineering function. If any question arises concerning the manufacture of theproduct, the question is passed on to the manufacturing department forclarification, through format communication channels.

In a project based organization, the project manager has the authorityto assign priorities and to direct the work of individuals assigned to theproject. Most of the organizations resources are allotted to various projects.These organizations also have functional departments, but the groups working inthese departments report directly to the project manager and help in theexecution of various projects. A project organization structure is shown inFigure 2.1

A matrix organization structure combines some of the characteristics offunctional and project-based organizational structures. In matrix organizations,project managers and functional managers are jointly responsible for assigningpriorities and for directing the work of individuals assigned to projects. Inthis organizational setup project managers have equal authority to functional

managers and the staff members report to functional managers as well as projectmanagers. A matrix organization structure is shown in Figure 2.2. Everyorganization has one of the above discussed organizational structures, and they


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have an impact on the projects initiated by them. For example, when a projectteam is formed by a functional organization, those teams have to form their ownoperating procedures and reporting structures that are similar to that ofproject based organizations. This organizational structure also has an impacton the functioning of a project manager. (See Exhibit 2.1)SOCIO-ECONOMIC INFLUENCES

A wide range of socioeconomic issues influence projects. The project team

should be aware of these issues as even a minor change in the socioeconomicenvironment can sometimes affect the success of a project. Some of thesocioeconomic factors that influence projects are :

Standards and RegulationsInternationalizationCulture

Standards and RegulationsStandards are measures for judging the quality of products, Generally,

standards are documented and approved by a recognized agency / body. Thesestandards specify the rules and guidelines that organization must observe whenproducing a product of a service. Even when these standards are not mandatory,following them will enhance the marketability of the products produced by the

project organization.Regulations are mandatory guidelines that lay down the necessarycharacteristics of products or services. Building codes established by the Roadsand Buildings (R&B) department are an example of regulations. Usually, theseregulations are drafted by various governmental regulatory agencies and areenforced by regulatory personnel. The project team should be cautious enough toensure that the project meets the standards and regulations. The early detectionof deviations from standards and regulations can help reduce project costs andduration.Internationalization

Many organizations have subsidiaries in different countries. The projects

undertaken by such organizations generally cross many national boundaries.Project managers must therefore be familiar with the political and economicenvironment of the countries in which the projects are being executed. They mustalso design a communication plan that enables them to manage and coordinate theproject activities that are being carried out in different countries.Culture

The culture of an organization and the external environment of a projecthave a significant impact on the success of the project. The culture theorganizational culture, work environment, and the culture of variousstakeholders of the project. The project manager should have an in-depthunderstanding of the organizational culture as it has a direct influence on thefunctioning of the project. The organizational environment and culture dependon.

The philosophy and managerial style of the top management.The organizational structure of the project (functional, project based ormatrix form)The character and maturity level of project team members i.e. achievementlevel, motivation level etc.The size of the project.The culture of the project team members (their values, beliefs and

convictions) influences their attitudes towards ethics, achievement, trainingand supervision and their interpersonal, problem solving and conflictresolution skills. It also determines their level of motivation. A goodunderstanding of different cultural values, languages, and special business

styles and techniques would be an asset for a project manager, especially whenhandling international projects.ENVIRONEMENTAL AND LEGAL INFLUENCE


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Environmental and legal concerns have a major impact on the successfulcompletion of a project. Therefore, the impact of the environment on the projectshould be assessed before and after a project has been undertaken. In addition,analyzing the impact of a future project on the environment will help theproject manager define rational goals for the project and the organization.

The project manager should acknowledge these regulatory processes as a

part of good planning, instead of regarding them as barriers to the achievementof project goals. The project manager should obtain the necessary clearancesfrom environmental protection agencies before starting the project. If possible,he should integrate these regulations (legal, environmental, etc.) into theoverall plan of the projects.

All the projects should comply with all aspects of the law, Organizationsusually take the help of legal advisors to ensure that the activities of theproject manager and his team are in compliance with the law. Legal advisors mustalso ensure that the project has applied for and received all the requiredpermits and licenses.

Technical AnalysisAnalysis of technical and engineering aspects is done continually when aproject is being examined and formulated. Other types of analyses are dependentand closely inter-twined with technical analysis. Technical analysis isconcerned primarily with :

Material inputs and utilitiesManufacturing process / technologyProduct mixPlant capacityLocation and siteMachineries and equipmentsStructures and civil worksProject charts and layouts

Work scheduleThis chapter discusses these aspects of a project and emphasizes the need

to examine alternatives.MATERIAL INPUTS AND UTILITIES

An important aspect of technical analysis is concerned with defining thematerials and utilities required, specifying their properties in some detail,and setting up their supply programme. There is an intimate relationship betweenthe study of materials and utilities and other aspects of project formulation,particularly those concerned with location, technology, and equipments.

Material inputs and utilities may be classified into four broad categories; (i) raw materials. (ii) processed industrial materials and components, (iii)auxiliary materials and factory supplies, and (iv) utilities.Raw Materials

Raw materials (processed and / or semi processed) may be classified intofour types : (i) agricultural products, (ii) mineral products, (iii) livestockand forest products, and (iv) marine products.

Ease of absorption. The ease with which a particular technology can beabsorbed can influence the choice of technology. Sometimes a high-leveltechnology may be beyond the absorptive capacity of a developing country whichmay lack trained personnel to handle that technology.Agriculture Products In studying agricultural products the quality must first beexamined. Then, an assessment of quantities available, currently and

potentially, is required. The questions that may be raised in this context are:What is the present marketable surplus? What is the present area undercultivation? What is the yield per acre? What is the likely increase in the area


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of cultivation? What is the likely increase in yield per acre?Mineral Products In assessing mineral raw materials, information is required onthe quantum of exploitable deposits and the properties of raw materials. Thestudy should provide details of the location, size, and depth of deposits andthe viability of opencast or under ground mining. In addition, informationshould be generated on the composition of the ore, level of impurities,need for

beneficiation, and physical, chemical and other properties.Livestock and Forest Products Secondary sources of data on livestock and forestproducts often do not provide a dependable basis for estimation. Hence, ingeneral, a specific survey may be required to obtain more reliable daa on thequantum of livestock produce and forest products.Marine Products Assessing the potential availability of marine products and thecost of collection is somewhat difficult. Preliminary marine operations,essential for this purpose, have to be provided for in the feasibility study.Processes Industrial Materials and Components

Processed industrial materials and components (base metals, semi-processedmaterials, manufactured parts, components, and sub-assemblies) represent

important inputs for a number of industries. In studying them the followingquestions need to be answered: In the case of industrial materials, what aretheir properties? What is the total requirement of the project? What quantitywould be available from domestic sources? What quantity can be procured fromforeign sources? How dependable are the supplies? What has been the past trendin prices? What is the likely future behavior of prices?Auxiliary Materials and Factory Supplies

In addition to the basic raw materials and processed industrial materialsand components, a manufacturing project requires various auxiliary materials andfactory supplies like chemicals, additives, packaging materials, paints,varnishes, oils, grease, cleaning materials, etc. The requirements of suchauxiliary materials and supplies should be taken into account in the feasibility

study.Utilities

A broad assessment of utilities (power, water, steam, fuel, etc.)_ may bemade at the time of input study through a detailed assessment can be made onlyafter formulating the project with respect to location, technology, and plantcapacity. Since the successful operation of a project critically depends onadequate availability of utilities the following questions should be raisedwhile conducting the input study. What quantities are required? What are thesources of supply? What would be the potential availability? What are the likelyshort ages / bottlenecks? What measures may by taken to augment supplies?Manufacturing Process / Technology

For manufacturing a product / service often two or more alternativetechnologies are available. For example:

Steel can be made either by the Bessemer process or the open hearth process.

Cement can be made either by the dry process or the wet process.Soda can be made by the electrolysis method or the medical method.Paper, using bagasse as the raw material, can be manufactured by the kraftprocess or the soda process or the simon cusi process.Vinyl chloride can be manufactured by using one of the following reactions;acetylene on hydrochloric acid or ethylene on chlorine.

Choice of Technology

The choice of technology is influenced by a variety of considerations:Plant capacityPrincipal inputs


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Investment outlay and production costUse by other unitsProduct mixLatest developmentsEase of absorption

Plant Capacity Often, there is a close relationship between plant capacity andproduction technology. To meet a given capacity requirement perhaps only a

certain production technology may be viable.Principal Inputs The choice of technology depends on the principal inputsavailable for the project. In some cases, the raw materials available influencethe technology chosen. For example, the quality of limentones determines whetherthe wet or dry process should be used for a cement plant. Here it may beemphasized that a technology based on indigenous inputs may be preferable to onebased on imported inputs because of uncertainties characterizing imports,particularly in a country like India.Investment Outlay and Production Cost The effect of alternative technologies oninvestment outlay and production cost over a period of time should be carefully

assessed.Use by Other Units The technology adopted must be proven by successful use byother units, preferably in India.Product Mix The technology chosen must be judged in terms of the total product =mix generated by it, including saleable by - products.Latest Developments The technology adopted must be based on latest developmentsin order to ensure that the likelihood of technological obsolescence in the nearfuture, at least, is minimized.Acquiring Technology.

The acquisition of technology from some other enterprise may be by way of(i) technology licensing, (ii) outright purchase, or (iii) joint venture

arrangement.Technology Licensing A popular method of acquiring technology, the

technology license gives the licensee the right to use patented technology andget related know-how on a mutually agreed basis. Often suppliers of technologytend to provide a technology package which may consist of some elements whichare not essential. Hence the technology package should be disaggregated into itscomponent parts like the technology proper, engineering services, supply ofintermediate products, supply of equipment by the licensor, use of a trade name,etc. Efforts should be made to acquire only the essential components of thetechnology package offered by the licensor.

The contract for technology licensing should be carefully scrutinized withrespect to; (i) definition of technology to be acquired, (ii) cost oftechnology licensing, (iii) guarantees provided by the licensor, (iv) durationof technology licensing, and (v) purchase of intermediate products, components,and other inputs.

Purchase of Technology. This mode of acquiring technology may be used incertain kinds of industries. It is appropriate when (i) there is no possibilityof significant improvement in technology in the foreseeable future, and (ii)there is hardly any need for technological support from the seller oftechnology.

Joint Venture Arrangement. The supplier of technology may participatetechnically as well as financially in the project. Financial participation is

typically in the form of equity holding. It is argued that financialparticipation may strengthen the motivation of technology supplier to transferimprovements promptly.


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Appropriateness of TechnologyAppropriate technology refers to those methods of production which are

suitable to local economic, social, and cultural conditions. In recent years thedebate about appropriate technology has been sparked off mainly by Schumacherand others. The advocates of appropriate technology urge that the technologyshould be evaluated in terms of the following questions :

Whether the technology utilizes local raw materials?Whether the technology utilizes local man power?Whether the goods and services produced cater to the basis needs?Whether the technology protects ecological balance?Whether the technology is harmonious with social and cultural conditions?

PRODUCT MIXThe choice of product mix is guided by market requirement. In the

production of most of the items, variations in size and quality are aimed atsatisfying a broad range of customers. For example, a garment manufacturer mayhave a wide range in terms of size and quality to cater to different customers.It may be noted that variation in quality can enable a company to expand itsmarket and enjoy higher profitability. For example, a toilet soap manufacturing

unit may by variation in raw material, packaging, and sales promotion offer ahigh profit margin soap to consumers in upper income brackets.While planning the production facilities of the firm, some flexibility

with respect to the product mix must be sought. Such flexibility enables thefirm to alter its product mix in response to changing market conditions andenhances the power of the firm to survive and grow under different situations.The degree of flexibility chosen may be based on a careful analysis of theadditional investment requirement for different degrees of flexibility.PLANT CAPACITY

Plant capacity (also referred to as production capacity) refers to thevolume or number of units that can be manufactured during a given period.Several factors have a bearing on the capacity decision.

Technological requirement

Input constraintsInvestment costMarket conditionsResources of the firmGovernmental policy

Technological RequirementFor many industrial projects, particularly in process type industries,

there is a certain minimum economic size determined by the technological factor,For example, a cement plant should have a capacity of at least 300 tonnes perday in order to use the rotary kiln method, otherwise, it has to employ thevertical shaft method which is suitable for lower capacity.Input Constraints

In a developing country like India, there may be constraints on theavailability of certain inputs. Power supply may be limited, basic raw materialsmay be scarce; foreign exchange available for imports may be inadequate.Constraints of these kinds should be borne in mind while choosing the plantcapacity.Investment Cost

When serious input constraints do not obtain, the relationship betweencapacity and investment cost is an important consideration. Typically, theinvestment cost per unit of capacity decreases as the plant capacity increases.

This relationship may be expressed as follows :C1 = C2 ( Q1

Q2 )


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Where C1 = derived cost for Q1 units of capacityC2 = known cost for Q2 units of capacity

a = a factor reflecting capacity cost relationship.This is usually between 0.2 and 0.9.

Example Suppose the known investment cost for 5,000 units of capacity forthe manufacture of a certain item is Rs.10,00,000. What will be the investmentcost for 10,000 units of capacity if the capacity cost factor is 0.6

The derived investment cost for 10,000 units of capacity may be obtained asfollows :

C1 = 10,00,000 x (10,0000 / 5,000)0.6 = Rs.15,16,000Market Conditions

The anticipated market for the product / service has an important bearingon plant capacity. If the market for the product is likely to be very strong, aplant of higher capacity is preferable. If the market is likely to be uncertain,it might be advantageous to start with a smaller capacity. If the market,starting from a small base, is expected to grow rapidly, the initial capacitymay be higher than the initial level of demand further additions to capacitymay be effected with the growth of market.

Resources of the FirmThe resources, both managerial and financial, available to a firm define alimit on its capacity decision, Obviously, a firm cannot choose a scale ofoperations beyond its financial resources and managerial capability.Government Policy

The capacity level may be influenced by the policy of the government.Traditionally, the policy of the government was to distribute the additionalcapacity to be created in a certain industry among several firms, regardless ofeconomies of scale. This policy has been substantially modified in recent yearsand the concept of minimum economic capacity has been adopted in severalindustries.LOCATION AND SITE

The choice of location and site following an assessment of demand, size,and input requirement. Though often used synonymously, the terms Location andsize should be distinguished. Location refers to a fairly broad area like acity, an industrial zone, or a coastal area; site refers to a specific piece ofland where the project would be set up.

The choice of location is influenced by a variety of considerations;proximity to raw materials and markets, availability of infrastructure,government policies, and other factors.Proximity of Raw Materials Markets

An important consideration for location is the proximity to sources of rawmaterials and nearness to the market for final products. In terms of a basiclocational model, the optimal location is one where the total cost (raw materialtransportation cost plus production cost plus distribution cost for the finalproduct) is minimized. This generally implies that : (1) a resource basedproject like a cement plant or a steel mill should be located close to thesource of basic material (for example, limestone in the case of a cement plantand iron ore in the case of a steel plant); (ii) a project based on importedmaterial may be located near a port; and (iii) a project manufacturing aperishable product should be close to the centre of consumption.

However, for many industrial products proximity to the source of rawmaterial or the centre of consumption may not be very important. Petro chemical units or refineries, for example. may be located close to the source of

raw material, or close to the centre of consumption, or at some intermediatepoint.Availability of Infrastructure


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Availability of power, transportation, water, and communications should becarefully assessed before a location decision is made.

Adequate supply of power is a very important condition for location insufficient power can be a major constraint, particularly in the case of anelectricity intensive project like an aluminum plant. In evaluating powersupply the following should be looked into: the quantum of power availability,

reliability, and cost of transportation for various alternative locations shouldbe assessed.

Given the plant capacity and the type of technology, the water requirementfor the project can be assessed. Once the required quantity is estimated, theamount to be drawn from the public utility system and the amount to be providedby the project from surface or sub-surface sources may be determined. For doingthis the following factors may be examined : relative costs, relativedependabilities, and relative qualities.

In addition to power, transport, and water, the project should haveadequate communication facilities like telephone and telex.

Government PoliciesGovernment policies have a bearing on location. In the case of publicsector projects, location is directly decided by the government. It may be basedon a wider policy for regional dispersion of industries.

In the case of private sector projects, location is influenced by certaingovernmental restrictions and inducements. The government may prohibit thesetting up of industrial projects in certain areas which suffer from urbancongestion. More positively, the government offers inducements for establishingindustries in backward areas. These inducements consist of subsidies,confessional finance, tax relief, and other benefits.

Other FactorsSeveral other factors have to be assessed before reaching a location

decision, ease in coping with environmental pollution, labour situation,climatic conditions, and general living conditions.

A project may cause environmental pollution in various ways: it may throwgaseous emissions; it may produce liquid and solid discharges; it may causenoise, heat, and vibrations. The location study should analyze the costs ofmitigating environmental pollution to tolerable levels at alternative locations.

The labour situation at alternative locations may be assessed in terms of: (i) the availability of labour, skilled, semi-skilled, and unskilled; (ii) thepast trends in labour rates, the prevailing labour rates, and the projectedlabour rates; and (iii) the state of industrial relations judged in terms of thefrequency and severity of strikes and lockouts and the attitudes of labour andmanagement.

The climatic conditions (like temperature, humidity, wind, sunshine,rainfall, snowfall, dust, flooding, and earthquakes) have an important influenceon location. They have a bearing on cost as they determine the extent ofair-conditioning, de-humidification, refrigeration, special drainage, etc.,required for the project.

General living conditions, judged in terms of cost of living, housingsituation, and facilities for education, recreation, transport, and medicalcare, need to be assessed at alternative locations.

Site SelectionOnce the broad location is chosen, attention needs to be focused on the

selection of a specific site. Two to three alternative sites must be considered


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and evaluated with respect to cost of land and cost of site preparation anddevelopment.

The cost of land tends to differ from one site to another in the samebroad location. Sites close to a city cost more whereas sites away from the citycost less. Sites in an industrial area developed by a governmental agency may be

available at a concessional rate.The cost of site preparation and development depends on the physical

features of the site, the need to demolish and relocate existing structures, andthe work involved in obtaining utility connections to the site. The lastelement, viz., the work involved in obtaining utility connections and the costassociated with it should be carefully looked into. It may be noted in thiscontext that the cost of the following may vary significantly from site to site:power transmission lines from the main grid, railway siding from the nearestrailroad, feeder road connecting with the main road, transport of water, anddisposal of effluents.

MACHINERIES AND EQUIPEMENTSThe requirement of machineries and equipments is dependent on production

technology and plant capacity. It is also influenced by the type of project. Fora process-oriented industry, like a petrochemical unit, machineries andequipments required should be such that the various stages are matched well. Thechoice of machineries and equipments for a manufacturing industry is somewhatwider as various machines can perform the same function with varying degrees ofrefrigerators could take various forms. To determine the kinds of machinery andequipment required for a manufacturing industry, the following procedure may befollowed; (i) Estimate the likely levels of production over time. (ii) Define

the various machining and other operations. (iii) Calculate the machine hoursrequired for each type of operation. (iv) Select machineries and equipmentsrequired for each function.

The equipments required for the project may be classified into thefollowing types: (i) plant (process) equipments, (ii) mechanical equipments,(iii) electrical equipments, (iv) instruments, (v) controls, (vi) internaltransportation system, and (vii) others.

In addition to the machineries and equipments, a list should be preparedof spare parts and tools required. This may be divided into : (i) spare partsand tools to be purchased with the original equipment, and (ii) spare parts andtools required for operational wear and tear.Constraints in Selecting Machineries and Equipments

In selecting the machineries and equipments certain constraints should beborne in mind: (i) there may be a limited availability of power to set up to anelectricity intensive plant like, for example, a large electric furnace; (ii)there may be difficulty in transporting a heavy equipments to a remote location,(iii) workers may not be able to operate, at least in the initial periods,certain sophisticated equipments such as numerically controlled machines, (iv)the import policy of the government may preclude the import of certainmachineries and equipments.Procurement of Plant and Machinery

For procuring plant and machinery, orders for different items of plant andmachinery may be placed with different suppliers or a turnkey contract may be

given for the entire plant and machinery to a single supplier. The factors to beconsidered in selecting the supplier / s of plant and machinery are the desired


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quality of machinery, the level of technological sophistication, the relativereputation of various suppliers, the expected delivery schedules, the preferredpayment terms, and the required performance guarantees. If in house technicalexpertise is inadequate, external consultants / may be employed to select plantand machinery and supervise the installation of the same.

STRUCTURES AND CIVIL WORKS

Structures and civil works may be divided into three categories : (i) sitepreparation and development, (ii) buildings and structures, and (iii) outdoorworks :Site Preparation and Development

This covers the following : (i) grading and leveling of the site, (ii)demolition and removal of existing structures, (iii) relocation of existingpipelines, cables, roads, powerlines, etc., (iv) reclamation of swamps anddraining and removal of standing water, (v) connections for the followingutilities from the site to the public network : electric power (high tension andlow tension), water for drinking and other purpose, communications (telephone,

telex, etc.,) roads, railway sidings, and (vi) other site preparation anddevelopment work.Buildings and Structures

Buildings and structures may be divided into : (i) factory or processbuildings; (ii) ancillary building required for stores, warehouses,laboratories, utility supply centre, maintenance services, and others; (iii)administrative buildings; (iv) staff welfare buildings, cafeteria, and medicalservice buildings, and (v) residential buildings,Outdoor Works

Outdoor works cover (i) supply and distribution of utilities (water,electric power, communication, steam, and gas); (ii) handling and treatment ofemission, wastages, and effluents; (iii) transportation and traffic arrangements

(roads, railway tracks, paths, parking areas, sheds, garages, traffic signals,etc,); (iv) outdoor lighting; (v) landscaping; and (vi) enclosure andsupervision (boundary wall, fencing barriers, gates, doors, security posts,etc).PROJECT CHARTS AND LAYOUTS

Once data is available on the principal dimensions of the project market size, plant capacity, production technology, machineries and equipments,buildings and civil works, conditions obtaining at plant site, and supply ofinputs to the project projects charts and layouts may be prepared. Thesedefine the scope of the project and provide the basis for detailed projectengineering and estimation of investment and production costs.

The important charts and layouts drawings are briefly described below :General Functional Layout. This shows the general relationship betweenequipments, buildings, and civil works. In preparing this layout, the primaryconsideration is to facilitate smooth and economical movement of rawmaterials, work-in-process, and finished goods. This means that :The layout should seek to allow traffic flow in one direction to the extentpossible, with a minimum of crossing.Godowns, workshops, and other services must be functionally situated withrespect to the mail factory buildings.

Material Flow Diagram This shows the flow of materials, utilities,intermediate products, final products, by products, and emissions. Alongwith the material flow diagram, a quantity flow diagram showing the quantities

of flow may be prepared.

Production Line Diagrams These show how the production would progress alongwith the key information for main equipments.Transport Layout This shows the distances and means of transport outside the


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production line.Utility Consumption Layout this shows the principal consumption points ofutilities (power, water, gas, compressed air, etc.) and their requiredquantities and qualities. These layouts provide the basis for developingspecifications for utility supply installations.Communication Layout This shows how the various parts of the project will beconnected with telephone, telex, intercom, etc.

Organizational Layout This shows the organizational set-up of the projectalong with information on personnel required for various departments and their

inter-relationshipPlant Layout The plant layout is concerned with the physical layout of thefactory. In certain industries, particularly process industries, the plantlayout is dictated by the production process adopted. In manufacturingindustries, however, there is much greater flexibility in defining the plantlayout. The important considerations in preparing plant layout are :Consistency with production technologySmooth flow of goods from one stage to anotherProper utilization of space

Scope of expansionMinimisation of production costSafety of personnel

WORK SCHEDULEThe work schedule, as its name suggest, reflects the plan of work

concerning installation as well as initial operation. The purpose of the workschedule is :To anticipate problems likely to arise during the installation phase andsuggest possible means for coping with them.To establish the phasing of investments taking into account the availability

of finances.To develop a plan of operations covering the initial period (the running in

period).Often, it is found that the required inputs like raw material and power

are not available in adequate quantity when the plant is ready forcommissioning, or the plant is not ready when the raw material arrives.

In the first case the plant remains idle and in the second the materialmay tend to deteriorate and / or pose problems of storge. To avoid lossesarising from idle capacity and deterioration of stocks of material, workschedule should be drawn up with care and realism so that the commissioning of

plant is reasonably synchronized with the availability of the basic inputs.

NEED FOR CONSIDERING ALTERNATIVESThe need for considering alternatives has been touched upon earlier.

This point, however, needs to be emphasized. There are alternative ways oftransforming an idea into a concrete project. These alternatives may differ in

one or more of the following aspects :

Nature of projectProduction processProduct qualityScale of operation and time phasingLocationNature of Project The project may envisage the manufacture of all the

parts and components in a vertically integrated unit or it may consist of anassembly type unit which obtains the bulk of the parts and components fromoutside suppliers. The project may consist of processing up to the finished

stage or may stop at a semi-finished stage. These alternatives are availablewith respect to the nature of the project.

Production Process There may be several alternatives with respect to the


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production process. The availability and charachteristics of raw materials,the cost structure, and the nature of markets served are factors that have tobe borne in mind while deciding about the process.

Product Quality Barring a few products like clinical thermometers wherea certain standard has to be maintained, the choice with respect to quality is

fairly wide. This is particularly true in the case of consumer products liketextiles, footwear, etc. The quality and product range decisions would dependon the characteristics of the market, the elasticity of demand, consumerpreferences, and the nature of competition.

Scale of Operation and Time Phasing In many cases several scales ofoperation are feasible technically and financially. The choice of a particular

scale would depend on the financial resources available. The nature ofcompetition, the nature of demand, and the economies of scale.

Further, a given capacity may be installed in one stage or in phases.The capital cost of capacity installation is usually lower when it is done in

one stage. The cost of idle capacity, however, is higher when it is built in asingle stage. The trade-off between these costs would determine the optimalpattern of time phasing.

Location Location and size are closely interrelated. Perhaps the samedemand could be satisfied by : (i) a single plant for the entire market; or(ii) one large plant for the bulk of the market with a few smaller plants forthe remaining market; or (iii) several plants of similar size spread over themarket areas. The choice would depend mainly on the trade off betweeneconomies of scale in manufacturing and economies of distribution.

Key Project inter-linkagesWhile evaluating various alternatives, the inter linkages among key

facets of the project like product (or service), demand, plant capacity,

production technology, location, investment outlay, financial resources,production costs, selling price, and profitability must be borne in mind.Exhibit 5.1 shows these inter-linkages pictorially.

MARKET AND DEMAND ANALYSISSITUATIONAL ANALYSIS AND SPECIFICATION OF OBJECTIVES

In order to get a feel for the relationship between the product andits market, the project analyst may informally talk to customers, competitors,

middlemen, and others in the industry. Wherever possible, he may look at theexperience of the company to learn about the preferences and purchasing powerof customers, actions and strategies of competitors, and practices of themiddlemen.

If such a situational analysis generates enough data to measure themarket and get a reliable handle over projected demand and revenues, a formalstudy need not be carried out, particularly when cost and time considerationsso suggest. In most cases, of course, a formal study of market and demand iswarranted. To carry out such a study, it is necessary to spell out itsobjectives clearly and comprehensively. Often this means that the intuitiveand informal goals that guide situational analysis need to be expanded andarticulated with greater clarity. A helpful approach to spell out objectivesis to structure them in the form of question. Of course, in doing so, alwaysbear in mind how the information generated will be relevant in forecasting the

overall market demand and assessing the share of the market the project willcapture. This will ensure that questions not relevant to market and demand

analysis will not be asked unnecessarily.To illustrate, suppose that a small but technologically competent firm

has developed an improved air cooler based on a new principle that appears to


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offer several advantages over the conventional air cooler. The chief executiveof the firm needs information about where and how to market the new aircooler. The objectives of market and demand analysis in this case may be toanswer the following questions:Who are the buyers of air coolers?What is the total current demand for air coolers?

How is the demand distributed temporally (pattern of sales over the year)and geographically?What is the break-up of demand for air coolers of different sizes?What price will the customers be willing to pay for the improved air cooler?

How can potential customers be convinced about the superiority of the newcooler?What price and warranty will ensure its acceptance?What channels of distribution are most suited for the air cooler? What trade

margins will induce distributors to carry it?

What are the prospects of immediate sales?COLLECTION OF SECONDARY INFORMATIONIn order to answer the question listed while delineating the objectives of

the market study, information may be obtained from secondary and / or primarysources. Secondary information is information that has been gathered in someother context and is already available. Primary information, on the other hand,represents information that is collected for the first time to meet the specificpurpose on hand. Secondary information provides the base and the starting pointfor market and demand analysis. It indicates what is known and often providesleads and cues for gathering primary information required for further analysis.This section looks at the secondary information and the following at the primary

information.General Sources of Secondary Information

The important sources of secondary information useful for market anddemand analysis in India are mentioned below :Census of India A decennial publication of the Government of India, itprovides, inter alia, information on population, demographic characteristics,household size and composition, and maps.National Sample Survey Reports Issued from time to time by the CabinetSecretariat, Government of India, these reports present information on various

economic and social aspects like patterns of consumption, distribution ofhouseholds by the size of consumer expenditure, distribution of industries,and charachteristics of the economically active population. The informationpresented in these reports is obtained from a nationally representative sample

by the interview method.Plan Reports Issued by the Planning Commission usually at the beginning,middle, and end of the five-year plans, these reports and documents provide awealth of information on plan proposals, physical and financial targets,actual outlays, accomplishment, etc.Statistical Abstract of the Indian Union An annual publication of the CentralStatistical Organisation, it provides, inter alia, demographic information,estimates of national income, and agricultural and industrial statistics.India Year Book An annual publication of the Ministry of Information and

Broadcasting, it provides a wide range of information on economic and otheraspects.Statistical Year Book An annual publication of the United Nations, it provides


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world statistics relating various aspects like population, demography, grossdomestic publication, industrial production, international trade, etc.,Economic Survey An annual publication of the Ministry of Finance, it providesthe latest data on industrial production, wholesale prices, consumer prices,exports, agricultural production, national income, etc.,Guidelines to Industries This is an annual publication of the Ministry of

Industrial Development.Annual Survey of Industries An annual publication of the Central StatisticalOrganisation, it contains information on various aspects of industry; numberof units and state wise distribution, average number of working days,employment, materials consumption, quantity of products, etc.,Annual Reports of the Development Wing, Ministry of Commerce and Industry Anannual publication, it gives a detailed review of industries under the purview

of the wing. It also provides information about new items manufactured for the

first time in India and the list of protected industries.Annual Bulleting of Statistics of Exports and Imports An annual publication of

the Ministry of Commerce, it provides data on imports and exports for a verylarge number of items and as per international classification.Techno-Economic Surveys The National Council of Applied Economic Research hasconducted and published techno-economic surveys for various states.Industry Potential Surveys The Industrial Development Bank of India inconsortium with other financial institutions has conducted and publishedindustrial potential surveys for several backward areas.The Stock Exchange Directory This directory, published by the Bomb ay StockExchange, provides a ten-year picture of performance and financial statementsfor all listed companies and other important companies. It contains veryvaluable information for comparative analysis. It is periodically updated.Monthly Studies of Production of Selected Industries A monthly publication of

the Central Statistical Organisation, it provides all India date onproduction, number of units installed, capacity, state-wise break-up stocklevel, etc., for several selected industries.Monthly Bulletin of Reserve Bank of India This provides information onproduction indices, prices, balance of payment position, exchange rates, etc.,Publications of Advertising Agencies. The leading advertising agencies likeClarion, McCann and Thompson have published test markets, marketing ratingindices of towns of India, consumer index of markets, and other studies whichthrow valuable light on Indian markets.Other Publications Among other publications, mention may be made of thefollowing : (i) Weekly Bulletin of Industrial License, Import License andExport Licenses (published by the Government of India), (ii) Studies of theeconomic division of the State Trading Corporation; (iii) Commodity reportsand other studies of the Indian Institute of Foreign Trade; (iv) Studies andreports of export promotion councils and commodity boards; and (v) AnnualReport on Currency and Finance (issued by the Reserve Bank of India)

Evaluation of Secondary informationWhile secondary information is available economically and readily

(provides the market analyst is able to locate it) its reliability, accuracy,and relevance for the purpose under consideration must be carefully examined.The market analysis should seek to know :

Who gathered the information? What was the objective?When was the information gathered? When was published?How representative was the period for which the information was gathered?Have the terms in the study been carefully and unambiguously defined?

What was the target population?How was the sample chosen?How representative was the sample?


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What was the degree of sampling bias and non response bias in theinformation gathered?What was the degree of misrepresentation by respondents?How accurately was the information edited, tabulated, and analysed?Was statistical analysis properly applied?

CONDUCT OF MARKET SURVEYSecondary information, though useful, often does not provide a

comprehensive basis for market and demand analysis. It needs to besupplemented with primary information gathered through a market survey,specific to the project being appraised.

The market survey may be a census survey or a sample survey. In a censussurvey the entire population is covered. (The world population is used herein a particular sense. It refers to the totality of all units underconsideration in a specific study. Examples are: all industries using millingmachines, all readers of the Economic Times). Census surveys are employedprincipally for intermediate goods and investment goods when such goods areused by a small number of firms. In other cases, a census survey isprohibitively costly and may also be infeasible. For example, it would be

inordinately expensive nay, impossible to cover every user of Lifebuoy orevery person in the income bracket Rs.10,000 Rs.15,000.Due to the above mentioned limitations of the census survey, the market

survey, in practice, is typically a sample survey. In such a survey a sampleof the populations is contacted / observed and relevant information isgathered. On the basis of such information, inferences about the populationmay be drawn.

The information sought in a market survey may relate to one or more ofthe following :

Total demand and rate of growth of demandDemand in different segments of the marketIncome and price elasticities of demandMotives for buying

Purchaseing plans and intensionsSatisfaction with existing productsUnsatisfied needsAttitudes towards various productsDistributive trade practices and preferencesSocio-economic characteristics of buyers

Steps in a sample SurveyTypically, a sample survey consists of the following steps :

Define the Target PopulationIn defining the target population may be divided into various segments

which may ously defined. The target population may be divided into varioussegments which may have differing characteristics. For example, alltelevision owners may be divided into three to four income brackets.Select the Sampling Scheme and Sample Size

There are several sampling schemes : simple random sampling, clustersampling, sequential sampling, stratified sampling, systematic sampling, and

non-probability sampling. Each scheme has its advantages and limitation. The

sample size, other things being equal, has a bearing on the reliability ofthe estimates the larger the sample size, the greater the reliability.Develop the Questionnaire

The questionnaire is the principal instrument for elicitinginformation from the sample of the respondents. The effectiveness of the

questionnaire as a device for eliciting the desired information depends onits length, the types of questions, and the wording of questions. Developing


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the questionnaire requires a thorough understanding of the product / service

and its usage, imagination, insights in to human behaviour, appreciation ofsubtle linguistic nuances, and familitarity with the tools of descriptiveand inferential statistics to be used later with the tools of descriptiveand inferential statistics to be used later for analysis. It also requiresknowledge of psychological scaling techniques if the same are employed for

obtaining information relating to attitudes, motivations, and psychologicaltraits. Industry and trade market surveys, in comparison to consumersurveys, generally involve more technical and specialized questions.

Since the quality of the questionnaire has an important bearing on the

results of market survey, the questionnaire should be tried out in a pilotsurvey and modified in the light of problems / difficulties noted.Recruit and Train the Field Investigators

Recruiting and training of field investigators must be planned wellsince it can be time-consuming. Great care must be taken for recruiting theright kind of investigators and imparting the proper kind of training ofthem. Investigators involved in industry and trade market survey need

intimate knowledge of the product and technical background particularly forproducts based on sophisticated technologies.Obtain Information as per the Questionnarie from the Sample of Respondents

Respondents may be interviewed personally, telephonically, or by mailfor obtaining information. Personal interviews ensure a high rate ofresponse. They are, however, expensive and likely to result in biasedresponses because of the presence of the interviewer. Mail surveys areeconomical and evoke fairly candid responses. The responses rate, however,is often low. Telephonic interviews, common in western countries, have verylimited applicability in India because telephone tariffs are high andtelephone connections few.Scrutinise the Information Gathered

Informati

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