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Project Management Unit 2

Unit 2 Project Identification and Selection

Structure:2.1 Introduction

Objectives2.2 Project Identification Process Steps in

project identification Importance of project identification Sources for new project ideas

2.3 Project Initiation2.4 Pre-Feasibility Study

Elements of pre-feasibility study2.5 Feasibility Studies

Nature or project feasibility analysis Need for feasibility studies Complements of feasibility study

2.6 Project Break-even point2.7 Summary2.8 Glossary2.9 Terminal Questions2.10 Answers2.11 Case study

2.1 Introduction

In the previous unit, we dealt with the definition of project management, need for project management, project management knowledge areas and processes, the project life cycle, the project manager, phases of project management life cycle, project management processes, impact of delays in project completions, essentials of project management philosophy, and project management principles. In this unit, we will deal with project identification, project initiation, pre-feasibility study, feasibility studies, and project break-even point.

Identification and selection of a project is one of the critical steps in the project management process. This is an important stage such that it can affect the whole process including that of sustainability of the project aftercompletion and transferring to operational phase. This process is based on

Sikkim Manipal University Page No. 27


certain essential conditions, which may differ from project to project. Project ideas do not take concrete shape immediately, thus, projects should be identified from the perspective of the needs or demand whether at the community or national levels. Countries need to craft their strategic plan according to the interests of the people.

Objectives:

After studying this unit, you should be able to: define project identification process identify the project initiation stage describe the concept of pre-feasibility study explain the nature and significance of feasibility study

describe the project break-even points

2.2 Project Identification Process

Project Identification is a continuous and repetitive process involving screening, documentation, validation, ranking and approval of viable project ideas for an organization. “The systematic effort of screening the ideas generated through various sources and bringing out most viable and feasible alternative project ideas is the domain of Project Identification”. While examining the filtered project ideas for further approval, it is imperative to check on the availability of resources and potential skills to execute the project and make it realisable. It is futile to select such an idea for which potential skills are either unavailable and or resources are insufficient to deploy. Thus, identifying a worthy project idea is not a simple mechanism but rather calls for a conscious and robust investigation on the part of the organisation.

2.2.1 Steps in project identificationProject ideas are like other ideas don’t take concrete shape immediately. An idea is first born, it is under incubation for some time, and consequently, it begins to take some definite shape. This process of project identification can be broadly divided into four stages. Figure 2.1 depicts the four stagesinvolved in project identification.



Fig. 2.1: Stages in Project Identification

In the conceptual stage, a number of project ideas are generated through interaction amongst various groups of intellectually and entrepreneurially inclined people in the organisation having good knowledge and concern about the field where contributions are sought. . In this context, one has to examine the potentialities of development and the problems, needs and aspirations of the people in the concerned area. For example in an Aerodrome project in the vicinity of a developing city the problems that the people of that city will face due to the impact of noise pollution, traffic, evacuation from the area to other non-developed areas have to be considered.

In the screening stage, i.e., the second stage, the project ideas generated above are screened and a preliminary exercise is conducted to weed out the bad or unviable ideas. Therefore, it is understandable that all the given project ideas would not pass the screening test and only few get short listed for further examination. Such short listed ideas will be considered while promoting pre-feasibility studies.

The third & fourth stages can be termed as ‘investment opportunity study’. It is a preliminary level investigation, yet extensively conducted to analyse fundamental strengths of the project idea, and to explore various opportunities of the project. It has a limited objective of providing plannerswith a choice of project alternatives from which they can make a selection.



Pre-feasibility study focuses on answering the essential questions such as; should we proceed with the proposed project idea? What are the benefits and drawbacks of proposed project idea? How much time will it take to conduct the preliminary study i.e. pre-feasibility study on the financial and other related economic aspects of the project viability. In order to support those prefeasibility studies, all the organizational efforts get directed towards compiling suitable answers to those questions. After gaining confidence through the answers so supplied, a pre-feasibility study will be commenced either by the internal sources or by outsourcing to consultants. Furthermore, upon the satisfaction of prefeasibility report, a detailed feasibility studies can be conducted to document a detailed project report.

2.2.2 Importance of project identification

Project identification helps solve major problems in the planning stage and addresses to meet diverse needs, while setting clear objectives of proposed project. Good projects act as catalysts for economic growth and development, which help to streamline the fruitful ideas through appropriate actions and achieve the desired results. This encourages creativity and innovation so as to optimise the resources utilisation that is available in the economy viz., manpower, capital, and raw materials and so on. Project identification helps the management in the following ways: Identifies and analyses the purpose and scope of a project in the given

situation of an organisation or an economy Encourages value addition to the existing wealth and capital of an

organisation or economy as the case may be through raising more funds for project execution

Encourages multi-cultural environment and gives scope of social and cultural compatibility in the organisation as well as economy

Improves and develops the specific and general infrastructure of an organisation and the economy

Determines basic benchmarks for deciding on various types and forms of project ideas to materialise

Helps to identify size of investment and indicates on the complexity of the project

Helps define the location and find appropriate technology to be used while executing the project

Helps to formulate better marketing strategies to enhance profitability



Identifies different constraints in project environment and formulation Evaluates the potential resources to convert an idea into reality Analyse the policies of government and various legal restrictions

2.2.3 Sources for new project ideasFollowing are some of the sources from which new project ideas may emerge.

Performance of Existing Industries

The present trends and past experiences of industries provide a good indication about the health of a particular industry. Changing profitability structure and break-even analysis of industries offer adequate information about the financial health of various industrial sectors. This provides a superficial outlook on the industrial health, and thus a carefully forecasted trend lines help in determining the future prospects in emerging project proposals. It is necessary to carefully analyse the changing phases of business cycles in which different industries play their respective roles from time to time. For example, the telecommunications sector especially mobile communications is growing tremendously in India having a mobile market crossing 5 billion by the beginning of 2012. This ever growing market gives the investors good chance to innovate cheap and trendy designer mobile instruments that can withstand rigorous utility. Chinese manufacturers are taking advantage of this growing market by distributing mobile sets at moderate prices to attract the consumers.

Availability of raw materials

Availability of suitable resources is a must for any project to take off. Easy availability of good quality raw materials at cheaper prices is a boon for any project. Identifying appropriate technology and resource base will help design a good project idea and also make use of those untapped resources for the betterment of the organisation as well as economic health. For example, Compressed natural gas engines(CNG) were innovated for the automobile sector as it was a feasible substitute for petrol. These new resources help the organisation have an edge over its competitors and also help the economy boost its GDP.

Availability of skilled labour

Not all projects can be implemented universally. There are specific projects which need defined locations, specified environmental conditions and



suitable manpower resources. For instance, cement manufacturing unit, automobile manufacturing unit, textile units, pharmaceutical units, sugar factories, power plants etc. All these projects need not only good infrastructure base but also to be supported by appropriate technology and availability of suitable manpower. Gujarat state is suitable for Cement industries, which is why most of the cement manufacturers are situated in that area to drain out chemical waste into sea waters. Mobility of manpower and also natural environment such as water and coal is a major challenge, which is why power projects are developed in the areas surrounded by water facilities and coal mines. Solar and wind power projects are developed in Rajasthan and Shimla where abundant heat is produced through sand and sun and heavy winds pass through to produce power by maintaining good environmental and duly supported by UNIDO.

Import/export statistics

Statistics on international trade reveals the scope to evolve good projects. Fruits, handicrafts, cereals, pulses, drugs etc. all have equal opportunity to get exported as well as imported depending on the demand by the country from time to time. Therefore, a clear understanding on the routine and specific international transactions between various segments of society will make project ideas clearer and help reveal potential areas. Usually any product having high imports can be thought as potential project proposal for indigenous development and vice versa. It may not be true in all cases. For example, 80% of the caprolactum (raw material used to manufacture Nylon filament yarn) gets imported in India and SRF thought of developing the project in the early 1990s but unable to do so due to heavy cost factors. Sometimes, it is found that importing costs are less than cost of indigenous development.

Price trend

Price of the product is a major driving force for any project to take off. Fundamentally every organisation will have twin focus, profit maximisation and cost minimisation. From both the angles it is the price that gets determined and thereby guides the project initiator on the functionality. If the general price level is found to be rising over the past few years and a specific item is having a steeper rise, that would indicate a huge gap in the

demand-supply and can be thought as a project opportunity.



Data from various sourcesVarious publications of government, banks, financial institutions, consultancy organisation, manufacturer's associations, export promotion councils, research institutions, and international agencies contain data and statistics which may indicate prospective ventures. A study of the balance sheets of existing companies will be useful in knowing the sectors of industry that are performing well. The study of profitability, break-even level, Earnings Per Share (EPS) of various industries may indicate those industries where opportunities exist for new investments.

Project identification precedes project initiation. Let us now discuss the concept of project initiation.

Self Assessment Questions

1. is a continuous and repetitive process involving screening, documentation, validation, ranking and approval of viable project ideas for an organization.

2. In the stage, of project identification the project ideas generated above are screened and a preliminary exercise is conducted

to weed out the bad or unviable ideas.

3. study focuses on answering the essentialquestions such as; should we proceed with the proposed project idea? What are the benefits and drawbacks of proposed project idea?

2.3 Project Initiation

The Project Initiation Phase is the 1st or beginning phase in Project Management Life Cycle, since it includes starting up a new project. For starting a new project you have to define its objectives, scope, purpose and deliverables. You will also appoint a project team, setup the project office and evaluate the project, for gaining sanction to begin the next phase.

The function of project initiation is to describe all the parameters of a project and establish the suitable project management and excellence environment necessary to complete the project. The project charter development is a crucial initial point for the project, establishing the project definition whichacts as the base for all future efforts.



Project charter is a statement of the scope, purpose and participants of the project. It presents an initial explanation of roles, responsibilities and authority of the project manager.

A project manager is assigned at the commencement of project Initiation. The project manager and project sponsor work together to identify the essential resources and required team members for further development of key project parameters which are Cost, Scope, Schedule, and Quality (CSSQ). The project team documents its charge in the form of a project charter, which is based on the project proposal and business case. Approval of the project charter by the project sponsor authorises the designated team to begin project planning. A project is initiated and submitted to the competent authority for approval. On approval, the project is taken up for

further processing. Figure 2.2 depicts the process flow.

Fig. 2.2: Process Flow

Let us now discuss each of these points in detail.

Formulate a Case StudyEvaluate all proposed projects that has been provided by the client organization or that has been gathered by technical analyst. If additional information is needed, issue an information request to the requester. Formulate a case study and assign a new project code to the nominated project. The business case will be examined by a screening committee with

help of management to decide whether to accept or reject a nominated



project. When a business case is accepted, the proposed project is forwarded for ranking and selection. When additional information is received on such proposed project, the case study may be revised based on the data and appropriate decision would be taken on the final selection.

Approval and Selection of Proposed ProjectBased on the priority and rankings revealed by the expert committee, the management may then authenticate the final selection of project . However, despite its selection, it may not deem to be ‘active’ project until resources are approved and deployed for initiating. It is critical to remember that when resources are assigned from the skills inventory, this deployment has a proportionate impact on the resource’s availability.

Rank Candidate Projects

All databank nominated projects must be impartially ranked in order of importance. The ranking criteria must include:

Target due dates

Impact on the total business

Impact on the technology architecture

Impact on other applications

Project size, cost and duration

Project risk

Forecasted ROI

Initially the projects are ranked against each of these criteria individually and subsequently, compiled to a single ranking which weighs each of these criteria against each other. This ranking process is usually used for quarterly budget decisions.

Evaluate Resources

For all corporate resources, an updated skills inventory must be maintained which is accessible for project assignment. Moreover, an inventory of available contract resources must be captured too. These skills inventory helps to understand the accurate capabilities and capacities of theseresources.



Determine resource needsThrough evaluation of skills inventory and the candidate project repository, this process will recognize the expected needs for quantities and capabilities of future resources. This information will provide: The identification of critical training needs A basis for employment opportunities Criteria for contract personnel

This process must be reviewed on a standard basis by the organisationalResource Managers and can be applied for staff career counselling.


4. The function of project initiation is to describe all the parameters of a project and establish the suitable project management and excellence environment necessary to complete the project. (True/False)

5. The project manager works with the project sponsor to identify the necessary resources and team members needed to further develop the key project parameters – Cost, Scope, Schedule, and Quality (CSSQ).

(True/False)

2.4 Pre-Feasibility Study

Initially, a pre-feasibility study is conducted for sorting out significant scenarios. Prior to conducting a full-blown feasibility study, you are required to carry out certain pre-feasibility analysis . If your finding suggests that the proposed business idea is not feasible, it will save your time and money. If your findings suggest that you to continue with the feasibility study, then certain basic issues have been resolved. A consultant’s assistance is helpful in conducting the pre-feasibility study, but your involvement is a must. It provides you with an opportunity to know the issues of business development.

The chief objectives of conducting a pre-feasibility study are to determine whether the project is promising or not and also whether an investment decision can be taken on the basis of the information furnished at the pre- feasibility stage. Moreover, it analyses whether the information is adequate to decide that the project idea is lucrative. Many project ideas gain life aftersuch a pre-feasibility analysis. By focusing on the special characteristics of



the project, a detailed study and a plan can be constructed through which an appropriate resource base such as people, materials, time, and costs can be conveniently estimated.

ActivityWhat are the Broad considerations and guidelines helpful in the generation and screening of project ideas?

2.4.1 Elements of pre-feasibility studyAccording to Clyfton and Fyffe, a pre-feasibility study may include the following elements:

Project description

The nature of the project output must be clearly described stating all relevant advantages and disadvantages in comparison with all the competitive projects in the pipeline. Also, allied project offers may be identified, which can be simultaneously developed with the project under mock-up.

Description of market

The present and potential market, with its competitive nature, should be delineated. The description of the market should include the following: Outline of technological variants

Various choices of techniques that are available for constructing and developing the project should be examined. Also, some vital factors such as plant location must be clearly identified such as labour (quantity, special skills), proximity to markets and raw materials (distance in km), transportation facilities and costs (roads, railways, docks, and airways), water (quantity, quality, restriction, etc), and miscellaneous issues (personal preference, competition, tax considerations, environmental controls, etc).

Availability of main production factorsThe availability of essential production factors such as raw materials, water, power, fuel, and labour should be examined thoroughly and com-pared with available alternatives.



Cost estimatesRealistic estimates should be made of all cost factors so as to reflect on all relevant investments and operational costs of the project including contingencies.

Profitability estimationThe collected information should enable comparison between all competing projects that are in the pipeline. The information should also help prepare under various estimated profitability statements.

MiscellaneousIn addition to the above, some more factors may be considered especially for new projects. These are: General opinion and support of society towards the project or the type of

proposal. Educational, recreational, and civic-amenities available in the region. Availability of any other alternative sites in the region.

Table 2.1 depicts the focus of pre-feasibility studies.

Table: 2.1: Focus of Pre-feasibility Studies

Focus Consumer-oriented Projects

(industrial)

Society/economic- oriented (defence, infrastructure and others)

Object

Competition and survival

Demands and preferences quality

New inventions or innovation quality

Economic growth and development

Standard of living of the society

Economic sufficiency

Regional disparities

Global competition

Scope of

Marketability

Existing demand vs. existing supply

Gap analysis

Consumer behaviour towards innovations

Existing facilities vs. required facilities

Present growth rate vs. determined growth rate

Social behaviour (taboos, customs) vs. the proposed project




6. Various choices of that are available forconstructing and developing the project should be examined.

7. should be made of all cost factors so as to reflect on all relevant investment and operational costs of the project includingcontingencies.

2.5 Feasibility Studies

Feasibility analysis is the first stage in the process of project development. A feasibility study focuses on the practicality of an idea by identifying possible problems and gives the answer of one main question:

The purpose of the analysis is to examine the desirability of investing in pre- investment studies. For this purpose, it is essential to examine the project idea in the light of the available internal (inputs, resources, and outputs) and external constraints (environment).

2.5.1 Nature of project feasibility analysis

In the broadest sense, every rational decision to make a new investment is preceded by an investigation of the feasibility of the project, whether or not it is carried out in a formal manner. The larger the project, the greater will be the investment, and the more formalised the investigation. Assurance is needed in the following matters: Whether the market exists or can be developed Whether raw materials can be obtained Whether sufficient labour supply is available Whether the local services vital to the project are at hand Whether the overall costs for plant equipment, labour, and raw material

input will be of a certain order

Most importantly, it must be determined that the income will exceed costs by a margin sufficient to make the project financially attractive. When the project is small, the study format may be quite informal; perhaps, there will be no formal study at all and little accumulation of actual data. Nevertheless, the feasibility calculations will have to be computed and evaluated, even ifan informal manner before the ultimate step of actual investment is taken.



2.5.2 Need for feasibility studiesA company is incorporated for the purpose of setting up a project. The promoters obviously have to start with some broad idea about the proposed industrial activity. They make mental picture as to how the idea, when translated into reality, would result in a profitable project, given the demand- supply pattern, probable cost of production, etc. It is quite likely that the originators get attracted by the favourable aspects of the project known to them. It is possible that they may have overlooked the dark side of the picture, which can only be revealed by a detailed objective study. Too many projects have floundered at considerable loss to the investors and indeed to the national economy through waste of scarce resources, because the investment decisions were taken without objective and in-depth techno- economic feasibility studies.

In modern times, business operations are complex, requiring carefully prepared plans. The shareholders, creditors, term leaders, etc insist on completing the analysis of the scheme. Without their co-operation, it would not be possible to translate the idea into action. This feasibility study helps the promoter to make the investment decisions correctly and to obtain funds without many difficulties.

2.5.3 Complements of feasibility study

Project feasibility study comprises of market analysis, technical analysis, financial analysis, and social profitability analysis. The analysis is mainly interested only in the commercial profitability and thus, examining only the market, technical, and financial aspects of the project. But, generally the gamut of feasibility of a project covers the following areas: Commercial and economic feasibility Technical feasibility Financial feasibility Managerial feasibility Social feasibility or acceptability

These areas are briefly described below.

Commercial and economic feasibility

The economic feasibility aspect of a project relates to the earning capacity of the project. Earnings of the project depend on the volume of sales. Here, the following important indicators are taken into consideration:



Present demand of the goods produced through the project i.e. market facility (or) getting a feel of the market.

Future demand of the goods. A projection may be made about the future demand. The period normally depends upon the scale of investment.

Determining the extent of supply to meet the expected demand and arriving at the gap.

Deciding in what way the project under consideration will have a reasonable chance to share the market.

Anticipated rate of return on investment. If it is positive, the project justifies the economic norm in the relationship between cost and demand.

Future demand can be estimated after taking into consideration the potentialities of the export market, the charges in the income and prices, the multiple uses of the product, the probable expansion of industries and the growth of new industries. The market share of the proposed project could be identified by considering the factors affecting the supply position such as competitive position of the unit, existing and potential competitors, the extent of capacity utilisation, unit cost advantages and disadvantages, structural changes, and technological innovations bringing substitute into the market.

The commercial feasibility of a project involves a study of the proposed arrangements for the purchase of raw materials and sale of finished products, etc. This study comprises the following two aspects:

Arriving at the physical requirement of production inputs such as raw materials, power, labour, etc at various levels of output and converting them into cost. In other words, deciding costing pattern.

Matching costs with revenues with a view to estimating the profitability of the project and the break-even point. The possibility ultimately decides whether the project will be a feasible proposition or not.

The technical analysis of a project feasibility study serves to establish whether or not the project is technically feasible and it also provides a basis for cost estimating.

Technical feasibility

The examination of this aspect requires a thorough assessment of the various requirements of the actual production process and includes a

detailed estimate of the goods and services needed for the project. So, the



feasibility report should give a description of the project in terms of the technology to be used and the requirement of equipment, labour, and other inputs. Location of the project should be given special attention in relevance to technical feasibility. Another important feature of technical feasibility relates to the types of technology to be adopted for the project. The exercise of technical feasibility is not done in isolation. The scheme has to be viewed also from economic considerations; otherwise, it may not be a practical proportion, however sound, technically it may be.

The promoter of the project can approach the problem of preparation of technical feasibility studies in the following order: Undertaking a preliminary study of technical requirements to have a

quick evaluation. If preliminary investigation indicates favourable prospects working out

further details of the project, the exercise begins with engineering and technical specifications and covers the requirements of the proposed project as to the quality, quantity, and specification type of components of plant and machinery, accessories, raw materials, labour, fuel, power, water, effluent disposal, transportation, etc.

Thus, the technical feasibility analysis is an attempt to study the project basically from a technician’s angle. The main aspects to be considered under this study are technology of the project, size of the plant, location of the project, pollution caused by the project, production capacity of the project, strength of the project, emergency or stand-by facilities required by the project sophistication such as automation, mechanical handling, required collaboration agreements, production inputs, and implementation of the project.

Financial feasibilityThe main objectives of this feasibility study are to assess the financial viability of the project. Here, the main emphasis is on the preparation of the financial statement, so that the project can be evaluated in terms of various measures of commercial profitability and the magnitude of financing required can be determined. The decision about the financial feasibility of the project should be arrived at based on the following considerations:

For existing companies, audited financial statements such as balance sheets, income statements, and cash flow statements.



For projects that involve new companies, statement of total projects cost, initial capital requirements, and flow relative to the projective time table.

Financial projections for future time periods, including income statements, cash flows, and balance sheets.

Supporting schedule for financial projections stating the assumptions used such as collection period of sales, inventory levels, payment period of purchases and expenses, and elements of production cost, selling administrative and financial expenses.

Financial analysis showing return on investment, return on equity, break- even volume, and price analysis.

If necessary, sensibility analysis to identify items that have a large impact on profitability or possibly a risk analysis.

A project should earn sufficient return on the investment. The very idea of promoting a project by an entrepreneur is to earn attractive returns on the investment on the project.

Managerial feasibilityThe success or failure of a project largely depends upon the ability of the project holder to manage the project. A project is a bundle of activities and each activity has its own role. For the success of a project, a project holder has to co-ordinate all the activities in such a way that the additive impact of different inputs can produce the desired results. The ability to manage and organise all such inter-related activities comes within the concept of management.

There are three ways to measure the managerial efficiency. They are: Skill acquired through training Skill acquired through the course of work

Social Feasibility

A project may cross all the above barriers mentioned above and be found very suitable but it will lose its entire creditability if it has no social acceptance. Though the social customs and conventions such as caste, community, regional influence, etc are creating a hindrance for the development of a project, it should avoid all such social conflicts which willstand on the successful implementation of the project. For example,



considering the interests of the general public, projects which offer large employment potential, which channelise the income from less developed areas, will stimulate the small industries.

In a nut shell, the feasibility report should highlight on these five testing stones before it can be declared as complete. And, after judging through these indicators, a project can be declared as viable and can be submitted

for finance or any other assistance from institutions.


8. Feasibility analysis is the first stage in the process of project development. (True/False)

9. The purpose of the analysis is to examine the desirability of investing in pre-investment studies. (True/False)

10. The technical feasibility aspect of a project relates to the earning capacity of the project. (True/False)

2.6 Project Break-even Point

Break-even is a financial term to describe a business or project where the sales revenue is equal to total expenses.It is easy to calculate it if the expenses incurred are fixed, i.e. expenses do not change as revenue changes. The expenses are divided into fixed and variable expenses. The presence of variable expenses makes it difficult to calculate the break-even point. This is because the variable cost will increase as the number of units sold increases. The answer can be determined by working out the total gross profit of the unit sold to be equal to the total fixed expenses.

Now, we can say that, break-even analysis provides information regarding whether revenue from a product or service has the ability to cover the relevant costs of production. Managers can use this information in making a wide range of business decisions, including setting prices, preparing competitive bids, and applying for loans. Break-even analysis specifies the minimum quantity of sales that will cover both variable and fixed costs. Such analysis provides managers a quantity to compare to the forecast of demand. If break-even point is above predictable demand, it implies a losson the product. Then the product may be discontinued or, by contrast, may



receive additional advertising and/or be re-priced to increase demand. One of the most valuable uses of break-even analysis is the detection of relevant fixed and variable costs.

ActivityFind out who is the project champion, who is the project sponsor, and who are the stakeholders? What influence do they have on a project?


11. is a financial term to describe a business or project where the sales revenue is equal to total expenses.

12. If the break-even point lies anticipated demand, implying a loss on the product, Then the product may be discontinued or, may

receive additional advertising and/or be re-priced to increase demand.

2.7 Summary

Let us recapitulate the important concepts discussed in this unit: The process of identifying an idea for developing into a project is called

project identification. When examining projects for approval, it is vital to examine the resource

capacities and capabilities available for assignment. The purpose of project initiation is to define the overall parameters of a

project and establish the appropriate project management and quality environment required to complete the project.

Development of the project charter is a pivotal starting point for the project, establishing the project definition that will serve as the foundation for all future efforts.

The business case will be examined by a screening body with the corporate authority to accept or reject a project idea.

The chief objectives of conducting pre-feasibility study are to determine whether the project is promising or not and whether an investment decision can be taken on the basis of the information furnished at the pre-feasibility stage.

Project feasibility study comprises of market analysis, technical analysis,financial analysis, and social profitability analysis.



Break-even is a financial term to describe a business or project wherethe sales revenue is equal to total expenses.

2.8 Glossary

Business case: The information necessary to enable the approval and authorisation of policy making bodies to assess a project proposal and reach a reasoned decision.

Commercial feasibility: A study of the proposed arrangements for the purchase of raw materials and sale of finished products, etc.

Feasibility analysis: The first stage in the process of project development.

Financial feasibility: To assess the financial viability of the project.

Project identification: A repeatable process for documenting, validating, ranking, and approving candidate projects within an organisation.

Project initiation: To define the overall parameters of a project and establish the appropriate project management and quality environment

required to complete the project.

2.9 Terminal Questions

1. Define project identification and discuss the steps in project identification.

2. Explain the importance of project identification.

3. What do you mean by the term project initiation?

4. Describe the feasibility studies and also discuss the nature of project feasibility analysis.

5. Describe the need for feasibility studies.

6. Explain the complements of feasibility study and write short notes on:

(a) Commercial and economic feasibility

(b) Technical feasibility

(c) Financial feasibility

(d) Managerial feasibility

(e) Social feasibility or acceptability

7. Discuss the project break-even points.



2.10 Answers


1. Project identification

2. Screening

3. Pre-feasibility

4. True

5. True

6. Techniques

7. Realistic estimates

8. True

9. True

10. False

11. Break-even

12. Above

Terminal Questions

1. The process of identifying an idea for developing into a project is called project identification. This project identification may be broadly divided into four stages. Refer to section 2.2.

2. It has long-term results. Project identification involves creative and innovative use of resources- manpower, capital, raw materials, etc. Refer to section 2.2.2.

3. The purpose of project initiation is to begin to define the overall parameters of a project and establish the appropriate project management and quality environment required to complete the project. Refer to section 2.3.

4. Feasibility analysis is the first stage in the process of project

development. The purpose of the analysis is to examine the desirability of investing in pre-investment studies. Refer to section 2.5.

5. A company is incorporated for the purpose of setting up a project. The promoters obviously have to start with some broad idea about the proposed industrial activity. Refer to section 2.5.2.

6. The economic feasibility aspect of a project relates to the earningcapacity of the project. Refer to 2.5.3.



7. Break-even is a financial term to describe a business or project wherethe sales revenue is equal to the total expenses. Refer to section 2.6.

2.11 Case Study

Municipal Corporation of Kanpur

Municipal Corporation of Kanpur is considering to construct a water reservoir to facilitate the setting up of industries. The project manager has been furnished with the following information by the concerned engineers of the department. The project comprises laying two lengths of large-diameter pipelines with flexible joints for 16 km from pumping station A to reservoir B. It is found that there is continuous outcrop of rock from chainage for 10 to 13 km, and special river, rail, or road crossings are to be constructed at chainages for 2, 7, 13, 18 and 22 km. It is advised to install isolating valves at each end point and at intervals of 3 km throughout the main, providing a suitable flange and an anchor for test purposes. Water for testing will be supplied free by the promoter following completion of the pumping station during week 33. The reservoir will be commissioned during week 35. The industrial plant will be completed by week 40, but cannot become operational until water is available. The pipes are available at a maximum rate of 1000 m/week (commencing week I). The contractor is responsible for off-loading from supplier's lorries, storing and stringing out. Each stringing gang can handle 1000 m/week. Produce a time-location programme for the project on the assumption that one stringing gang and four separate pipe laying gangs are to be employed. The average rate of pipe lying per gang may be taken as 300 and 75 m/week in normal ground and rock respectively. Testing and cleaning each 3 km length will take 2 weeks. A river, rail, or road crossing is estimated to occupy a bridging gang for4 weeks. Because of access problems, pipe laying and stringing gangs should not be operating concurrently in the same I km length. Attention should be paid to manpower resources and continuity of work.

Question:

Analyse the case and discuss the activity in your group.

Hint: The project comprises laying two lengths of large-diameter pipelines with flexible joints for 16 km from pumping station A to reservoir B.



References:

Gray, C. F. and Larson, E. W., Project Management, Publication: TataMcGraw Hill.

Chandra, P. Projects-Planning, Selection, Financing, Implementation, and Review, Sixth Edition, Publication: Tata McGraw Hill.

Lock, D. Project Management, Ninth Edition, Publication: Gower.

Rao, P.C.K. Project Management and Control, Publication: SultanChand & Sons.

Nagarajan, K. Project Management, Third Edition, Publication: New AgeInternational.

E-References:

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http://www.projectsmart.co.uk/

http://www.pmearth.com/

http://www.projectmanagement.com/

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