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Project

Project

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05/14/2013

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Project Feasibility Study
Feasibility literally means whether some idea will work or not. It knows beforehandwhether there exists a sizeable market for the proposed product/service, what would bethe investment requirements and where to get the funding from, whether andwherefrom the necessary technical know-how to convert the idea into a tangible product may be available, and so on. In other words, feasibility study involves anexamination of the operations, financial, HR and marketing aspects of a business on exante (Before the venture comes into existence) basis. Thus, you may simultaneouslyread this lesson and the lessons on marketing, finance etc. to have a better idea of theissues involved. What we present hereunder is a brief outline of the issues impingingupon the various aspects of the feasibility of the proposed project.By now, you would have understood that feasibility is a multivariate concept; that is, a project has to be viable not only in technical terms but also in economic andcommercial terms too. Moreover, there always is a possibility that a project that istechnically possible may not be economically viable. For instance, you can construct adust free factory in Rajasthan, but it is more economically sensible to do so inChandigarh/ Bangalore. As even as we take up the various aspects of feasibility one by-one, it must not mislead into believing that there is a sequence and that there are nointerdependencies.Examination of the feasibility requires skills that you may fall short of. You may takethe help of the Technical Consultancy Organisations (TCOs) such as HARDICON(Haryana-Delhi Industrial Consultancy Organisation) towards this purpose. There aredistrict-wise industrial potential surveys available with the SISIs and DICs that mayserve as a good starting point. You may also make use of the Project Reports published by the directorate of industries and private consulting firms. Obviously, asyou use these off-the- shelf project reports, you need to re-validate their assumptionsand findings and resist the temptation of jump-starting. Whether you use the already published project reports or wish to start afresh, you need to examine all the facets of the feasibility of the proposed project idea, viz. marketing, technical, financial,economic and legal.
Technical Feasibility
Technical Feasibility is primarily appraised for any project. Technical appraisal is mainlyundertaken to ensure that the project is technically viable no possible gaps or gray areas intechnology know-how, equipment, input supply, organization of production facilities etc.exists. Technical appraisal is key to assess the financial viability of the project. Thecomputation of projects’ ability to earn satisfactory return on investment made and ability toservice equity and debt depend on the project technical viability. Technical appraisal is basically concerned with aspects like technology, design, layout of the plant, infrastructure
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facilities envisaged for the project and the possible problems in various areas related to thesetechnical aspects, which can be broadly grouped under the conception, construction andcontinuation phases.Technical feasibility analysis broadly involves a critical study of the following aspects, viz,
Selection of process/technology
Scale of operations
Raw material
Technical know-how
Collaboration agreements
Product mix
Selection and procurement of plant and machinery
Plant layout
Location of the project
1)
Selection of process/technology:
For manufacturing a product, more than one process/technology is available. For example:cement can be manufactured either by the wet process or by the dry process. The choice of the technology also depends upon the quality and quantity to be produced. If the quantityrequired to be produced is large, mass production techniques is to be followed. The quality of the product depends upon the use to which it is meant for. In the choice of the technology, asfar as possible, the latest technology should be chosen provided there are no other constraints.A technology that is appropriate for one country may not be ideal for another country. Evenwith in the country, depending upon the location of the project and other features, twodifferent technologies may be ideal for similar projects set up by two different firms at twodifferent locations.
2)Scale of operations:
Scale of operations is signified by size of the plant. The plant size mainly depends on themarket for the output of the project. Economic size of the plant varies from project to project.Economic size of the plant for a given project can be arrived by an analysis of capital andoperating costs as a function of plant size.Factors like fabrication of equipments, transportation and erections of equipments, problemsassociated with the availability of production inputs on a sustained basis, etc. Also imposerestrictions on the plant size.
3)Raw material:
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Some product can be manufactured using alternative raw materials and with alternative processes. The process of manufacture may sometimes vary with raw material chosen. If the product can be manufactured by using alternative raw materials, the raw material that islocally available should be chosen. Since the manufacturing process and themachinery/equipment to be used should be chosen carefully after analyzing various factorsthe cost of different raw materials available, the transportation cost involved, the continuousavailability of the raw material, etc. Since the process of manufacture and themachinery/equipment depend upon the raw material used, the investment of the plant andmachinery will also to some extent depend upon the raw material chosen. Hence the costs of investments required on plant and machinery should also be studied before arriving at adecision on the choice of the raw material.
4)Technological know-how:
When technical know-how for the project is provided by expert consultants, it must beascertained whether the consultant has a requisite knowledge and experience and whether hehas already executed similar projects successfully. Care should be exercised to avoid self-styled, inexperienced consultants. Payment of know-how fee should as far as possible madein stages along with the progress of the project.
5)
Technical Agreements:
The unit might require transfer of technical know-how or services of technical andspecialized personnel for the manufacturing process to maintain the quality and meet globalcompetition. For this pre-determined contracts and finalization of terms even before thecommencement of the project at the conceptualization stage is necessary.The type and duration of the technical arrangements and nature and extent of training anddevelopment activities need to be examined before entering into actual contract as this hasfinancial impact on the project.
6)Product Mix:
Customers differ in needs and preferences. Hence variations in size and quality of productsare necessary to satisfy the varying needs and preferences of customers. In order to enable the project to produce goods of varying size nature and quality as per the requirements of thecustomers, the production facilities should be planned with an element of flexibility.Such flexibility in the production facilities will help the organization to change the productmix as per customer’s requirements, which is very essential for survival and growth of anyorganization.
7)
Selection and procurement of plant and machinery:
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