Project Appraisal

Chapter 1 .

Introduction
● ‘Project’ stands for a set of activities connected with each other to achieve a specific
objective over a particular period of time i.e., a project is a path chosen to reach a
particular destination touching various milestones on the way
● A project may be transitory in nature or a venture with a certain end in sight

● Appraisal of a project is a comprehensive process which involves detailed scrutiny of its

○ management aspects,
○ product,
○ capacity to be installed,
○ technical feasibility,
○ appraisal of market aspects/commercial viability, and
○ study of environmental and institutional factors followed by
○ financial appraisal
● Project Appraisal analyses the costs and benefits associated with a proposed project to
ensure rational allocation of scarce resources amongst alternative investment options
since available resources are limited and many potential projects may be able to satisfy
identical needs

● Characteristics

Common Features
1. Goal: All the projects have a set of goals to be achieved along with catering to the
specific needs of the customers
 2. Duration: All projects have a definite time period within which the set of goals has to be
achieved/completed. All of them have clear beginning and end points

3. Sole Entity: A particular project constitutes a range of tasks or events built into it

4. Life cycle: Every project has a life cycle as expressed by a period of high growth,
maturity and decline

5. Distinctive: Two projects may have a similar plan yet both of them have a unique
identity of their own. The difference could be in terms of the raw material, location,
appearance, the team members etc. Such small differences go on to provide each
product its unique identity

6. Risk: Risk and uncertainties are an integral part of all the projects. A project may be
immune to some prevalent risks whereas other risks may turn a project unprofitable

Project Appraisal Tools

● Project appraisal is the structured process of assessing the sustainability of a project or
proposal
● It assesses the feasibility of a project before committing resources to it
● Project appraisal is implemented to evaluate the company’s investment in the project
vis-à-vis the benefits drawn from it
 ● The foremost step of the process of project appraisal is the assessment and analysis of
proposals before any commitment of resources is done

Project Appraisal Process

● If the process of appraisal begins from an early stage, then the company will be in a
better position to make a calculated decision regarding the spending capital on the
project
● It will help to make a decision on the expenditure of a project or whether to continue the
project w.r.t. to its economic viability

Stages of Project Appraisal

Stages
1. Identification of the cost and benefits of the project
○ In this process, one has to identify both economic and non-economic (social)
impacts of the project which include short-term as well as long-term impacts

2. Valuation of these impacts

○ Depending upon the sources and reliability of the information and the goal of the
organisation/society
○ Whether a particular effect is calculated as cost or benefit depends upon the
goals pursued by the society or the organisation
Steps
1. Selection of an Idea
○ The first step is the identification of various ideas and selecting the most suitable
idea
○ Informal screening may give weightage to the competency of the individual
members of the team, availability of competitive products/services, capital
expenditure involved, gestation period etc

2. Market Analysis
○ A careful assessment of the existing and potential market i.e., demand and
supply, both domestic and international, for the product and cost structure is
performed
○ Attempt to calculate the market share for the product that can be secured through
an appropriate marketing strategy
○ Study the export potential based on the size of the international market and price
competitiveness of the product after working out a reasonable price for the
product
○ An analysis of the viability of the project in the backdrop of the international
economic scenario particularly the impact of WTO provision helps the promoter
make a well-informed decision

3. Technical Appraisal
○ Examines the location and site of the project thus assessing
■ the vulnerability of the area to natural calamities (past record of
earthquakes, floods, cyclones etc.),
■ evaluation of the locational advantages from raw material/end product
market viewpoint, availability of infrastructural facilities like roads, power,
water hospitals, schools etc.,
■ availability of skilled/unskilled labour, proximity to airport, railway station,
highways etc
○ The technology adopted should be suitable to the project in terms of availability
of technical staff, financial means etc. Adaptation and management of new
technology should be properly dealt

4. Financial Appraisal
○ Involves verification of estimates of different elements of project cost and
projected workings to ascertain whether the project meets critical industry
benchmarks in terms of important financial ratios
○ A careful analysis of the projections of cash flow and balance sheets followed by
sensitivity analysis would help the firm/promoter make an informed decision
regarding the financial viability of the project
○ Work out the Break Even Point (BEP) capacity utilisation so as to determine the
lowest production and sales levels at which the project will cover all its costs
 5. Institutional Appraisal
○ Institutional help and guidance are required for the arrangement of skilled staff,
training of the staff, infrastructure arrangement etc
○ Many times, new entrepreneurs need guidance for setting up the new firm, its
registration, financial arrangements, preparation of project feasibility report and
legal support

6. Socio-Economic Impact Assessment (SEIA)

○ It includes the identification of the direct and indirect impacts of the proposed
industrial activity
○ To minimise the adverse impact and enhance the beneficial impact of the
proposed project and also to find out the mitigation available to manage, reduce
or eliminate the adverse impacts
○ The improvement of the social well-being of the wider community should be
explicitly recognised as an objective of planned interventions and should be an
indicator for any form of assessment

7. Implementation and Monitoring

○ Involves the execution of the project as planned while carefully monitoring the
progress and managing changes
○ The main issues are technology selection risk, timely availability of capital,
implementation of different contracts and sub-contracts etc.
○ This is followed by the application of different monitoring techniques (CPM, PERT
and Gantt Charts)

Project Appraisal Methodology

Project appraisal methodology also provides guidelines for the preparation of a project feasibility
report
1. Planning of the Project
○ A transparent logical plan should be clearly defined and explained with the
project purpose and project results
○ Assumptions and preconditions required for the project implementation should
also be clearly defined

2. Identification of costs and benefits of the project

○ Net benefits associated with a project can be optimised if attempts are made to
achieve the desired goals at the minimum possible costs
○ This implies that the achievement of goals and objectives would depend upon the
goals to be pursued and the availability of resources
○ The most important step for the calculation of the costs and benefits is their
identification itself
 3. Valuation of the costs and benefits
○ Both costs & benefits cannot be considered in isolation
○ It is a function of the project objective, relative factor availability and the
socio-political and cultural environment in the economy
○ The social profitability analysis i.e., the evaluation of the project’s contribution to
the economy, is the primary concern of any loan officer
○ This impact may be in the form of providing employment or on the foreign
exchange reserves etc. or even better living conditions

4. Determine the optimality of proposed actions

○ Optimality too cannot be considered in isolation
○ Any alternative action is considered optimal based on the economic feasibility,
social acceptability, political viability and technical possibility
○ A project is said to be viable only if it can satisfy all the minimum proposed
criteria for the suggested parameters

5. Sustainability
○ For a project to be sustainable, all possible risks and uncertainties need to be
taken into account and laid out in the project feasibility report
○ The outcome of any project cannot be considered in isolation and many internal
and external variables may have an impact on the project's goal
○ Factors such as competitors' approach, govt. guidelines or international
regulations governing the concerned industry are also taken into consideration
before making a final decision regarding the implementation of the project
○ The project feasibility report must be a transparent document containing details
of total benefits/costs to all the stakeholders

Project Life Cycle

● The most appropriate method for observing the sequence of events begins with the
identification of the project itself and concludes with the evaluation

1. Identification
○ Economic, market conditions, technical aspects, social, and at times even
environmental and financial considerations help finalise one project idea out of
multiple alternatives
○ At this stage one final meaningful idea is chosen and the boundaries are clearly
defined
○ Broad outlines of project impacts, risks, scope, vision context, alternatives and
stakeholders are identified
○ The project initiation phase is the most crucial phase in the Project Life Cycle, as
this phase defines the objectives, scope, risk and viability of the project
2. Preparation
○ The mission and vision for the project are developed during this stage
○ Many crucial aspects such as the project schedule, roles of individual team
members, work plans, capacity building, budget, key suppliers and distributors,
and logistics are planned during this stage so as to minimise risk during and after
implementation

3. Appraisal
○ Every aspect of the project idea is subjected to systematic and comprehensive
assessment at this stage
○ This step can be subdivided into three sub-stages viz.
i. Preliminary Study: all the possibilities are examined at this stage
ii. Feasibility Study: The market, technical and financial feasibility of the
project based on the preconditions and assumptions are examined
iii. Detailed report: at this stage when the financer and the borrower agree on
the terms of the loan or credit the project is presented to the banks and
the board of executive directors for approval

4. Implementation
○ The entrepreneur issues contracts through a competitive bidding process that
follows the banks’ procurement guidelines
○ The product/service is commercially built and successfully provided to the
customers
○ Successful implementation requires strong coordination among all the people
and resources associated with the project
○ At this stage, one needs to integrate all the tasks done previously and practically
perform all the activities of the project
○ This is the longest-running phase which involves the active participation of all the
stakeholders associated with the project

5. Monitoring
○ The progress of the project is assessed against the plan at this stage
○ Periodic monitoring is essential to identify any problem areas of the project and
take timely remedial action for the successful continuity of the project
○ Projects are monitored with the help of different monitoring techniques viz., CPM,
PERT and Gantt Charts

6. Evaluation
○ Upon completion, the project is reassessed in terms of its efficiency and
performance
○ This is also the time to review the performance of the project with the initial plan
in the background and comparative assessment vis-à-vis its peers
○ The lessons learnt in the entire process must be listed down as they will be the
guiding force for future venture
● While appraising the project one can ‘drop’ the project idea at any of the following stages

1. Preliminary Study Stage

○ At this stage, a study is carried out to understand any limitations, constraints or
risks with respect to the project implementation
 ○ Any such factor that poses a major impact or threat to the project is dropped at
this stage itself so that it does not create any problem at the execution stage
○ It is always better to drop the project idea at this stage in the project life cycle to
minimize the project cost

2. Project Formulation Stage

○ At this stage final feasibility report is prepared for financing of the project
○ Before dropping the project, one needs to consider if the irritants can be modified
to meet the project goals
○ If this is possible then it is better to modify and continue with the next stage of the
project life cycle to minimize its impact on the project
○ It is estimated that on average the project cost increases by ten times to take the
project to the next stage. Hence, it is critical to review all the feasibilities of the
project carefully as early as possible

3. Project Planning and Implementation

○ For successful implementation and completion of a project, it is critical that its
objectives are aligned with the overall corporate vision and need to be explained
with increasing degrees of detail (resources, time, tasks and ownership)
○ This is the stage where the mobilised project team is ready with planning and
scheduling, work designs, work packages, procurement and final implementation
of the project.

● Project reliability can be assessed at each stage of the project cycle and is expected to
increase with every next stage as the margin of error decreases with every next stage
● The error decreases because the variables become known at this stage
● At the idea and formulation stage - the Project result visibility is zero and hence is based
on projections of reality
● At stage V2 or the implementation stage - part of the project reality is visible. At V2-V3, it
is nearly visible and the remaining is projected
● Hence, the complete reality of the project is realized only at the completion of the project

● It is estimated that on average the project cost increases by ten times to take the project
to the next stage
● Hence, it is critical to review all the feasibilities of the project carefully as early as
possible
 ● The different phases of project investment (cycle)
● The percentage of investment may differ for different projects depending upon the nature
of the project

Project Cycle Management

● It manages the appraisal, planning, implementation and organisation of the project
● The PCM plan is expected to guide all the entities of the project effectively and efficiently
along with their roles
● The following need to remain intact
○ Identification of niche stakeholders,
○ client orientation,
○ ranking of the goals and objectives at each stage of the project cycle,
○ creation of project schedule,
○ identification of short-term and long-term interventions/preconditions and
assumptions.
○ Identification of risk at each stage of the project and identification of deliverables
at each stage of the project along with
○ sustainability of the project
● Each objective must relate horizontally and vertically to get the best results

● The overall planning schedule and responsibility matrix at the macro as well as micro
level
● Parameters for verifying the performance of each entity of the project at each stage of
the project need to be stated
● Assumptions and pre-conditions are also required to be defined
 ● Corrective measures to ensure project sustainability should be included in the Project
design
● Close scrutiny of such measures needs to be undertaken from time to time

Origin of Project Appraisal

● Project appraisal has its origin in the cost-benefit analysis (CBA)

Working of Cost Benefit Analysis

● All the costs and benefits associated with the project are expressed in monetary terms
● Then all the cash flows, both benefits and costs are discounted for the time value of
money
● Finally, all the discounted cash flows of both costs and benefits are expressed on a
common basis in terms of their “net present value.”

● Social Cost Benefit Analysis (SCBA): The main point of difference between SCBA and
CBA is that SCBA considers all the intangible benefits and costs associated with the
project and converts them into monetary value/costs

Cost Benefit Analysis of Private and Public Sector Projects

● The same technique i.e., Discounted Cash Flows and determination of Net Present
Value is followed by projects in both sectors but the assessment, evaluation and decision
process are distinctly different

● Firms in the private sector have the primary objective of maximizing returns to
shareholders and generating a healthy surplus for their growth and expansion
● In contrast, the firms in the public sector have to follow a much more complex evaluation
of their net present value

● Public Sector
○ The objective of CBA in the case of public sector enterprises is to maximize
public welfare
○ Monetary benefits alone take a backseat in such cases

○ Significant Features
i. A consistent approach which can be applied to a wide range of
Government projects. The approach helps in comparing alternate projects
w.r.t. economic welfare and finalising the best project
ii. The discounting techniques are now well understood by all. This helps in
the optimisation of resource utilisation and at times even helps in
curtailing cash outflows
iii. The concept of economic welfare has developed well as an alternative
technique for the evaluation of public sector projects and is now popularly
considered as a parallel approach to financial analysis of private sector
units
Chapter 2 .

Introduction
● Market Analysis is the analysis of a market in terms of its attractiveness for investment in
a given business idea

Business Idea
● A relevant and practical idea ensures adequate consumer demand for the product and
early break-even
● The spirit of the entrepreneur plays a great role in the success and failure of the idea

Entrepreneurial Creative Ideathon

● Creative Ideation refers to the process in which ideas are generated creatively whereas
● ECI refers to the indomitable spirit of the entrepreneur which is responsible for selecting
a creative idea that the entrepreneur believes strongly about

Creative Ideation Process

Psychological Needs Gap Analysis
● It is imperative that the startup addresses a ‘real’ need of the consumer
● This can be done through systematic studies of the market or through the natural
observation of the daily lives of others by the entrepreneur
● Need-based market segmentation can be helpful in identifying the requirement of the
new product for customers of different categories

Information Sources
● Data can be obtained through primary surveys of consumers, households and dealers to
find out about the business idea viability from all points of view
● Secondary data on industries can be obtained from the internet and published material
from states' and municipalities’ manufacturing directories
● Demographic data and population trends data which used to be rare earlier, are also
available online today

Comparison and Screening

● Preliminary screening is a process to weed out the ideas where the probability of
success seems to be bleak

● It further attempts to rank the remaining ideas on the basis of their possibility of being
successful
Causes of Failures of New Product Ideas

The Success Mantra

Project Rating Index

● The steps to formulate PRI begin with identification of different factors essential for the
success of the project
● This is followed by attaching weights to each factor and their rating at a scale
● Finally composite factor score is calculated
Market Feasibility Analysis
● Explore existing and potential future demand for the product as well as the competition
● The market feasibility study is basically the search for identification and quantification of
the market for the present business idea

Steps of Market Feasibility Analysis

Understanding the Market
● A market is basically a space for acts of exchange

● There are numerous factors besides price which have an impact on the demand and
supply of the product and hence price
● Change in taste of the consumer, availability of an alternate product, change in fashion,
change in income of the consumer or even a change in law or macroeconomic variables
lead to shift
● All these factors are otherwise assumed to be constant for determination of price

Factors Affecting Demand and Supply

Market Gap Identification

Estimating Market Size

● Market Size: the volume and value of the products or services consumed presently, and
expected future consumption

1. Supply-Side Measures
○ Volume and value are measured from the point of view of production, i.e. how
much is the existing production and the possibilities of producing more as per the
future demand vis-à-vis finding out the cost, availability of the raw material,
labour and technology etc

𝑆𝑚 = 𝐺 + (𝑀 − 𝑋)
Where,
𝑆𝑚: Total Size of the Market from Supply Side
𝐺: Production of goods at present
𝑀: Present Share of Imports of the Products
𝑋: Present Share of exports from the existing production

2. Demand-Side Measures
○ Market size is derived from studying the behaviour of the consumers in the
market

𝐷𝑚 = 𝑃𝑄𝑁
Where,
 𝐷𝑚: Total Size of the Market from Demand Side
𝑃: Average Price charged at present
𝑄: Total Quantity purchased by the Consumers in the given period
𝑁: Total Number of Customers

Conduct Situational Analysis of the Market

● This is an informal investigation exercise to assess the product’s relationship to its
market by using the information which is readily available
● Simply put, it is a SWOT analysis wherein an internal analysis of the project’s strengths
and weaknesses is done and opportunities and threats in the external environment are
analysed
 ● Situational analysis may be used in situations where there is a shortage of time or
budget and the data gathered using informal market analysis may be used to reach a
decision

Perform a Formal Market Study

● A formal market study involves a collection of secondary data and its analysis
● If this is found insufficient, then one proceeds with exploring suitable means to collect
primary data

Secondary Data
● Material published and available with libraries, various departments/divisions of the
government, universities, central bank of the country, an official statistical data collection
institute of the country

Precautions in Collection of Secondary Data

● The project analyst must check the secondary data for its impartiality, validity and
reliability
Sources of Secondary Data

Primary Data
● Primary data is collected by the analyst with the help of a survey with the purpose of
collecting specific information required for the new product

● Designing a questionnaire
○ Pre-Survey Process
○ Finalise the Sample
○ Sample selection and Analysis
○ Characterise the present market

Industry Structure
Managing Competition

Forecasting of Market Growth

● When historical data of a product’s demand is plotted against time, the resulting curves
portray distinct characteristics of their growth patterns.
● There are typically three types of growth patterns representing the historical market
demand growth pattern for their products
● A linear projection, however, is not always the most suitable way to model growth
patterns for market variables

● (a): represents a situation where sales of a product move in a steady pattern

● (b): The highly erratic growth pattern indicates the influence of non-recurrent forces in
the market.

● These growth patterns can be further categorised as Seasonal, Trend, Horizontal and
Cyclical
 ● The geographic boundaries of the market area influence the accuracy of the forecast

Market Forecasting Techniques

● The demand forecasting technique of a product is based upon
○ current demand for the product,
○ past market demand growth pattern and
○ other market characteristics like
■ budget available,
■ time required to develop the forecast and
■ the desired accuracy
● The forecast is usually for a period of three to five years into the future

● Statistical forecasts i.e., time series and correlation analysis are frequently used to
provide baseline estimates of future market demand
● These baseline estimates provide a starting point for considering factors which
although not important in the past, may be influential in the future

1. Judgement Forecasts
○ based on intuitive and subjective evaluations
○ not considered appropriate

2. Survey Forecasts
○ based on surveys of individuals who constitute the market
○ Though the forecast technique attempts to take into consideration the opinions of
diverse people connected with the product this is also subject to certain
limitations
○ However, such surveys are always helpful in the identification of causal variables
which provide insight into the market or need to be considered in the correlation
analysis

○ Survey of Buyer Intentions

■ can consume a great deal of time and money
■ is most applicable for industrial products, for consumer durables, and for
new products for which no data is available

○ Sales force opinion

■ the sales forecast for the firm can be made by taking the opinion of the
sales force
 ■ This method is especially appropriate if the product under consideration is
similar to the existing product line of the firm
■ The major limitation to using this technique is that the individual
salesperson tends to be either overly optimistic or pessimistic, depending
on the economy and this necessitates adjustments to his forecast

○ Executive Composite
■ the executive composite gathers individual opinions on which to base an
aggregate forecast
■ The major advantage of this technique is that the opinions of executives
involve broader economic considerations as well as a wider range of
activities

○ Expert Composite
■ A survey of expert opinions is similar to both the sales force composite
and the executive composite
■ it can be made quickly and inexpensively

○ Independent Forecasts Composite

■ The analyst can examine existing forecasts and arrive at a composite
forecast by adjusting these forecasts in terms of his assessment of the
individuals who made them

3. Time Series Forecasts

○ rely on the basic assumption that past growth patterns will continue into the
future
○ Since factors other than time influence demand, the inherent weakness of this
technique is that its usefulness is limited to the immediate future, for example,
one to three years depending on the product

○ Secular Trend Analysis

■ Extrapolation of the market trend can be accomplished using two simple
techniques
1. The market during the next time period is assumed to be equal to
the market during the time period most recently past
2. The rate of change between the last two time periods is figured
and this rate of change is then applied to the most current time
period to obtain a forecast for the future period

■ The mathematical technique of least squares can be used to fit a trend

line to the plotted data points is preferred as against drawing a straight
line freehand

○ Seasonal and Cyclical Variation

 ■ forecast based on market trend does not include seasonal and cyclical
elements
■ if the forecast interval is annual, the seasonal factor does not need to be
considered
■ The easiest way to calculate a seasonal monthly index is to average all
the figures for a specific month

○ Ratio-to-Moving Average
■ sales for a given month can be compared to a moving average, which
does not contain any seasonal effects because it encompasses a twelve
month period
■ The ratios for a given month over several years can then be averaged in
order to obtain indexes of seasonal variation which, when applied to the
trend cycle component, yield a forecast that includes the seasonal
element

○ Exponential Smoothing
■ It is a time series technique which can produce efficient and economical
short range forecasts of upto twelve months
■ With exponential smoothing, the greatest weight or influence is assigned
to the most recent data

4. Correlation Analysis
○ Most objective
○ Correlation analysis determines the degree of relationship between the market,
the dependent variable, and the independent variable, such as personal income,
and indicates to what extent a linear or other equation describes or explains the
relationship between the variables
○ The most common technique used in correlation analysis a simple line correlation
analysis. Therefore the relationship between the dependent and independent
variables must be linear
Develop the Sales and Marketing Plan

Digital Marketing: The New Frontier

Case Study: Peppertap Shutdown
Running Case
Chapter 3 .

Introduction
● Technology draws heavily on scientific advances and the understanding gained through
research and development. It then leverages this information to improve both the
performance, productivity and overall usefulness of products, systems, and services

● Technology strategy is an integral part of the business strategy preparations

● Technical analyses of a project is aimed at ensuring that the project has been clearly
spelled out with the correct technical design details (such as size, location, timing, and
technology) and that the required materials have been correctly determined and their
source identified

Technical Appraisal Decision Tool

● The tool aims to assess the feasibility of the project from a technical viewpoint including
its cost-benefit analysis
Project Identification
● aims to identify the most optimal project with a focus on all the broad aspects of the
project viz., market capacity, resources, the technology investment outlay and
information management amongst others
● Under market capacity of the product, need gap analysis is performed. This helps to
identify the requirement of the product in different markets
● It is easy to list out the resources required by the firm for the project in hand
● The present and future requirement of resources in terms of fixed investment,
manufacturing cost and related expenses, start-up cost, maintenance cost can be
estimated
● technology investment outlays & cost involves estimation of the cost of technology to
be used, infrastructure, detailed design cost in terms of stock room, die-casting, shaft
machinery, receiving & shipping, shaft stock storage, administrative offices etc
● the promoter must give due attention to information management wherein he must
collect information about product design/quality/service, market sales & delivery, capital
availability and availability of labour both skilled as well as professional
Scope and Impact of Technology
● most comprehensive assessment of the project takes place from the technical and
technological viewpoint
● The promoter evaluates the requirement for the new product manufacturing. He explores
the requirement of development of any new technology and whether the same needs to
be developed at the in-house R&D division or acquired from outside
● the specific manufacturing program/plan is rolled out which includes the estimation of
projected production requirements with a time schedule, production methods &
equipment, material handling, methods & equipment, inventory needs, personal
requirements, space requirements and all costs (fixed, manufacturing and start-up)
● The production schedule is a specific manufacturing program which includes
production safety stock & reflect, efforts to operate at a planned constant production
rate. It includes the projected production requirements, with the time schedule.
● Once the promoter is aware of projected production requirements, he must focus on
material, input and inventory requirements. This minute assessment helps in arriving
at an approximate variable cost involved in manufacturing the product
● the promoter must carefully evaluate the requirements for setting up a smooth supply
programme
● The plant must be created in tune with the demand and supply requirements for the
product
 ● This shall also give an idea about the requirement of inputs to fulfil the demand & supply
needs
● The promoter must specify the phasing of activities and expenditure during
construction and prepare a flow chart of all the product information

Product Information
● focusses on analyzing all the features of the product and accordingly help in making an
informed decision about technical feasibility of the product

● The process and design of the product is the sequence of operations, moves and
inspections by which raw material inputs are converted into finished products for the
consumer
● All quality levels needs to be maintained for the product
● service requirements of the product assume great importance
● Promoter must ensure the feasibility of providing effective after-sales service (preferably
at the doorstep depending on the type of product) for the product
Project Schedule

● The organizational set-up must be clearly decided and tasks distributed appropriately
as per the skills of individuals
● A clear physical layout of the factory premises must be finalized so that there are no
ambiguities at the time of implementation
● MoUs or agreements for continuous supply of raw material must be entered into to
ensure that there is no disruption in the raw material flow schedule
● Logistic mapping should be done properly to ensure minimum delays and appropriate
storage arrangements
● The investment outlays for all the above facilities in addition to structure and civil work
and communication layout must be evaluated so as to take an informed decision

Technology Implementation Schedule

● An elaborate process beginning from purchase of technology to finalizing the place for
installation of machine
 ● Once technology and vendor are finalized, promoter needs to finalise the location and
begin work for site development
● The site must be chosen and developed as per the need of the technology so as to
minimize trouble at the implementation stage
● Once the structure is in place, he must plan for his critical period and ensure timely and
sufficient availability of inputs
● This step of technical appraisal concludes with estimation of payment to suppliers,
distributors, salaries to employees and outdoor work and placing of investment

Consideration of Alternatives
● the complete evaluation (judgment) criterion for making the final choice
● the promoter must assess the various alternatives on the basis of function that they shall
be performing
● This shall be followed by technical screening wherein various alternatives would be
evaluated on their working process respectively along with their preconditions which
need to considered and assessed for the final adoption
● alternatives would be analysed on marketing criterion wherein information is collected
about the number of competitors who are using different alternatives of the technology
● all the alternatives are compared for their acquisition and funding.
● Finally, the various alternatives are gauged for the process used to manage the
respective project
Life Cycle Costs and Benefits of the Project

Risk Analysis of the Adopted Technology

● may include the expected risk description, its impact on the rate of return due to potential
project delays or cost overrun, and steps to control the risk
● Error in designing, the scope of change, inappropriate and inadequate procurement and
complexity are few reasons for a delay in project implementation
● Steps like rigorous project appraisal, setting up of standing committees, computerised
monitoring system, fixation of duties, project coordination between states and centre to
remove bottlenecks can help bring down such delays
Project Cost Benefit Analysis
● make a sum total of project cost which includes the project initiation cost as well as its
annual maintenance cost
● a sum total of all the benefits protruding from the implementation of recommended
technology alternative are calculated
● Once the final project costs and benefits have been calculated, the promoter can
comfortably take a call on technical feasibility of the project

The Lender’s Analysis

Key Aspects of Technology
● The key to achieving technological competitiveness is the commitment of the technical
staff and the managers in this challenging and complex culture

Technology Base
● The managers and technical staff of the company need to assess their own in house
technological assets (research labs, patents, infrastructure), organizational assets
(customer base) and complimentary assets (global customer base). Etc

● Based on the strength of the technological base of the company, the new development
processes w.r.t. products, services and new technology can be adopted

Technology Life Cycle

● The technology life cycle is concerned with the time and cost of developing the
technology, the timeline of recovering cost, and modes of making the technology yield a
profit proportionate to the costs and risks involved
● The Technology Life Cycle may further be protected during its cycle with patents and
trademarks seeking to lengthen the cycle and to maximize the profit from it
● The development of a competitive product or process can have a major effect on the
lifespan of the technology, making it shorter
● The loss of intellectual property rights through litigation or loss of its secret elements (if
any) through leakages also works to reduce a technology’s lifespan

● The s-curve
○ maps growth of revenue or productivity against time
○ derives from an assumption that new products are likely to have “product Life”

○ The first stage is the new invention period, also known as the embryonic stage.
The new invention period is characterized by a period of slow initial growth.
○ The second stage is the technology improvement period, also known as the
growth stage. The technology improvement period is characterized by rapid and
sustained growth
○ The third stage is the mature-technology period. The technology becomes
vulnerable to substitution or obsolescence when a new or better-performing
technology emerges
○ The decline (or decay phase), of reducing profits and utility of the technology
● Technology Life Cycle and Market growth
○ A very strong and dynamic relationship exists between technological innovation
and the marketplace
○ It is only when technological developments find an appropriate market that
scientific research pays off and the development cost is reimbursed in economic
or social terms

● Technology Development Phase or Embryonic Stage

○ period in which scientists and engineers spend significant amounts of effort and
money to create the technology, develop prototypes and test the new technology
○ The goal of any R&D manager should be to minimise this time period since it is
very expensive and does not produce revenue
○ This progress is characterized by slow initial growth during the launching period

● Growth Phase
○ the technology penetration into the market depends on the rate of innovation and
the market needs for the new technology
○ The growth rate slows down as the technology approaches its maturity
○ Companies that continue to use the old technology in this phase will be faced
with a shrinking market share and a fall in revenues

● Technology Obsolescence Phase

○ the technology has little or no market value
 ○ the firm has the option to adopt or invest in latest technology, out for technology
tie-ups and revive the firm or close down due to lack of demand for the product
manufactured using obsolete technology

● Portfolio of Technologies
○ an organization is generally required to manage a portfolio of technologies
○ The technologies within the portfolio are inter-related and influence each other

○ Key Technologies
■ These technologies provide competitive advantage
■ They may permit the producer to embed differentiating features or
functions in the product or to attain greater efficiencies in the production
process

○ Pacing Technologies
■ These technologies could become tomorrow’s key technologies
■ Not every participant in an industry can afford to invest in pacing
technologies
■ this is typically what differentiates the leaders (who do) from the followers
(who do not)

○ Base Technologies
■ These are technologies that a firm must master to be an effective
competitor in its chosen product-market mix
■ They are necessary, but not sufficient, to achieve competitive advantage
● In the early phase of growth stage of the technology life cycle, the new technology helps
to expand the market size for the product or service offered. The technology becomes a
pacing technology in that it has the potential to change the basis of the competition
● Technology in this phase of the growth stage is known as a key technology, and a
company should increase its capabilities in this area to compete
● When the technology reaches a stage of maturity and the rate of innovation declines, it
becomes a commodity, available to all competitors. Technologies in this category are
also recognized as base technologies
● Mature technology is continuously threatened by the substitution of newer technology
Chapter 4 .

Payback Period
● The technique focuses on the time period (months/years) taken to recover the initial
capital invested
● In case of mutually exclusive projects, the project which takes least time period for
recovery of initial capital is preferred

● Advantages
○ Easy and simple method to evaluate small projects with a similar life span
○ Considers only the cash flows till the recovery of capital rather than accounting
profits

● Disadvantages
○ Does not give any consideration to cash flows generated after the payback
period. Hence, the method does not focus on wealth maximization by looking at
the returns generated through the project’s life span
○ The method does not consider the time value of money and cash flows are
simply added to each other

Net Present Value

● It overcomes both shortcomings of the non-discounting methods viz., consideration of
time value of money and considers all the cash flows throughout the life span of the
project

● If NPV is higher than zero, then investment in the project is worthwhile

● Advantages
○ Considers Time Value of Money
○ Evaluation includes all the cash flows during the life span of the project
 ○ The discounting process reduces all the cash flows to their present value making
them equivalent to the current payment. This makes them eligible for addition,
hence NPV of projects can be added

● Disadvantages
○ Any wrong assumption or discrepancy in the cash flow would affect the entire
valuation
○ At times, NPV is not considered suitable for projects with dissimilar life, dissimilar
initial investment and similar constraints
○ NPV gives result in terms of absolute value which may not be able to indicate
with return on Investment