AaRVF’S BI-MONTHLY JOURNAL I VALUERS’ BULLETIN
INSPECTION AND
SANJAY PATEL
BEng, IBBI Regd. Valuer
(Plant & Machinery)
Expert faculty for M. Sc. in Valuation,
Institute of Science
& Technology for Advance Studies
And Research (ISTAR)
Having 14+ years of experience in
the Valuation of P&M and Real
Estate (Tangible Assets) for the
Purpose of Financial Statement,
Accounting, Insurance, Merger &
Acquisition, Liquidation,
Disinvestment, etc.
Conducting lectures as an expert
faculty at various Universities and
RVOs in India.
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INVESTIGATION
(PLANT & MACHINERY
VALUATION)
Inspection and investigation are two distinct processes
conducted as part of assessment and due diligence
activities. Inspection is commonly performed to verify the
physical state, quantity, quality, and compliance with
guidelines and to gather relevant data for valuation. On
the other hand, investigation involves a more in-depth
examination, analysis, and fact-nding process. It involves
conducting research, interviews, computations, or data
analysis to uncover facts that are not readily visible during
an inspection.
Inspection and Investigation of plant, machinery &
equipment (PME) for valuation purposes requires expertise
and more effort compared to other tangible assets, as it
may be signicant in numbers, challenging for identication
& accessibility, and other reasons.
The inspection and investigation process may involve
evaluating both continuous and non-continuous plant
processes. A continuous processes plant refers to a plant
that is designed to operate 24 hours a day and has
signicant shutdown and/or start-up costs, such as a power
plant, cement plant, etc. On the other hand, non-
continuous processes plant involves continuous, interval, or
 VOLUME - 3 / ISSUE NO. - 1 I DEC-JAN, 2024 I VIEW POINT
random operations but do not have signicant shutdown
and/or start-up costs.
The assemblage of PME items in manufacturing processes
can differ signicantly, so it's crucial to comprehend the
specic congurations and connections between
various components. This requires a thorough
understanding and experience to accurately identify
and evaluate the signicance of each item and its
contribution to the overall process. Furthermore,
accessibility can pose a challenge during the inspection
process. PME is frequently integrated into a company's
production or operational processes, making it
challenging to access and examine some equipment.
Inspection and Investigation is a process that requires a
physical examination of the asset being valued, along
with the scrutiny of any relevant documents or records
associated with it. It involves seeking information from
various sources, such as the client, industry experts, and
other stakeholders.
When conducting a valuation, the inspection and
investigation must align with its purpose and basis of
value. The purpose of a valuation assignment can vary
depending on the specic needs, such as determining
the market or fair value for buying or selling machinery,
assessing the depreciated or replacement cost for
insurance purposes, or estimating the value for nancial
reporting. As a result, a tailor-made inspection and
investigation process is necessary to ensure that the
valuation is accurate and relevant to the specic
purpose of the assignment.
The basis(es) of value may include market value, fair
value, investment value, equitable value, or liquidation
value. It is crucial to have a clear understanding of the
specied bases of value and ensure that the inspection
and investigation are conducted using appropriate
methodologies and industry-accepted standards.
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1. Inspection
An inspection is awfully important when it comes to
valuing plant and machinery. It helps to identify the
physical condition, existence, nature, and characteristics
of the asset. It also allows for the verication of
documentation related to the assets, ensuring that the
information used in the valuation process is authentic. The
inspection enables the evaluation of risk factors such as
serviceability, marketability, and any potential legal or
operational risks associated with the asset.
To conduct an effective inspection, the collection of
data and information requires consideration of both
macro and micro identication.
1.1. Macro-Identication
Macro-identication is the process of collecting data for
the entire manufacturing facility to assess its operational
efciency in various areas, such as technical, social,
legal, and nancial. It involves gathering information on
the facility's technological capabilities, social impact,
compliance with legal regulations, and nancial
performance.
The data collection of macro-identication for the
valuation process of PME may include a brief history of the
company with the date of commencement and
management, installed capacity and capacity
utilization, expansion of capacity and products, products
and by-products, process layout and inefciency (if any),
maintenance policy and allocation of cost for
maintenance, energy consumption, and its efciency,
nos. of shift for operation or operating hours in a day,
availability of mandatory spares, required statutory
permissions and licenses, suitability of location, stafng
and qualication, overall condition, working
environment, quality of nished goods, nancial, and
other relevant data.
 AaRVF’S BI-MONTHLY JOURNAL I VALUERS’ BULLETIN
‘Macro-identication develops a broad understanding
of technical, operational capability, cost structures,
economic performance, and regulatory compliance of
entire manufacturing facility.’
1.2. Micro-Identication
Micro-identication is the process of gathering specic
information about an individual asset, including its
characteristics and functionalities.
When evaluating PME, the data collection process for
micro-identication usually involves gathering
information about the asset's name, manufacturer,
capacity, size or dimensions, model, type, serial number,
function, material of construction, year of
manufacturing, date of commissioning, condition, other
tangible, and intangible attachments, drives and panel,
foundation, energy consumption, and other relevant
data.
'Micro-identication allows for a detailed understanding
of an asset's condition, quantity, nature, and
characteristics at an individual level.’
A) Inspection of CPP
A Continuous Processes Plant (CCP) refers to a facility
that is specically designed to operate non-stop for 24
hours a day. This type of plant usually incurs signicant
costs for shutdown and start-up, as seen in industries
such as crude oil rening, chemical, fertilizer, and
thermal power generation, among others. The
production process involves feeding materials
continuously into the plant, undergoing processing or
transformation, and outputting nished products
continuously.
Complex Production Plants (CPPs) are typically large
due to the intricate machinery, equipment, and other
necessary infrastructure required for the production
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process. The product layout plan is commonly
employed in CPPs, which involves arranging a
sequence of complex machinery and equipment to
optimize the ow of materials and ensure efcient
production. The design of the plant is based on the
desired range of products and the required capacity.
Machinery and processes are carefully chosen to meet
the production requirements. Utilities and other
necessary equipment are also integrated into the plant
design to support continuous operation.
Before inspecting a CPP, it is needed to understand the
production process and the plant, machinery, and
equipment installed. This understanding assists in
conducting an ABC analysis for inspection purposes.
ABC analysis involves grouping the machinery and
equipment into different categories based on their
function, signicance, and magnitude within the
production process. This categorization helps prioritize
inspections and focus on key areas.
The grouping or classes of machinery and equipment
can be categorized into various forms based on their
function and purpose such as process or production
machinery, utility, electrical installation, control system,
piping, cabling, material handling, laboratory,
locomotive, tools & xtures, etc.
Based on the complexity and scale of the assets,
inspection of various groups can be conducted at
different levels and some common approaches are:
• Individual Level: process or production machinery,
utility, etc.
• Group of Assets Level: Electrical installation, control
system, piping, cabling, etc.
• Sample Basis: Material handling, laboratory,
locomotive, etc.
• Whole / Lot Basis: Tools, dies, mould, xtures, etc.
 VOLUME - 3 / ISSUE NO. - 1 I DEC-JAN, 2024 I VIEW POINT

It should be noted that the signicance and importance
of grouped assets may vary from industry to industry, and
it is essential to take sufcient due care before selecting
an inspection approach.
B) Inspection of non-CPP
Non-Continuous process plants (non-CCP) involve
continuous, periodic, or random operations, but have no
signicant shutdown and/or start-up costs, such as
pharmaceutical, food processing, textile, paint, etc.
Non-CPPs are usually smaller or medium-sized industrial
facilities, and they comprise machinery and equipment
that are necessary for carrying out a particular
production process. The process or product layout plan is
employed, which requires arranging machinery and
equipment in a sequence of processes or section-wise.
Non-CPPs usually have a lower capital investment
compared to continuous process plants, as they require
fewer specialized equipment and systems.
Before inspecting a non-CPP, it is needed to understand
the production process and the plant, machinery, and
equipment installed.
Due to less complexity in non-continuous process plants, it
is recommended to conduct inspections at both the
individual asset level and the group of assets level. Each
process machinery with utilities and equipment should be
assessed individually to ensure it is function and condition
and its supporting assets like electrical installation or
piping can be assessed at a group of assets level to
ensure proper integration and overall performance.
To ensure the accuracy and reliability of data collected
during inspections, both macro-identication and micro-
identication methods should be utilized and cross-
checked against various sources. It may involve a survey
of publicly available data or information, such as
governmental data, published reports, industry
publications, interactions with competent authorities or
government departments, interviews with experts, and
other reliable sources. Additionally, historical information
can be analyzed by studying annual reports and
statutory submissions to competent authorities.
Conducting a market survey to determine the demand
for a product, availability of raw materials, level of
competition, and compliance with industrial policies,
regulations, and guidelines is necessary for developing a
quantiable approach. Additionally, trend analysis of
pricing, industry sector performance, and economic
parameters is necessary. To gather information for the
analysis, primary data collection, research and analysis
reports, industry-specic magazines, and economic
indicators must be studied.
Investigation is a key component of the valuation
process. It ensures the accuracy, reliability, and
transparency of the data collected during the valuation
process. Additionally, it safeguards the integrity of the
valuation report, enhances its quality, and instills
condence in stakeholders regarding the valuation
results.

2. Investigation

Investigation is a systematic process of in-depth

examination, analysis, statistical calculation, and fact-
nding, which includes research, interviews, and data
analysis to uncover the facts.

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 AaRVF’S BI-MONTHLY JOURNAL I VALUERS’ BULLETIN

3. Guidance of Standards 4. Importance

• The inspection, investigation, and research
• It improves the accuracy, reliability, and
conducted during a valuation process should be
transparency of the valuation process.
in line with its specic purpose and chosen basis of
value. Different purposes and bases of value may • It eases the understanding of the asset on an
require a customized investigation process. individual basis, as well as the manufacturing
facility's overall operational and nancial
• Gathering of adequate evidence involves various
efciency and benets in recognition of required
methods, including inspection, market survey, and
adjustments.
statistical calculation & analysis to ensure that the
• It supports for adoption of a suitable approach
valuation is appropriately supported for valuation
and method to value. The study of macro-
purposes and bases of value. By using skill and
identication and peer analysis can offer useful
knowledge, exercise must be made to ensure that
insights for the adoption of the income approach
the information and data as part of the evidence
while studying micro-identication and modern
are sufcient and appropriate to meet the
equivalent assets can help to adopt the Market
valuation purpose.
Approach and cost approach.
• The extent and limits of inspection and
• It helps in the quantication of both operational
investigation should be documented as a part of
and economic obsolescence through analysis
the scope of work, which decides the level of
and statistical calculation.
depth and detail needed to gather evidence.
• It is benecial to evaluate the production facility's
However, sufcient analysis should be done to
competitive position and any associated risks.
evaluate all inputs and their reliability, relevance,
quality, and appropriateness for the valuation
purpose.
• Data and information for valuation supplied by the
management or client needs consideration,
investigation, and conrmation. If there are
concerns about the credibility or reliability of the
information provided, it should be used
strategically, depending on its signicance. In
situations where the credibility or reliability of the References:
information provided by management and
owners cannot be established, it should document 1 International Valuation Standards (IVS), 2022
the reasons for not relying on the information or for 2 European Plant, Machinery & Equipment Valuation
adjusting assumptions. Standards: 1st Edition – 2022

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