Bba G Unit-II Pm-302 E-Notes

Chanderprabhu Jain College of Higher Studies
&
School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt. of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi and
Approved by Bar Council of India)
E-Notes
Class : BBA (G) VI Semester
Paper Code : BBA (G)-302
Subject : Project Management
Faculty Name : Mr. Kamal Batra
UNIT-II
Project Identification and Formulation:

A project in the economic sense directly or indirectly adds to the economy of
the Nation. However an introspection of the project performance clearly
indicates that the situation is far from satisfactory. Most of the major and
critical projects in public sector that too in crucial sectors like irrigation,
agriculture, and infrastructure are plagued by tremendous time and cost
overruns. Even in the private sector the performance is not all that satisfactory
as is evident from the growing sickness in industry and rapid increase in non-
performing assets (NPAS) of Banks and Financial Institutions. The reasons for
time and cost over runs are several and they can be broadly classified under-
technical, financial, procedural and managerial. Most of these problems mainly
stem from inadequate project formulation and haphazard implementation.
Project Identification
Project identification is an important step in project formulation. These are
conceived with the objective of meeting the market demand, exploiting natural
1
&
School of Law
resources or creating wealth. The project ideas for developmental projects come
mainly from the national planning process, whereas industrial projects usually
stem from identification of commercial prospects and profit potential.
As projects are a means to achieving certain objectives, there may be several
alternative projects that will meet these objectives. It is important to indicate all
the other alternatives considered with justification in favor of the specific
project proposed for consideration. Sectoral studies, opportunity studies,
support studies, project identification essentially focuses on screening the
number of project ideas that come up based on information and data available
and based on expert opinions and to come up with a limited number of project
options which are promising.
Project Formulation
Project Formulation Concept
“Project Formulation” is the processes of presenting a project idea in a form in
which it can be subjected to comparative appraisals for the purpose of
determining in definitive terms the priority that should be attached to a project
under sever resource constraints. Project Formulation involves the following
steps (Figure 1).
PROJECT FORMULATION
↓
OPPORTUNITY STUDIES/Support Studies
↓
IDENTIFICATION OF PRODUCT/SERVICE
↓
PREFEASIBILITY STUDY
2
&
School of Law
↓
FEASIBILITY STUDY
(TECHNO ECONOMIC FEASIBILITY)
↓
PROJECT APPRAISAL
↓
DETAILED PROJECT REPORT
Figure 1. Project Formulation –Schematic view
Opportunity Studies
An opportunity study identifies investment opportunities and is normally
undertaken at macro level by agencies involved in economic planning and
development. In general opportunity studies there are three types of study – Area
Study, sectoral and Sub-sectoral Studies and Resource Based Studies. Opportunity
Studies and Support studies provide sound basis for project identification.
Pre-feasibility Studies / Opportunity Studies
A pre-feasibility study should be viewed as an intermediate stage between a project

opportunity study and a detailed feasibility study, the difference being primarily
the extent of details of the information obtained. It is the process of gathering facts
and opinions pertaining to the project. This information is then vetted for the
purpose of tentatively determining whether the project idea is worth pursuing
furthering. Pre-feasibility study lays stress on assessing market potential,
magnitude of investment, technical feasibility, financial analysis, risk analysis etc.
The breadth and depth of pre-feasibility depend upon the time available and the
confidence of the decision maker. Pre-feasibility studies help in preparing a project
3
&
School of Law
profile for presentation to various stakeholders including funding agencies to

solicit their support to the project. It also throws light on aspects of the project that
are critical in nature and necessitate further investigation through functional
support studies.
Support studies are carried out before commissioning pre-feasibility or a feasibility

study of projects requiring large-scale investments. These studies also form an
integral part of the feasibility studies. They cover one or more critical aspects of
project in detail. The contents of the Support Study vary depending on the nature
of the study and the project contemplated. Since it relates to a vital aspect of the
project the conclusions should be clear enough to give a direction to the subsequent
stage of project preparation.
Feasibility Study
Feasibility Study forms the backbone of Project Formulation and presents a
balanced picture incorporating all aspects of possible concern. The study
investigates practicalities, ways of achieving objectives, strategy options,
methodology, and predict likely outcome, risk and the consequences of each course
of action. It becomes the foundation on which project definition and rationale will
be based so that the quality is reflected in subsequent project activity. A well
conducted study provides a sound base for decisions, clarifications of objectives,
logical planning, minimal risk, and a successful cost effective project. Assessing
feasibility of a proposal requires understanding of the STEEP factors. These are as
under Social, Technological, Ecological, Economic, and Political.
4
&
School of Law
A feasibility study is not an end in itself but only a means to arrive at an

investment decision. The preparation of a feasibility study report is often made
difficult by the number of alternatives (regarding the choice of technology, plant
capacity, location, financing etc.) and assumptions on which the decisions are
made. The project feasibility studies focus on
 Economic and Market Analysis
 Technical Analysis
 Market Analysis
 Financial Analysis
 Economic Benefits
 Project Risk and Uncertainty
 Management Aspects
Economic and Market Analysis

In the recent years the market analysis has undergone a paradigm shift. The
demand forecast and projection of demand supply gap for products / services can
no longer be based on extrapolation of past trends using statistical tools and
techniques. One has to look at multiple parameters that influence the market.
Demand projections are to be made keeping in view all possible developments.
Review of the projects executed over the years suggests that many projects have
failed not because of technological and financial problems but mainly because of
the fact that the projects ignored customer requirements and market forces.
5
&
School of Law
In market analysis a number of factors need to be considered covering – product

specifications, pricing, channels of distribution, trade practices, threat of
substitutes, domestic and international competition, opportunities for exports etc. It
should aim at providing analysis of future market scenario so that the decision on
project investment can be taken in an objective manner keeping in view the market
risk and uncertainty.
Technical Analysis
Technical analysis is based on the description of the product and specifications and
also the requirements of quality standards. The analysis encompasses available
alternative technologies, selection of the most appropriate technology in terms of
optimum combination of project components, implications of the acquisition of
technology, and contractual aspects of licensing. Special attention is given to
technical dimensions such as in project selection. The technology chosen should
also keep in view the requirements of raw materials and other inputs in terms of
quality and should ensure that the cost of production would be competitive. In brief
the technical analysis included the following aspects.
 Technology - Availability
- Alternatives
- Latest / state-of-art
- Other implications
- Technological parameters
- Components
- Power
- Water
6
&
School of Law
- Fuel
- Others
 Availability skilled man power

 Location
 Logistics
Environmental Impact Studies:
All most all projects have some impact on environment. Current concern of
environmental quality requires the environmental clearance for all projects.
Therefore environ impact analysis needs to be undertaken before commencement
of feasibility study.
Objectives of Environmental Impact Studies:
 To identify and describe the environmental resources/values (ER/Vs) or the
environmental attributes (EA) which will be affected by the project (in a
quantified manner as far as possible).
 To describe, measure and assess the environmental effects that the proposed
project will have on the ER/Vs.
 To describe the alternatives to the proposed project which could accomplish
the same results but with a different set of environmental effects
 The environmental impact studies would facilitate providing necessary

remedial measures in terms of the equipments and facilities to be provided in
the project to comply with the environmental regulation specifications.
7
&
School of Law
Market Analysis:
The process of constructing a competitor analysis requires extensive research and a

thorough, structured approach. This market analysis template provides a starting
point and a structure for the due diligence required when analyzing the competition
and coming up with a plan to overcome the obstacles.
Importance of Market Analysis
Whether you own a small or big business for a short or long period of time, market
analysis is important to ensure that you are staying on top of current market trends.
It gives you an in-depth perception of what drives demand, of what strategies your
competitors are using, of what marketing techniques best fit your products and
services, etcetera. It also helps you reevaluate your current business plan and
strategies so you can maximize business growth.
In other words, market analysis is the cornerstone of any successful business. You
need to perform a market analysis on a regular basis so that you can stay ahead of
the game.
Market Analysis Template Components

Different industries require different types of market analysis. At the same time,
different businesses within the same industry will have to perform different types
of market analysis. But the basic elements of market analysis that you can find in
our market analysis template include the following:
8
&
School of Law
Market description
Your market description will detail the type of market you’re operating in. At the
same time, you need to discuss your market size so that you can have an overview
of how profitable your target market will be. Speaking of profitability, you also
need to include this in your market description. Based on the characteristics of
your target market and its size, how profitable will it be to sell products and
services to this set of customers?
Porter's five forces

After describing your market, its characteristics, size, and profitability, you will
have to discuss Porter's Five Forces. Porter's Five Forces is a framework used to
analyze the market competition. These include
1) The bargaining power of suppliers,
2) The bargaining power of buyers,
3) The competitive rivalry,
4) The threat of substitute products
5) The threat of new entrants.
1- Bargaining Power of Suppliers-The bargaining power of suppliers refers to

how easy it is for your suppliers to increase their prices. You need to determine
this power because, with every increase in your supplier's prices, your net inflow
will be affected. Therefore, you also need to consider the number of potential
suppliers you can do business with, the uniqueness of the products and services
they provide, and the cost of switching your supplier.
9
&
School of Law
2- Bargaining Power of Buyers-The bargaining power of buyers refers to how

easy it is for your buyers to influence your prices to drop. Market research comes
into play when you analyze the bargaining power of your buyers. You need to
determine the number of your buyers and of their orders. You also need to consider
how much it will cost them to switch from your products and services to a rival's.
Lastly, do you have the power to influence your buyers' purchasing behavior, or
does their purchasing behavior dictate terms to you?
3- Competitive Rivalry-Just like your suppliers and buyers, you also need to
familiarize yourself with your rivals. How many rivals currently exist in the
market? What is the quality and quantity of their products and services compared
to what you're offering? Getting to know your rivals also means analyzing their
aggressive price cuts and marketing strategies as these factors can greatly influence
the market's behavior.
4- Threat of Substitute Products-Say you provide banks software that automates

an important financial process. How easy is it for your customers (in this case,
banks) to perform the process by themselves? How easy is it for your customers to
replicate your software? How easy is it for your customers to outsource this
service? These are questions that you'll need to answer when you analyze the threat
of substitute products. Clients will often find a substitute because it will cut their
expenses. If they find a cheaper substitute, then you will experience a huge decline
in your profitability.
10
&
School of Law
5- Threat of New Entrants-How easy is it for new businesses to enter your

market? If your business is in the clothing industry, it may be relatively easier for
new businesses to enter the market than if your business is providing automating
software to banks. You have to analyze the threat of new entrants because more
competitors mean you'll get a smaller share of the market. You want to enter a
business that is not that easy to enter, but also not that difficult for you with your
expertise. Analyze the cost of starting a business in your industry and how
regulated your sector is.
MARKET TRENDS
After studying Porter's Five Forces, you need to analyze market trends, which
means you have to determine your customer's purchasing behavior, your supplier's
influence over prices, the market's price sensitivity, etcetera. These are just some
examples of market trends that you need to keep an eye out for.
Location for an Industrial Plant:
The principle of Industrial Plant Location is that the sum of manufacturing and
distributing cost should be at minimum for the best location. The first two factors
are related with the transportation cost. One should be clear that a plant may be
located near the market as well as near the raw materials site. But in actual
practice, many times, due to some other factors, it is not possible to locate an
industry near the proximity of market as well as raw material.
For economical analysis these factors play an important part:
(a) Following are the factors when an undertaking is located near the raw material
site:
11
&
School of Law
 When source of raw material is likely be the controlling factor.

 When materials are bulky and of relatively low price.
 When materials are small and of high unit price.
 When raw materials are greatly reduced in bulk during the process of
manufacture.
 When raw materials are perishable and process makes them less perishable.
The examples are processing industries, cement, paper, meat, canning (Fruit) etc.
(b) Factors responsible for locating an industry near the market:
 When the size or bulk of the product is more.
 Render it more fragile.
 More subsection about the spoilage.
Examples are shoes, furniture, glassware industries.
(c) While dealing with the economy of labor, the factors responsible are:
 The ratio of labor cost to total manufacturing cost. If the ratio is small then
this factor is not important.
 The possibility of reduction in labor cost by using better methods or better
quality of labor.
 The type of labor required.
For example, the textile industries silk and carpet making industries, sports
goods etc.
(d) Now for the economy and availability of power:
This point is similar to the raw material procurement. If power is generated from
coal, then coal is a raw material. Hence still steel plants are located near the coal-
mines etc.
12
&
School of Law
(e) Other major factor that influences in availability of finance:

But the finance can be obtained from Government agencies. Banks etc. at any
place.
(f) The following factors also influence the layout:
 An offer of a factory site or an existing plant.
 Subscriptions of the capital stock of the enterprise.
 A rebate of taxes and period for which it will remain available.
 Non-reference by local or government bodies.
 The location should not be near the border of the country to safeguard from
risk of war.
 For smooth going, political interference should not be there.
Sd/-
Mr. Kamal Batra
13

Bba G Unit-II Pm-302 E-Notes

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Bba G Unit-II Pm-302 E-Notes

Uploaded by

Copyright:

Available Formats

Chanderprabhu Jain College of Higher Studies

Paper Code : BBA (G)-302

Subject : Project Management

Faculty Name : Mr. Kamal Batra

Project Identification and Formulation:

Figure 1. Project Formulation –Schematic view

Pre-feasibility Studies / Opportunity Studies

A pre-feasibility study should be viewed as an intermediate stage between a project

profile for presentation to various stakeholders including funding agencies to

Support studies are carried out before commissioning pre-feasibility or a feasibility

A feasibility study is not an end in itself but only a means to arrive at an

Economic and Market Analysis

In market analysis a number of factors need to be considered covering – product

 Availability skilled man power

 The environmental impact studies would facilitate providing necessary

The process of constructing a competitor analysis requires extensive research and a

Importance of Market Analysis

Market Analysis Template Components

Porter's five forces

1- Bargaining Power of Suppliers-The bargaining power of suppliers refers to

2- Bargaining Power of Buyers-The bargaining power of buyers refers to how

4- Threat of Substitute Products-Say you provide banks software that automates

5- Threat of New Entrants-How easy is it for new businesses to enter your

 When source of raw material is likely be the controlling factor.

(e) Other major factor that influences in availability of finance:

Mr. Kamal Batra

You might also like