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A non repetitive activity Involves large capital

Returns over a long period of

Requires significant managerial


The purpose of Project Appraisal is to ascertain

whether the project is sound technically, economically, proposition. Requires skills of

Psychologist Engineer Financial Analyst




and is ultimately viable as a commercial

Factors Considered while Appraising a Project

Technical Factors Financial Factors

Economic Factors Social Factors Commercial Factors Managerial Factors

This requires a description of the products its major uses ,scope of the market , possible competition from the substitutes ,special features of the product proposed to be manufactured in regard to quality and price which would result in consumer preference for the product in relation to competitive products.

Market analysis include description of competition ,marketing channels, potential customers and potential for related and new markets. Marketing strategy should cover Specific marketing techniques to contact and sell to potential customers Pricing plans Planned sales force and selling strategies for various

Methods of demand forecasting

Analysis of demand for the product proposed

to be manufactured requires collection of data and preparation of estimates. Estimation of demand requires the determination of total demand for a product and the share that can be captured by the unit through appropriate marketing strategies The commonly used methods for demand forecasting are trend,regression and end use

Market analysis
It enables the unit to establish pricing,

distribution and promotion strategies that will enable to become profitable within a competitive environment.
Market analysis starts by defining target

customer ,the resultant market in terms of size,structure,growth prospects, trends and sales potential .

Defining the market Positioning the product and pricing Distribution and promotion

Competitive analysis

Defining the market

After identifying the target market the feasible

market has to be selected by concentrating on product segmentation factors (geographic, demographic ,synchrographic and psychographic).
The unit share in the total feasible market is tied

to the structure of industry, the impact of competition, strategies for market penetration and continued growth.
Market share depends on industry growth which

Positioning the product and price

Position strategy will help fulfil the firms

objectives by establishing its identity in the eyes of buyer.

It is usually the result of analysis of

customers and competition.

Pricing decision has a direct effect on

marketing and financial success of the business.

Price may be determined on a cost plus

basis as practised by manufacturers to

Distribution and promotion strategies

Choice of distribution channel depends on

channel being used by competitors and the strategic advantage it would cover.(direct sales ,wholesale distributor, retail, broker, and direct mail). It is also based on factors such as pricing methods and internal resources. A promotional plan consist of controlled distribution to sell the product and includes marketing tools like advertising,packaging,public relations,

The purpose of competitive analysis is to

Competitive analysis

determine the strengths and weakness of the competitors. Strategies that will confer a distinct advantage ,barriers that can be raised in order to prevent competitor from entering the market and any weakness that can be exploited with in the product development cycle.
Competitive strategies usually fall into

product,distibution,pricing,promotion and

2)Technical Appraisal
Primarily concerned with the project

concept covering technology ,design ,scope and content of the plant as well as the input and infrastructure facilities envisaged for the project.
It has a bearing on the financial viability

of the project as reflected by its ability to earn satisfactory return on the

It comprises various important aspects such as

1. Plant capacity 2. Degree of integration 3. Facilities for by-product recovery 4. Flexibility of the plant

Capacity of plant
In traditional manufacturing system capacity is the maximum output attainable .The operating condition which influence capacity are
1. 2. 3.

Product specification Product mix Raw material composition The concept of capacity is however meaningless in flexible manufacturing due to multiple outputs. It is defined in terms of machine hour.

Flexibility of plant and flexible manufacturing system

While assessing a project flexibility should

be allowed in design of individual pieces of equipment.

Flexible manufacturing systems are the

emerging systems to manufacture what the customer wants.

These systems help in production of large

variety of products in small batch sizes

Evaluation of Technology
Out standing feature of technology process,

engineering design and plant and machinery are the established facts and can be checked from published information on the process or from prospective consultant and on the basis of similar plant in operation else where .
Considerable skill is required in evaluating the

claims of emergent technology, product and equipment design.

The design and layout of plant in technical

In technical appraisal inputs are scrutinised for availability

and quality dependability e.g. power quality has to be checked in terms of voltage and line current frequency.


The desirable factors to be taken into account while determining location are proximity to market and inputs preferably where well developed infrastructure exists.

v Approach road v Raw materials v Availability of skilled/ unskilled labour

Interdependence of the parameters of project

A supplementary review of the project in terms of interdependence like plant size, location and technology. The implementation of the project has cost and time overrun implication .The scheduling of construction and identification of potential cause of delay form an important part of the technical aspect. The schedule of construction depends on speed of civil construction work ,delivery period of equipment as well as efficiency of management to tie up the various ends in a coordinated and speedy manner. Use of scheduling techniques like PERT,CPM and

Project charts and layout

They have to be prepared to define the scope of the project and provide basis of detailed project General functional layout, material line -flow diagram, utility production diagram,

Cost of production
Cost of production is worked out taking into

account the build up of capacity utilisation, consumption norms of various inputs and yield and recovery of by-products.
Cost of production and profitability estimate

take into account the level of production in different years and product mix.
In a competitive market penetration price for

new product will have to be lower than the current price of an established manufacturer.

Assessing competitive status of a project unit

Determined by the following performance measures

Manufacturing lead time(MLT) The total time required to process the product through the manufacturing plant. Work in progress (WIP) Quantity of semi finished product currently lying on the factory floor. Machine utilisation - Machine should be run to manufacture exactly the right quality of



Throughput Hourly or daily production rate. Capacity Possible output the plant is able to produce over a specific duration. Flexibility- Ability of system to respond effectively to change. Performability Influenced by unscheduled downtime of the equipment.

Methods to improve quality and productivity

This will strengthen the competitiveness

of the industry.
Among the methods used to improve

productivity and strengthen competitiveness are

1. Expert systems 2. Enterprise resource planning[ERP]

Expert system
To improve productivity and flexibility. Used along with capacity planning to

ensure that parts are manufactured to meet due dates and optimise use of production equipments.
Used for simulation of scheduling system

and to assist the machine learning of scheduling procedure.

Enterprise resource planning(ERP)

It is the toolkit that spreads lean thinking throughout the

company .
A company using ERP can know how efficiently its various

resources ,people, money, machines are being used to satisfy its customers.
The integration of all aspects of company data into the

same software help to keep manufacturing operations in balance and to keep work flowing smoothly through the factory.

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