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PROJECT PLANNING AND ANALYSIS
 
 CHAPTER 3 . ASPECTS OF PROJECT PREPARATION AND
ANALYSIS
 
PREPARED BY: ABDI SHAKUR M. HUSSEIN ELMI
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NEED AND DEMAND (MARKET) ANALYSIS:

 The primary task is to identify the need and estimate the nominal and effective demand of the
envisaged product or service.
 This depends upon the nature of the particular product/service/ under consideration. If the
product is a public good, the task may be to undertake social and institutional need assessment.
 The Assessment identifies the purpose, scope, expensive to undertake social and institutional
study and Who is going to study it(Who is going to identify the social needs)?
 If the product is private good, the first task is to determine whether there is sufficient market
or not.

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CONT...

 Market analysis is basically concerned with the following questions:

1. What is the product/service to for which feasibility study is to be undertaken?
2. What would be the aggregate demand of the proposed product/service in future?
3. What would be the market share of the project under appraisal?
4. What is the ongoing and competitive selling price?
5. Will the realization of the project affect the selling price(s) of the products/services?
6. What are the marketing strategies that enable the firm to enter into a market and capture adequate
market size?

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CONT…

 To answer the above questions the project analyst requires a wide variety of information and
appropriate forecasting methods. The kinds of information required include the following.
1. Consumption trends in the past and the present consumption levels
2. Past and present supply positions
3. Production possibilities and constraints. Imports and exports
4. Structure and competition .Cost structure. Elasticity of demand
5. Consumer behavior, intentions, attitudes, preferences, and requirements
6. Distribution channels and marketing policies in use
7. Administrative, technical, and legal constraints. 12/27/21
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CONT…

 Given the importance of market and demand analysis in project analysis it should be carried
out in an orderly and systematic manner. The key steps in market and demand analysis are as
follows.
1. Situational analysis and specification of objectives
2. Collection of secondary information
3. Conduct of market survey
4. Characterization of the market
5. Demand forecasting
6. Market planning
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 Situational analysis and specification of objectives: Project analyst may look at the
following:
1. Preference and purchasing power of consumer’s analysis.
2. Actions and strategies of competitors analysis. and
3. Practices of the middlemen/distributors, whole sellers and retailers.

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 Methods of Data Collection: There are two principal sources of assembling market
information:
1. Secondary data sources;
2. Primary data sources.

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CONT…

 Methods of Estimating Future Demand: The most commonly used methods include:
o Qualitative methods
1. Jury of executive opinion method
2. Delphi method
3. Historical analogy method.
o Time Series Projection Method
1. Trend projection method
2. Exponential Smoothing method
3. Moving Average method 12/27/21
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CONT…

o Casual methods:
1. Chain ratio
2. Consumption level method
3. End use method
4. Leading indicator method
5. Econometric method
 Marketing Strategy/ Market planning: Marketing can be characterized by the following elements:
1. Business philosophy
2. Marketing Research
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3. Marketing Instruments
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Technical Aspects

 Technical analysis identify the appropriate and suitable technology for the objective that the
project is intended to meet.
 The technical analysis is concerned with the projects inputs (supplies) and outputs of real
goods and services and the technology of production and processing.
 In general the technical analysis is primarily concerned with
1. Material inputs and utilities
2. Location and site
3. Manufacturing process/technology/ and engineering

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CONT…

o Materials and inputs: In the materials and inputs study part of the feasibility study, the
experts assigned for the task have to:
1. Identify the required types of inputs, their sources and brief assessment of alternative types of
inputs.
2. Describe general availability of Raw materials, Auxiliary materials, Factory Supplies, and
Utilities
3. List annual supply requirements of material inputs;
4. Summarize availability of critical inputs and possible strategies of acquiring these inputs;

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5. Determine the procurement period of each imported input, if any.

6. Out line costs related to procurement and storage of inputs.
7. Identify the number of personnel required for this function giving due emphasis for quality of
man power.

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CONT…

 Location, Site and Environment: A feasibility study should determine the location and site
suitable for an industrial project.
o The major variables that need to be taken into account when determining the location of a
project under consideration are:
1. Access to raw material and the corresponding weight;
2. Access to market and the corresponding weight;
3. Access to basic infrastructure like power, water, communication, etc.
4. The implication on labor supply and issue of residence;
5. Cultural considerations, etc.
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o Since the choice of location is not always based on a systematic step-by-step analysis, alternative
sites have to be analyzed when the location of the project decided and then final selection made.
o This will require an evaluation of the characteristics of each site, and the following requirements
and conditions are to be assessed:
1. Ecological conditions on site (soil, site hazards, climate etc.)
2. Environmental impact (restrictions, standards, guidelines)
3. Socio-economic conditions (restrictions, incentives, requirements)
4. Local infrastructure at site locations
5. Strategic aspects (future expansion, supply and marketing policies)
6. Cost of land. Site preparation and development, requirements and costs 12/27/21
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CONT…

 Engineering and Technology: Designing the functional and the physical layout for the
industrial plant necessary to produce the defined products (outputs), and to determine the
corresponding investment expenditures as well as the costs arising during the operational
phase, is the task of engineers.
o The following sub topics related to the engineering and technology analysis:
1. Plant capacity: refers to the volume or number of units that can be produced during a given
period. Plant capacity is expressed usually in terms of feasible capacity: attainable capacity
under normal working conditions, and nominal capacity: Refers to the technically feasible
capacity, which frequently corresponds to the installed capacities as guaranteed by the supplier of
the plant’s machinery
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• In determining the capacity of a plant the following factors are taken into account:
1. The marketing concept and the volume of sales, and
2. The minimum available economic size of production technology and equipment.

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2. Technology: Selecting the appropriate technology is an important factor in determining the

production program and plant capacity. The major issues addressed in the technological analysis
include:
A. Brief review of the technology development history.
B. Identification of alternative technologies.
C. Identification and analysis of the technology selection criteria and description of the selected
one.

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3. Engineering: Includes the following

A. Plant lay out/ prepare plant lay out
B. Selection of machinery and equipment
C. Civil engineering;
D. Infrastructure development costs;
4. Maintenance and Replacement Requirements: Is the determination of critical maintenance and
replacement requirements for the project.
5. Estimation of the overall total costs of the engineering and technology.

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Institutional-Organizational-Managerial Aspects

 Organization and Manning: A division of the company into organizational units in line with
the marketing, supply, production and administrative functions is necessary not only from the
operational point of view, but also during the planning phase, to allow the assessment and
projection of overhead costs.
 The organizational set-up depends on the size and type of the industrial enterprise and the
strategies, polices and values of the organization.

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 They may be grouped into the following organizational units:

1. General Management
2. Finance, financial control and accounting
3. Personnel administration
4. Marketing, sales and distributions
5. Supplies, transport, storage
6. Production: Main plant, Service plants, Quality assurance, Maintenance and repair

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 The organizational structure of the company can also take a number of shapes, the most
common being the pyramid shape, which has the following three organizational levels:
1. Top management.
2. Middle management, and
3. Supervisory management.

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 Human Resources: The successful implementation of any operation of an industrial project

needs different categories of human resources- management, staff and workers-with sufficient
skills and experiences.
 The feasibility study should identify and describe such requirements and assess the availability
of human resources as well as training needs.

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Social Aspects

 This aspect is more important to public projects.

 Project analysts are expected to examine the broader social implications of the proposed
project. Sufficient attention should be given to the social soundness of a project. This is
particularly related to the:
1. The attitude and the likely response of the beneficiary groups;
2. The existence of potential implementation capacities or organization within communities;
3. The cultural factors related to the implementation and outcomes of the project;
4. The political factors;
5. Income distribution implications of the project,
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6. Employment creation: income distribution could be related to employment creation.

7. Issues of balanced regional development,
8. The displacement impact of the project
9. The gender implication of the adopted technology;
10. Environmental impacts etc.

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Financial Aspects

 Financial analysis seeks to ascertain whether the proposed project will be financially viable or
not.
 The aspects which have to be looked into while conducting financial appraisal are:
1. Investment outlay and costs of the project
2. Means of financing
3. Cost of capital
4. Projected profitability
5. Break-even point.

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6. Cash flows of the project

7. Investment worthwhile ness judged in terms of various criteria of merit
8. Projected financial position
9. Level of financial risk

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Economic Aspects

 The economic aspects of the project focus on the evaluation of cost and benefits of the project
in the society point of view( Whole economy).
 Financial cost benefit analysis is different to the economic cost benefit analysis. How?
 Financial analysis view from the owners point of view( Monetary cost and benefits from the
owners point of view.
 While the economic analysis form the society’s point of view.

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 There are three important distinctions between the two types of analyses:
1. Treatments of taxes and subsidies: these items are treated as transfers in the economic analysis
while in financial analysis taxes are usually treated as cost and subsides are a return/income.
2. Use of Prices: in the financial analysis we will use actual market prices. Economic analysis
uses shadow price.
3. Treatment of interest on capital: in economic analysis interest on capital is never separated
and deducted from the gross return since it is part of the return from capital which is available
for the society as a whole. in financial the interest is a cost to the firm and it deducted from
benefit.

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Environmental/Ecological/ analysis

 In recent years environmental concerns have assumed a great deal of significance. Ecological
analysis should be done particularly for major projects, which have significant ecological
implications like power plants and irrigation schemes, and environmental polluting industries.
The key questions raised in ecological analysis are:
1. What is the likely damage caused by the project to the environment?
2. What is the cost of restoration measures required to ensure that the damage to the
environment is contained within acceptable limits?

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THE END
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