PROJECT

MANAGEMENT
BITS Pilani Dr. ARUN MAITY
Pilani Campus
 BITS Pilani
Pilani Campus

MARKET AND DEMAND ANALYSIS

LECTURE NO 6 T2 CH 4
TECHNICAL ANALYSIS T2 CH 5
TOPICS TO BE COVERED

• MARKET ANALYSIS

• CHARACTERISATION OF MARKET

• FORECASTING TECHNIQUES

• TECHNICAL ANALYSIS

BITS Pilani, Pilani Campus

MARKET ANALYSIS: NEW
PRODUCT INTRODUCTION
• What is the aggregate demand for the product / service?

• What share of the market will the proposed project

enjoy?

BITS Pilani, Pilani Campus

STEPS

• Situational Analysis and Specification of Objectives

• Collection of Secondary Information

• Conduct Market Survey

• Characterization of the Market

• Demand Forecasting

• Market Forecasting

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SITUATIONAL ANALYSIS AND
SPECIFICATIONS OF OBJECTIVES

• Talk to customers, competitors and others in the industry

• Learn about the preferences and purchasing power of

customers, actions and strategies of competitors and
practices of the middlemen

BITS Pilani, Pilani Campus

EXAMPLE: INTRODUCTION
OF AIR COOLER
• Who are the buyers of air coolers?
• What is the total current demand of air coolers?
• How is the demand distributed temporally and
geographically?
• What is the break up of demand for air coolers of
different sizes?
• What price will the customers be willing to pay for the
improved air-cooler?
• How can potential customers be convinced about the
superiority of the new cooler?

BITS Pilani, Pilani Campus

• What price and warranty will ensure its acceptance?
• What channels of distribution are most suited for the air
cooler?
• What are the prospects of immediate sales?

BITS Pilani, Pilani Campus

COLLECTION OF SECONDARY
INFORMATION
• Census of India Document: Population, demographic
characteristics, household size and composition, maps

• National Sample Survey Records: Economic and social

aspects like pattern of consumption, distribution of
households by the size of consumer expenditure,
distribution of industries

• Plan Reports: Plan Proposals, Agricultural and Industrial

Statistics

BITS Pilani, Pilani Campus

• Statistical Year Book: World statistics regarding
population, demography, gross domestic production,
industrial production, international trade etc.
• Economic Survey: Data on industrial production,
wholesale prices, consumer prices, exports, agricultural
production, national income etc.
• Guidelines to Industries
• Annual Survey of Industries: No. of Units and State-wise
Distribution, Employment etc.

BITS Pilani, Pilani Campus

• Annual Reports of Development Wing: About new
products manufactured for the first time in India
• Annual Reports of Statistics of Exports and Imports: data
on exports and imports for large number of items
• Techno-economic Surveys
• Industry Potential Surveys
• The Stock Exchange Directory: Performance and
financial statements of all listed companies
• Other publications by Advertising Agency

BITS Pilani, Pilani Campus

INDUSTRY SPECIFIC SOURCES OF
SECONDARY INFORMATION

• Automobiles: Annual reports of Association of Indian

automobile manufacturers : Indian automobile
manufacturers association
• Automobile Ancillary Industry: All-India Automobile and
Ancillary Industries Association
• Fertilizers: Fertilizers Association of Industry
• Indian Journal of Medical Research
• International Journal of Medical Sciences

BITS Pilani, Pilani Campus

EVALUATION OF SECONDARY
INFORMATION
• Who gathered the information? What was the objective?
• When was the information gathered? When was it published?
• How representative was the period for which the information
was gathered?
• What was the target population?
• How was the sample chosen?
• How representative was the process of information
gathering?
• How accurately was the information edited, tabulated and
analyzed?
• Was statistical analysis properly applied?

BITS Pilani, Pilani Campus

CONDUCT OF MARKET
SURVEY
• Census survey: Entire population is covered

• Sample survey: A sample of population is contacted or

observed or relevant information is gathered

BITS Pilani, Pilani Campus

INFORMATION SOUGHT IN
A MARKET SURVEY
• Total demand and rate of growth of demand
• Demand in different segments of the market
• Income and price elasticities of demand
• Motives of buying
• Purchasing plans and intentions
• Satisfaction with existing products
• Unsatisfied needs
• Attitudes towards various products
• Distributive trade practices and preferences
• Socio – economic characteristics of buyers

BITS Pilani, Pilani Campus

STEPS IN SAMPLE SURVEY

• Define THE TARGET POPULATION

• Select the sampling scheme and sample size
• Develop the questionnaire
• Recruit and train the investigators
• Obtain information as per the questionnaire from the
sample of respondents
• Scrutinize the information gathered
• Analyze and interpret the information
• Statistical analysis of data

BITS Pilani, Pilani Campus

CHARACTERISATION OF
THE MARKET
• Effective demand in the past and present
• Breakdown of demand
• Price
• Methods of distribution and sales promotion
• Consumers
• Supply and competition
• Government policy

BITS Pilani, Pilani Campus

DEMAND

• Apparent Consumption = Production + Imports – Exports

– Changes in stock level

• Breakdown of demand: Nature of Product (rolled

products, semi-finished products)
Commercial vehicles: Buses and trucks

• Consumer groups (Industrial /Domestic)

• Geographical division for the ease of after-sales services

BITS Pilani, Pilani Campus

• Methods of distribution and sales promotion: Capital
goods, industrial raw materials and consumer products
tend to have different distribution channels
• Sales promotion may vary from product to product
• Supply and competition: Existing sources of supply:
domestic or foreign
• Government policy: Government plans, policies,
legislations have bearing on the market and demand for
the product

BITS Pilani, Pilani Campus

PRICE

• Free on board (FOB):

The seller quotes a price including the cost of delivering goods to the
nearest port. The buyer bears all the shipping expenses and is responsible
to get the products from that port to its final destination.
• Cost insurance and freight price (CIF) :
The seller is responsible for transporting goods to the nearest port, loading the
goods on the ship and paying freight for the goods to be delivered to a port chosen
by the buyer. The seller is also responsible for paying insurance for the goods.
• Landed price for imported goods
The final cost of products plus all associated shipping and logistics costs required to
get the goods delivered through to a final location.
• Average wholesale price
• Average retail price

BITS Pilani, Pilani Campus

DEMAND FORECASTING

• To estimate future demand using forecasting techniques

– EXECUTIVE OPINION METHOD

– DELPHI METHOD
– TREND PROJECTION METHOD
– EXPONENTIAL SMOOTHING METHOD
– MOVING AVERAGE METHOD

BITS Pilani, Pilani Campus

EXECUTIVE OPINION
METHOD
• Soliciting the opinions of a group of managers on
expected future sales and combining them into a sales
estimate:

– Fast
– Consideration of a variety of factors like economic
climate, competitive environment, consumer
preferences, technological developments
– Subjective estimates

BITS Pilani, Pilani Campus

DELPHI METHOD

• Eliciting the opinions of a group of experts with the help

of mail survey
• A group of experts is sent a questionnaire by mail and
asked to express their views
• Responses are summarized without disclosing the
identity of the experts and sent back to experts
• Process continued for one or more rounds till a
reasonable agreement emerges in the views of the
experts

BITS Pilani, Pilani Campus

TREND PROJECTION
METHOD
• Determining the trend of consumption by analyzing past
consumption statistics

• Projecting future consumption by extrapolating the trend

• Use of least square method

• Exponential smoothing method

• Moving average method

BITS Pilani, Pilani Campus

LEAST SQUARE METHOD

• LINEAR RELATIONSHIP : Yt = a + b t
Where t is the time variable
Yt is the demand for the year t
Intercept : a
Slope : b
b= ∑ TY – n (mean T) (mean Y)
∑T2 – n (mean T) 2
a
= (mean Y) – b (mean T)

BITS Pilani, Pilani Campus

Other Relationships

• Exponential Relationship: Y = a ebt

• Polynomial Relationship
• Cobb Douglas relationship : Y = a tb
• Logarithmic relationship : log Y = log a + b log t

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Exponential Smoothing
Method
• Forecasts are made in the light of observed errors
• If the forecast value for year t is Ft
• If the actual value for year t is St
• If Ft < St , Ft+1is set higher that Ft
• If Ft > St , Ft+1is set lower that Ft
• Ft+1 = Ft + α (St - Ft )

BITS Pilani, Pilani Campus

T St Ft St-Ft Ft+1

1 28 29 -1 F 2= 29 + 0.2 (-1) = 28.8

2 29 28.8 0.2 F3 = 28.8 + 0.2(0.2) = 28.84
3 28.5 28.84 -0.34 F4= 28.84 + 0.2(-0.34) = 28.77

BITS Pilani, Pilani Campus

MOVING AVERAGE
METHOD
• Forecast for the next period is equal to the average of
the sales for several preceding periods

• Ft+1is the forecast for the next period

• St is the sales for the current period
• n is the period over which averaging is done

BITS Pilani, Pilani Campus

PRICE ELASTICITY OF
DEMAND
• It measures the responsiveness of demand to variations
in price

EP = Q2 – Q1 X (P1 + P2)
P2 – P1 Q2 + Q1
If P1 = Rs. 600 Q1= 10000 P2 = 800 Q2= 9000
Then E = (9000 – 10000) x (600 + 800) = -0.37
800 – 600 9000 + 10000

BITS Pilani, Pilani Campus

INCOME ELASTICITY OF
DEMAND
• RESPONSIVENESS OF DEMAND TO VARIATIONS IN
INCOME
• EI = Q2 – Q1 X I1 + I2
I2 – I1 Q2 + Q1
• IF Q1 = 30 I1 = 1000 I2 = 1020 Q2 = 55
Then, Ei = 4.81

BITS Pilani, Pilani Campus

MARKET PLAN

• Current Marketing Situation:

– Market Situation: Size, Growth, Consumer Aspirations, Buying

Behavior

– Competitive Situation: Major Competitors-objectives, Strategies,

Strengths

– Distribution Situation: Distribution capabilities of the competitors

– Macro Environment: Effect of Social, Political, Economic,

Technological and other external variables on the market

BITS Pilani, Pilani Campus

• Opportunity and situation analysis: SWOT analysis

• Objectives: Clear-cut, specific and achievable

• Marketing strategy: Target segment, positioning, product

line, price, distribution, sales force, sales promotion and
advertising

• Action Programme

BITS Pilani, Pilani Campus

TECHNICAL ANALYSIS

• To ensure that the project is technically feasible

• To facilitate most optimal formulation of the project in

terms of technology, size, location etc.

• To select the best technology available

BITS Pilani, Pilani Campus

MANUFACTURING PROCESS / TECHNOLOGY:
CHOICE OF TECHNOLOGY

• Plant Capacity
• Principal Inputs
• Investment Outlay and Production Cost
• Use by other Units
• Product Mix
• Latest Developments
• Ease Of Absorption

BITS Pilani, Pilani Campus

APPROPRIATENESS OF
TECHNOLOGY
• Utilities local raw material

• Utilizes local manpower

• Cater to basic needs of society

• Protects ecological balance

• Harmonious with social and cultural conditions

BITS Pilani, Pilani Campus

TECHNICAL
ARRANGEMENTS
• To obtain technical know-how needed for the proposed
manufacturing process
• Nature of support to be provided by collaborators
• Process and performance guarantees in terms of plant
capacity, product quality and consumption of raw
materials and utilities
• Period of collaboration agreement
• Assistance to be provided and restrictions to be
provided by the collaborator

BITS Pilani, Pilani Campus

• Level of equity participation and the manner of sharing of
management control

• Assignment of the agreement by either side in case of

change of ownership

• Termination of the agreement or other remedies when

either party fails to meet its obligations

• Approach to be adopted in force majeure situations

(unforeseen situations)

BITS Pilani, Pilani Campus

MATERIAL INPUTS AND
UTILITIES
• Defining the materials and utilities required

• Specifying their properties in some detail and setting up

their supply programme

• Classification: raw materials, processed industrial

materials and components, auxiliary materials and
factory supplies, utilities

BITS Pilani, Pilani Campus

• Raw Materials:

– Agricultural Products
– Mineral Products
– Livestock and Forest Products
– Marine Products

• Processed Industrial Materials And Components:

– Base Metals, Semi-processed Materials, Manufactured Parts,

Components and Sub Assemblies

BITS Pilani, Pilani Campus

• Auxiliary Materials and Factory Supplies:

– Chemicals, Additives, Packaging Materials, Paints, Oil, Grease

• Utilities: Power, Water, Steam, Fuel

• Product – Mix: variation in quality can enable a company

to expand its market and enjoy higher profitability

BITS Pilani, Pilani Campus

PRODUCT CAPACITY

• Volume or number of units that can be manufactured

during the given period

– Feasible normal capacity: capacity attainable under

normal working conditions

– Nominal maximum capacity: which is technically

attainable , installed capacity guaranteed by the
supplier of the plant

BITS Pilani, Pilani Campus

FACTORS AFFECTING
CAPACITY
• Technological Requirement
• Input Constraints
• Investment Cost
• Market Conditions
• Resources of the firm
• Government Policy

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LOCATION AND SITE

• Choice Of Location:

– Proximity to Raw Materials and Markets

– Availability of Infrastructure
– Labor Situation
– Governmental Policies
– Land Acquisition
– Environmental Factors
– Forest Clearance

BITS Pilani, Pilani Campus

MACHINERY AND
EQUIPMENT
• To determine the kind of machinery and equipment
required for manufacturing industry

– Estimate the likely levels of production over time

– Define the various machining and other operations

– Calculate the machine hours required for each type of operation

– Select of machinery and equipment required for each function

BITS Pilani, Pilani Campus

STRUCTURE AND CIVIL
WORKS
• Site Preparation and Development
– Grading and leveling of the site
– Demolition and removal of existing structures
– Relocation of existing pipelines, cables etc.
• Buildings and Structures
– Factory / Process Buildings
– Stores and Warehouses
– Maintenance Services and Utility Supply Centers
– Residential Buildings
• Outdoor Works
– Supply and distribution of utilities
– Handling and treatment of effluents
– Transportation and traffic signals
– Outdoor lightings

BITS Pilani, Pilani Campus

ENVIRONMENTAL
FACTORS
• Types of Effluents and Emissions

• Proper Disposal of Effluents and Treatment

• Reduce Emissions

• Environmental and Forest Clearances

BITS Pilani, Pilani Campus

PROJECT CHARTS AND
LAYOUTS
• General Functional Layout
• Material Flow Diagram
• Production Line Diagram
• Transport Layout
• Utility Consumption Layout
• Communication Layout
• Organizational Layout
• Plant Layout

BITS Pilani, Pilani Campus

SCHEDULE OF PROJECT
IMPLEMENTATION
• List of all possible activities

• Activity relationship

• Time required to perform various activities

• Resource requirement

• Use of project management software

BITS Pilani, Pilani Campus

NEED FOR CONSIDERING
ALTERNATIVES
• Nature of project

• Production process

• Product quality

• Scale of operation and time phasing

• Location

BITS Pilani, Pilani Campus