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To understand the fundamentals of Analysis in Project Appraisal.

Consists of three key components: Market and Demand Analysis Technical Analysis Financial Estimates and Projections

To estimate the potential size of the market for the proposed product/service. To get an idea about the market share that is likely to be captured. Two Broad Issues: Likely aggregate demand for the product/service? Market share of the proposed project?

Orderly and systematic manner The key steps in this analysis are: Situational Analysis and specification of objective Collection of Secondary information Conduct of market survey Characterization of the market Demand forecasting Market planning

Project Analyst may Informally talk to: Customers Competitors Middlemen Others in the industry Preferences and purchasing power of the customers Actions and strategies of competitors Practices of the middlemen

To conduct a Formal study, it is necessary to spell out its objectives clearly and comprehensively. An effective approach is to structure them in the form of relevant Questions.

Is information that has been gathered in some other context and is already available. Provides the starting point for the market and demand analysis. General sources of Secondary Information in India are: Census of India National Sample Survey Reports Plan Reports Statistical Abstract of the Indian Union India Year Book And many more ..

The market survey can either be: Census Survey Sample Survey  Census Survey- The entire population is covered.  Sample Survey- A sample of the population is contacted or observed for relevant information.

Steps in Sample Survey are: Define the target population Select the sampling scheme and sample size Develop the questionnaire Recruit and train the field investigators Obtain information from the sample of respondents Scrutinize the Information gathered Analyse and Interpret the information

Limitations of a market researcher: Heterogeneity of the country Multiplicity of languages Design of questionnaire

The market for the product/service may be described in terms of the following: Effective demand in the past and present. Breakdown of Demand. Price. Methods of Distribution and sales promotion. Consumers. Supply and competition. Government policy.

Effective demand in the past and present: The starting point is apparent Consumption which is: Production + Imports Exports Changes in stock level. In a competitive market apparent consumption and effective demand are equal.

Breakdown of demand: Market demand may be broken down into demand for different segments of market. Nature of Product Consumer Groups Geographical Division

Price: Different types of prices are Manufacturer s price Landed price for imported goods Average wholesale price Average retail price

Methods of Distribution and sales promotion: May vary with the nature of the product. Supply and competition: The sources of supply may be foreign or domestic. Competition from the substitutes and near-substitutes should be specified. Government policy.

QUALITATIVE METHODS: Rely essentially on the judgment of the jury/experts to translate qualitative information to quantitative estimates. Types of Qualitative Methods are: 1. Jury of executive Method. 2. Delphi Method

TIME SERIES PROJECTION METHODS: These methods generate forecasts on the basis of an analysis of the historical time series. The important methods are: 1. Trend projection Method. 2. Exponential smoothing Method. 3. Moving average Method.

CAUSAL METHODS: They seek to develop forecasts on the basis of cause-effect relationships. The important methods are: 1. Chain ratio method. 2. Consumption level method. 3. End use method. 4. Bass diffusion method. 5. Leading indicator method. 6. Econometric method.

Demand forecasts are subject to error arising from three principal sources: Data about past and present market. Methods of forecasting. Environmental change.

Marketing plan has the following components: Current marketing situation. Opportunity and issue analysis. Objectives. Marketing strategy. Action programme.

Current Marketing Situation: Deals with the different dimensions and facts of the current situation. It examines the following: 1. Market Situation. 2. Competitive Situation. 3. Distribution Situation. 4. Macro-environment.

Opportunity and Issue Analysis: This primarily deals with SWOT analysis S=Strength W=Weakness O=Opportunity T=Threat Objectives: They have to be clear-cut, specific and achievable.

Marketing Strategy: The marketing Strategy covers the following: 1. Target segment. 2. 3. 4. 5. 6. 7.

Positioning. Product line. Price. Distribution. Sales promotion. Advertising.

Action Programme: Action Programmes operationalise the strategy. This primarily deals with the implementation of the plan developed from the information gathered. To enable the product to reach a desired level of market penetration, a suitable marketing plan, covering pricing, distribution, promotion, and service needs to be developed.

Technical analysis: The broad purpose of technical analysis is 1. To ensure the project is technically feasible 2. To facilitate the most optimal formulation of the project in terms of technology,size,location

Manufacturing process/Technology: For manufacturing a product/service, often two or more alternative technologies available. Example: Cement can be either by the dry process or the wet process. Choice of technology: Plant capacity Principal inputs(the quality of determines whether the wet or dry process should be used for cement) Investment outlay and production cost Use by other units Product mix

Appropriateness of technology Materials inputs and utilities: An important aspect of technical analysis is concerned with defining the materials and utilities reqd. Material inputs and utilities may be classified into four broad categories: Raw materials Processed industrial materials and components Auxilliary materials and factory supplies Utilities

Utilities: A broad assessment of utilities (power,water,steam,fuel) may be made at the time of input study though a detailed assessment can be made only after formulated the project w.r.t location, technology and plant capacity.

Product Mix PRODUCT MIX: Example: A toilet soap manufacturing unit may,by variation

in raw material ,packaging and sales promotion. Plant capacity:( referred to as production capacity) plant capacity may be defined two ways: Feasible normal capacity (FMC) Nominal maximum capacity(NMC) Focus on feasible normal capacity Several factors have a bearing on the capacity decision. Technological requirement Input constraints Investment cost Market capacity Resources firm

This follows an assessment of demand, size and input requirements. It is influenced by a variety of considerations: Proximity to raw materials and markets. Availability of infrastructure. Labour situation. Government policies. Other factors like: 1. Climatic conditions. 2. General living conditions. 3. Proximity to ancillary units. 4. Ease in coping with pollution.

The following procedure is followed: 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 machineries and equipments required for each function.

The equipments are classified in to: Plant equipments. Mechanical equipments. Electrical equipments. Instruments. Controls. Internal transportation system. And others

May be divided in to three categories: Site preparation and development. Buildings and structures. Outdoor works.

The key issues that need to be considered in this respect are: Types of effluents and emissions generated? Needs to be done for proper disposal of effluents and treatment of emissions? Ability to secure all environmental clearances and comply with all statutory requirements?

The important charts and layouts drawings are as follows: General functional layout. Material flow diagram. Production line diagrams. Transport layout. Utility consumption layout. Communication layout. Organisational layout. Plant layout.

The following information is required: List all possible activities from project planning to commencement of production. The sequence in which all the activities have to be performed. The time required for performing various activities. The resources required for performing various activities. The implications of putting more resources or less resources than are normally required.

There are alternative ways of transforming an idea into a concrete project. There are alternatives may differ in one or more of the following aspects: Nature of project. Production process. Product quality. Scale of operation and time phasing. Location.