Chapter Four

Technical Analysis of Project

 Introduction

 In this chapter, you will get fundamental technical issues

in Project Analysis.

Practically applicable (Availability)

Most optimum formulation (best)

 What is technical Analysis?

 Is study of the project to evaluate technical and engineering

aspects when a project is being examined and formulated.

 It seems to be a continuous process in the project management

system which determines the prerequisites for meaningful
commissioning and establishment of the project.
 Purpose of Technical Analysis
i. To ensure that the project is technically feasible in the sense
that all the inputs required to set up project are available
(Practically applicable).
ii. To facilitate the most optimal formulation (most suitable) of
the project in terms of technology, size, location, machinery,
equipment, etc.
iii. Deciding from all available alternatives which will be the best
option for the organization.
 Cont….
 The following are basic issues pertaining to technical analysis using
common sense and economic logic.
o Plant capacity
o Technology and engineering
o Raw materials and Supplies study
o Product mix
o Location and site
o Machineries and equipment
o Structures and civil works
o Environmental impact
o Human resource organization
o Project charts and layouts
o Project implementation schedule
 4.1.Plant Capacity
Q) How do you understand Plant Capacity?
 Plant capacity (also referred to as production capacity) refers to the
volume or number of units that can be manufactured during a
given period.
 Plant capacity may be defined in two ways:

feasible normal capacity (FNC) and

nominal maximum capacity (NMC).
So, Plant capacity may be seen from two perspectives:
 Cont….
1. Feasibility normal capacity (FNC)
 Capacity of the plant under normal working conditions.
2. Nominal maximum capacity (NMC)
 A higher capacity – nominal maximum capacity
 Taking into account overtime, excessive consumption of
factory supplies, utilities, spare parts and wear – and tear
parts, as well as disproportionate production cost increases.
What could be the determinants of Plant Capacity?
 Technology requirement
 Input constraints
 Investment cost
 Market conditions
 Resources of the firm
 Govt. policy
 Cont….
Factors Determining Capacity Decision:
1. Technological requirement
2. Input constraints
There may be constraints on the availability of certain inputs:
 Power supply may be limited, Basic raw materials may be
scarce, Foreign exchange available for import may be
inadequate, etc.
3. Investment cost
4. Market conditions
 Very strong market = Higher capacity is preferable
 Uncertain market = start with small capacity
 If the market, starting from a small base, is expected to grow
rapidly, the initial capacity may be higher than the initial level of
demand and further additions to capacity may be effected with
the growth of the market
 Cont….
5. Resources of the firm
o The resources, managerial and financial available to a firm define a
limit on its capacity decision.
o Obviously, a firm cannot choose a scale of operations beyond its
financial resources and managerial capability.
6. Governmental policy
o The capacity level may be influenced by the policy of the
government.
 4.2. Technology and Engineering
 For manufacturing a product/service often two or more
alternative technologies are available.

 Some of integral parts of engineering at the feasibility stage are:

1. Technology Choice
2. Appropriateness of Technology
 Cont…
1. Choice of Technology:
 Selection of appropriate technology and know–how is a critical
element in any feasibility study.
 Selection of the most suitable alternative in relation to the
project.

The choice of technology is influenced by a variety of

considerations. Some of these are:
1. Plant Capacity. Q = f(inputs, Technology)
o To meet a given capacity requirement perhaps only a certain
production technology may be viable
 Cont…
2. Principal Inputs
o The choice of technology depends on the principal inputs available
for the project.
o In some cases, the raw materials availability influence the
technology chosen.
3. Investment Outlay and Production Cost
4. Uses by Other Units
o The technology adopted must be proven by successful use by other
units.
 Cont…
5. Latest Developments
 The technology adopted must be based on the latest
developments in order to ensure that the likelihood of
technological uselessness in the near future, at least, is minimized.
6. Ease of Adoption
 A technology that is difficult to adapt shall be rejected
7. Labor situation

 A shortage and expensive labor - capital intensive technology

 Excessive and cheap labor - labor intensive technology

 Cont…
2. Appropriateness of Technology:
 refers to those methods of production, which are suitable to local
economic, social, and cultural conditions.
– Whether the technology utilizes local raw materials?

– Whether the technology utilizes local manpower?

– Whether the technology protects ecological balance?

– Whether the technology is harmonious with social and cultural

conditions?
– Whether the goods and services produced cater to the basic
needs?
 4.3. Material Inputs and Utilities
 An important aspect of technical analysis is concerned with
defining the materials and utilities required.
 Issues to be raised in relation to materials and parts include:
 What types of materials are needed?
 Where are the sources of the materials and supplies?
 How the materials and supplies are obtained?
How the materials and supplies will be provided such as
normal purchase, and the like
 What are the costs of each materials?
Both unit and total costs of materials.
 Environmental factors
 Cont…
 Material inputs and utilities may be classified into four broad
categories:
(i) Raw materials (for crop, livestock, mineral…..product)
(ii) Processed industrial materials and components
(iii) Auxiliary materials and factory supplies (chemicals, additives,
packaging materials, paint, varnishes, oils, grease, cleaning
materials, etc.)
(iv) Utilities (power, water, steam, fuel, etc.)

 In studying them the following questions need to be answered:

o What is the total requirement of the project?
o What are the sources of supply?
o What quantity would be available from domestic sources?
o What quantity can be procured from foreign sources?
o What are the likely shortages/ bottlenecks?
o What measures may be taken to enhance supplies?
 4.4. Product Mix
 known as product assortment or product portfolio, refers to the
complete set of products and/or services offered by a firm.
 A product mix consists of product lines, which are associated items
that consumers tend to use together or think of as similar products
or services
 The choice of product mix is guided by market requirements.
 In the production of most of the items, variations in size and
quality are aimed at satisfying a broad range of customers
 Distinguish by size, style, brand name, price, color, materials, or
any other features that makes one item different from another
 4.5. Location and Site
Location vs Site?
 Although most often the terms ‘location’ and ‘site‘ are used
synonymously, they should be distinguished.
 Location refers to a relatively broad area like a city, or an
industrial zone, or a coastal area,
 But site refers to a specific piece of land where the project
would be set up.

 From one location several alternative sites can be considered.

 Cont…
 The choice of location and site follows an assessment of demand,
size, and input requirement.
 The choice of location is influenced by a variety of considerations:
proximity to raw materials and markets, availability of
infrastructure, labor situation, governmental polices, and other
factors.
1. Proximity to Raw Materials and Markets
 An important consideration for location is the proximity to the
sources of raw materials and nearness to the market for the final
products.
 Raw materials (resource)based project – Located near resource
 A perishable based project – Located near consumption centre
 Imported material based project – located near a port
 Cont…
2. Availability of Infrastructure
Availability of power, transportation, water, and communications should
be carefully assessed before a location decision is made.
o Adequate supply of power is a very important condition for location-
insufficient power can be a major constraint, particularly in the case
of an electricity-intensive project
o The availability, reliability, and cost of transportation for various
alternative locations should be assessed.
o Given the plant capacity and the type of technology, the water
requirement for the project can be assessed.
o In addition to power, transport, and water, the project should have
adequate communication facilities like telephone and Internet.
 Cont…
3. Government Policies
 Government policies have bearing on location. In the case of public
sector projects, location is directly decided by the government.
 In the case of private sector projects, location is influenced by
certain governmental restrictions and inducements.
 For example: in some area, the government may offers
inducements for establishing industries in backward areas.
– These inducements consist of subsidies, concessional finance, tax,
loans, power subsidy, income tax benefits, lower promoter
contribution, and so on.
 Cont…
4. Climate Conditions
 The climatic conditions like temperature, humidity, wind, sunshine,
rainfall, snowfall, dust, flooding, and earthquakes have an
important influence on location decision.
o Means of transport may becomes less reliable in the case of heavy
snow or rainfall, causing interrupted supplies of perishable
products to distant market.
o Fluctuating quantities and qualities of raw materials owing and
Output selling to extreme weather conditions.
 Cont…
5. Proximity to Ancillary Units
Most firms depend on ancillary units for components and parts.
•If the ancillary units are located nearby, coordination becomes easy,
transportation costs are lower, and inventory requirements become
considerably less.
6. Ease in Coping with Environmental Pollution
 A project may cause environmental pollution in various ways: it
may throw gaseous emissions; it may produce liquid and solid
discharges; it may cause noise, heat, and vibrations. So,
o The location study should analyze the cost of mitigating
environmental pollution to tolerable levels at alternative locations.
 Site Selection

 Once the broad location is chosen, attention needs to be focused

on the selection of a specific site.

 Two or three alternative sites must be considered and evaluated

with respect to cost of land and cost of site preparation and
development.
 4.6. Machineries and Equipment
 The requirement of machineries and equipment is dependent on
production technology and plant capacity.
 It is also influenced by the type of project.
 To determine the kinds of machinery and equipment required for a
manufacturing industry, the following procedure may be followed:
(i) Define the various machining and other operations
(ii) Estimate the likely levels of production over time
(iii) Calculate the machine hours required for each type of
operation
(iv) Select machineries and equipment required for each function.
 4.7. Structure and Civil Works
 Structure and civil works may be divided into three categories:
(i) site preparation and development like: grading and leveling of
the site; demolition and removal of existing structures; site
preparation etc. ..
(ii) buildings and structures like: factory or process buildings;
buildings required for stores, warehouses, laboratories, cafeteria,
medical service buildings etc…
(iii) outdoor works like: supply and distribution utilities (water,
electric power, communication), landscaping, transportation and
traffic signals etc.
 4.8. Environmental Impact
A project may cause environmental pollution in various ways: it may
throw gaseous emissions; it may produce liquid and solid discharges;
it may cause noise, heat, and vibrations.
Hence, the environmental aspects of the projects have to be
properly examined. The key issues that need to be considered in this
respect are:
 What are the types of wastes and emissions generated?
 What needs to be done for proper disposal of wastes and
treatment of emissions?
 Will the project be able to secure all environmental clearances
and fulfill with all legislative requirements?
 4.9. Human Resource Organization
 Once the production program, plant capacity, raw materials and
supplies, location and site, environmental, technological
processes to be employed and plant organization have been
determined, the human resource requirements at various levels
and during different stages of the project must be defined, as well
as their availability and costs.
 Human resources categories:
o General management
o Production management and supervision
o Administration (finance, purchasing, marketing etc.)
o Production control, etc.
 4.10. Project Charts and Layouts
 refers to the scope of the project which provide the basis for detailed
project engineering and estimation of the investment and production
costs.
The important charts and layout drawings are as follows:
• General functional layout
• Material flow diagram
• Production line diagrams
• Transport layout
• Utility consumption layout
• Communication layout
• Organizational layout
• Plant layout
 4.11. Schedule of Project Implementation
 In order to prepare the project implementation schedule, the
following information is required:
 List of all possible activities from project planning to start
production.
 The sequence in which various activities have to be performed.
 The time required for performing the various activities.
 The resources normally required for performing the various
activities
 The implications of putting more resources or less resources
than are normally required
The next step is to derive the project logic diagram.
 Cont…
 Some of the project Scheduling techniques are explained below:
1. The Work Breakdown Structure (WBS)
o Is a project management tool that takes a step-by-step approach to
complete large projects with several moving pieces
o The project key stages form the highest level of the WBS, which is
then used to show the detail at the lower levels of the project.
 Cont…
2. Gantt chart
o It is a convenient graphical means of picturing a schedule.
o Gantt chart is also called bar chart. It does not show the
precedence constraints.
 Cont…
3. Critical path method (CPM)
The critical path method is the part of the project management plan
that identifies the steps that must be completed
 Cont…
4. Project Evaluation & Review Technique (PERT)
o It is a scheduling technique used to schedule, organize and
integrate tasks within a project.
o PERT is useful for more complex projects having many activities.
End of the chapter!