PROJECT MANAGEMENT
UNIT II
Project Identification and
Formulation
Project Environment
Surroundings in which a project is undertaken. It
includes,
Air
Water
Land
Natural Resources
Pollution
Humans and their interaction- social, political
and economic both within and outside the
project boundaries
Project Identification
Search for project ideas
----Requires
Imagination
Sensitivity to environmental changes
Realistic assessment of what the firm can
do
Idea Generation
New ideas-Technological breakthrough
Product variantsexisting fields of technology
Clear articulation of objectives---Cost reduction
Productivity improvement
Increase in capacity utilisation
Improvement in contribution margin
Expansion into promising fields
Conducive climate to encourage creativity of employees
SWOT Analysis
Investment Opportunities
Corporate Appraisal
Tools for Identifying Investment Opportunities
Porters Model
Lifecycle Approach
Experience Curve
Scouting Project Ideas
Analyze the performance of existing
Industries
Examine the inputs and output of various
industries
Review imports and exports
Study Plan Outlays and Govt guide lines
Suggestions of financial institutions and
development agencies
Scouting Project Ideas
Available Local Materials and Resources
Analyze Economic and Social trends
New Technological Developments
Draw clues from consumption abroad
Revival of Sick units
Unfulfilled psychological needs
Trade fairs
Stimulate Creativity
Chance Factor
Project Screening
Preliminary Screening
Compatibility with the promoter
Consistency with governmental
priorities
Availability of Inputs
Adequacy of market
Reasonableness of cost
Acceptability risk level
Project Screening
Project Rating Index
Factor
Factor
Weight
Rating
VG
5
G
4
A
3
Factor
Score
P
2
VP
1
Input Availability
0.25
Technical Know-how
0.10
0.40
Reasonableness of Cost
0.05
0.20
Adequacy of Market
0.15
Complimentary Relationship with other
Products
0.05
0.20
Stability
0.10
0.40
Dependence on firms strength
0.20
Govt Priorities
0.10
0.75
1.00
Rating Index
0.75
0.30
4.00
Stages of a Project Formulation
Objective Define the project boundaries with limited information available.
Issues to be addressed
Industrial outlook, Competitive trends
Project for domestic demand/export or both
Location, size and scale
Access to raw materials and markets for products
Technology options
Environmental stipulations
Investment and financing outlook
Desirable to have a PMC in place at this juncture
Formulation-where does it all begin?
Idea
Generation
Brain
Storming
Options
SWOT
Alternatives
Initial
Vision Plan
Visualizing the Project
Development of Vision Influencing Factors
Business
Applications
Cash Flow
Return on Investment
Growth
Strategic
Considerations
Available
Options Conversion Options
External Factors
Market Demands &
Prices
Available Crudes
& Prices
Emissions & Product
Quality Legislation
Supply Options
Road Map to the Future
Long Term
Vision
Factors
Where TO?
How TO?
WHAT are the costs benefits, risks
and financial sensitivities?
Develop
Options
Evaluate
Future
Configuration
Stages of a Project-Development
Objective:
Facilitate an investment decision
Issues to be addressed
Infrastructure-raw material receipt and product
evacuation, location and site development
requirements, water intake and treatment, enabling
facilities for construction.
Technology selection and integration of various
processes into one composite scheme to meet the
project objectives
Investment and economic analysis
Project financing
Output-Project Feasibility Report and recommendation of
project implementation approach
Stages of a ProjectDefinition
Crucial Stage for the project as it is the final gate for approval or
otherwise.
Project owner should have the approval for expenditure towards
Basic design and engineering.
Detailed cost estimates and project schedules to be prepared,
with appropriate value engineering carried out for cost
rationalization, overall process integration, optimization of utility
and offsite systems design and project implementation approach
Output- Front end loading report with detailed cost estimates and
packages that are good for inviting bids from EPC/EPCM contractors
Implementation Sequence
SUPPORT
PROCESS DESIGN
DESIGN
BASIS
CONCEPTUAL
PROCESS DESIGN
ENGINEERING
ADVANCE CONTROLS & OPTIMISATION
MATERIALS & MAINTENANCE
ENERGY & ENVIRONEMNT
OPERATIONS,SAFETY & HAZARDS
DETAIL PROCESS
DESIGN
CONSTRUCTION
BASIC FRONT
END DESIGN
CONTRACTS
BID PACKAGE FOR
EPC/LSTK BIDDING
COMMERCIAL
TERMS &
CONDITIONS
Project Management Managing all players
EXTERNAL LINKAGES
INCLUDING
STATUORY
OWNER
MANAGEMENT
COMMISSIONING
& HANDING OVER
CONFIGURATION
& DESIGN BASIS
CONSTRUCTION
PROCESS
DESIGN
FRONT END
ENGG
PROJECT
MANAGEMENT
EQUIPMENT
DELIVERIES
DETAIL ENGG.
BID PACKAGE
&
CONTRACTOR
SELECTION
VENDORS
CONTRACTORS EPC
CONTRACTORS
PROJECT FORMAT
1. INTRODUCTION
2. PRODUCT
2.1 Applications
2.2 Availability of technology and compliances
3.MARKET POTENTIAL
3.1. Demand and Supply
3.2. Marketing Strategy
4.MANUFACTURING PROCESS
PROJECT FORMAT
5.CAPITAL INPUTS
5.1. Land and Buildings
5.2. Machinery
5.3. Miscellaneous Assets
5.4. Raw Materials and Packing Materials
6. MANPOWER REQUIREMENTS
7. IMPLEMENTATION SCHEDULE
8. DETAILS OF THEPROPOSED PROJECT
PROJECT FORMAT
8.1 Building
8.2 Machinery
8.3 Miscellaneous Assets
8.4 Preliminary & Pre-operative Expenses
8.5 Working Capital Requirements
Particulars of Margin from promoters and
Bank
8.6 Cost of the Project & Means of Finance
PROJECT FORMAT
9. PROFITABILITY CALCULATIONS
9.1 Production Capacity & Build-up
9.2 Sales Revenue at 100%
9.3 Raw and Packing Materials Required at 100%
9.4 Utilities
9.5 Selling Expenses
9.6 Interest
9.7 Depreciation
PROJECT FORMAT
10. PROJECTED PROFITABILITY
A. Installed Capacity
B. Cost of Production
C. Profit before Interest & Depreciation
PROJECT FORMAT
11.BREAK EVEN ANALYSIS
ANALYSIS WITH FACTORS GIVEN BELOW
[A] Sales
[B] Variable Costs
[C] Contribution
[D] Fixed Cost
[E] Break-Even Point
PROJECT FORMAT
12.FINANCIAL ANALYSIS
Pay Back Period
Debt Service Coverage Ratio (DSCR
Internal Rate of Return (IRR)
Net Present Value (NPV)
PRIVATIZATION-APPROACHES
BOOM-Build, Own, Operate & Maintain
BOT---Build, Operate & Transfer
BOO-Build, Own & Operate
BOOT-Build, Own Operate& Transfer
Customer Benefits- BOOM
Little risk
No capital employed in non core business assets
No need to operate or maintain equipment
Assurance of a well-run and well-operated system
Significant cost savings
Considerable reduction in costs.
Costs fixed for the term of the contract
Lower environmental liability
Customer Benefits
Little risk
No capital employed in non core business
assets
No need to operate or maintain equipment
Assurance of a well-run and well-operated
system
Significant cost savings
Costs fixed for the term of the contract
Lower environmental liability
BOT/BOOT
Concessions from Government/ Public/
Private Sector
Finance, design, construct & operate a
facility
Contract period
Project proponents recover investments &
operating and maintenance expenditure
Infrastructure to be transferred after
concession period
BOT/BOOT
Extensive application in infrastructure
projects and in publicprivate partnership.
A third party
design and construct infrastructure
operate and maintain these facilities for a
certain period.
BOT/BOOT
Responsibility to raise the finance for the
project
Entitled to retain all revenues generated
by the project
Owner of the regarded facility.
BOT/BOOT
The facility will then transferred at the end
of the concession agreement, without any
remuneration of the private entity involved.
