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TECHNICAL ANALYSIS
The success of an enterprise depends upon the entrepreneur doing the right thing at the right
time. Starting a new venture is a very challenging and rewarding task. An Entrepreneur or a
businessman has to take numerous decisions, right from the conception of a business idea, upon
the start of production. Hence, the identification of the project to be undertaken requires an in
depth analysis.

Technical analysis represents study of the project to evaluate technical and engineering

aspects when a project is being examined and formulated.  It is a continuous process in
the project appraisal system which determines the prerequisites for meaningful
commissioning of the project. Other types of analyses are dependent and closely
intertwined with technical analysis.
Analysis of technical and engineering aspects is done continually when a project is being
examined and formulated. Other types of analyses are dependent and closely intertwined with
technical analysis. Technical analysis is concerned primarily with:

1 Materials and inputs and Utilities

2. Selection of Manufacturing Process/ Technology
3. Technical Know-How
4. Product Mix
5. Plant Capacity
6. Location and Site
7. Selection and Procurement of Plant and machinery
8. Structure and Civil Works
9. Project charts and layouts
10. Work Schedule / Project Scheduling

1. Materials and inputs

A product can be manufactured using alternative raw materials and with alternative process.
Therefore, process of manufacture may vary with the raw material chosen.
There is an intimate relationship between the study of materials and inputs and other aspects of
project formulation (particularly those concerned with location, technology, and equipment).
Materials and inputs may be classified into four broad categories:
(i) raw materials,
(ii) processed industrial materials, sub-assembly and components,
(iii) auxiliary materials and factory supplies, and
(iv) utilities. (power, water, steam, fuel, etc.)
Since the manufacturing process and the machinery/equipment required to be used also to a
larger extent depend upon the raw material, the type of raw material to be used should be chosen
carefully after analyzing various factors like:
i. Cost of different raw materials and inputs available,
ii. Transportation cost involved, and
iii. Continuous availability of raw material and inputs , etc.
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The interdependency between types of technology and raw material and other inputs necessitates
that investment on plant and machinery should also be extensively studied before arriving at a
decision on their choice.

2 Selection of Manufacturing Process/ Technology:

The technology adopted must be proven by successful use by other units, preferably in India.

For manufacturing a product/service often two or more alternative technologies are available.
For example:

 Steel can be made either by the Bessemer process or the open hearth process.
 Cement can be made either by the dry process or the wet process.
 Soda can be made by the electrolysis method or the chemical method.

Choice of technology

The choice of technology is influenced by a variety of considerations

i. The choice of technology also depends upon the quantity of the product proposed to be
manufactured. If the quantity to be produced is large, mass production techniques should be
followed and the relevant technology is to be adopted.

ii. A new technology that is protected by patent rights, etc., can be obtained either by licensing
arrangement or the technology can be purchased outright.

iii. Appropriate technology: Even within a country, depending upon the location of the project
and other features, two different technology may be ideal for two similar projects set up by two
different firms at two different locations. The choice of a suitable technology for a project calls
for identifying what is called the ‘appropriate technology’. The term ‘appropriate technology’
refers that technology that is suitable for the local economic, social and cultural conditions.

(i) Principal inputs— The choice of technology depends on the principal inputs available for the
project. In some cases, the raw materials available influences the technology chosen. For
example, the quality of limestones determines whether the wet or dry process should be used for
a cement plant. It may be emphasized that a technology based on indigenous inputs may be
preferable to one based on imported inputs because of uncertainties characterizing imports,
particularly in a country like India.

(v) Latest developments— The technology adopted must be based on latest development in
order to ensure that the likelihood of technological obsolescence in the near future, at least, is
minimized.
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(vi) Ease of absorption— The ease with which a particular technology can be absorbed can
influence the choice of technology. Sometimes a high-level technology may be beyond the
absorptive capacity of a developing country which may lack trained personnel to handle that
technology.

3. Technical Know-How:
Consultants:
When technical know-how for the project is provided by expert consultants, it must be
ascertained whether the consultant has the requisite knowledge and experience and whether he
has already executed similar projects successfully. Care should be exercised to avoid self-styled,
inexperienced consultants.
Necessary agreement should be executed between the project promoter and the know-how
supplier incorporating all essential features of the know-how transfer. The agreement should be
specific as to the part played by the know-how supplier (like taking out successful trial run,
acceptable quality of final product, imparting necessary training to employees in the production
process, taking out successful commercial production, performance guarantee for a specified
number of years after the start of commercial production, etc).
The agreement should also include penalty clauses for non-performance of any of the conditions
stipulated in the agreement.

Collaboration Agreements:
If the project promoters have entered into agreement with foreign collaborators, the terms and
conditions of the agreement may be studied as explained above for know-how supply agreement.

Apart from this, the following additional points deserve consideration:

(i) The competence and reputation of the collaborators needs to be ascertained through
possible sources including thee Indian embassies and the collaborator’s bankers.
(ii) The technology proposed to be imported should suit to the local conditions. A highly
sophisticated technology, which does not suit local conditions, will be detrimental to the
project.
iii) The collaboration agreement should have necessary approval of the Government of
India.
(iv) There should not be any restrictive clause in the agreement that import of
equipment/machinery required for the project should be channelized through the
collaborators.
(v) The design of the machinery should be made available to the project promoter to
facilitate future procurement and/or fabrication for machinery in India at a later stage.
(vi) The agreement should provide a clause that any dispute arising out of interpretation
of the agreement, failure to, comply with the clauses contained in the agreement, etc.,
shall be decided only by courts within India.
(vii) It must be ensured that the collaboration agreement does not infringe upon any
patent rights.
(viii) It is better to have a buy–back arrangement with the technical collaborator. This is
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to ensure that the collaborator would be serious about the transfer of correct know-how
and would ensure quality of the output.

4 Product Mix
The choice of product mix is guided primarily by market requirements. The
technology chosen must be judged in terms of the total product-mix generated by it, including
saleable byproducts.
While planning the production facilities of the firm, some flexibility with respect
to the product mix must be sought. Such flexibility enables the firm to alter its
product mix in response to changing market conditions and enhances the
power of the firm to survive and grow under different situations. The degree of
flexibility chosen may be based on a careful analysis of the additional
investment requirements for different degrees of flexibility.

5. Plant capacity
Plant capacity refers to the volume or number of units that can be manufactured during a given
period. Several factors have a bearing on the capacity decision.
(i) Technological requirement— For many industrial projects, particularly in process type
industries, there is a certain minimum economic size determined by the technological factor. For
example, a cement plant should have a capacity of at least 300 tonnes per day in order to use the
rotary kiln method; otherwise, it has to employ the vertical shaft method which is suitable for
lower capacity.

(ii) Input constraints— In a developing country like India, 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 imports may be inadequate. Constraints of these kinds should be
borne in mind while choosing the plant capacity.

(iii) Investment cost— When serious input constraints do not obtain, the relationship between
capacity and investment cost is an important consideration. Typically, the investment cost per
unit of capacity decreases as the plant capacity increases. This relationship may be expressed as
follows:
C1 = C2 (Q1/Q2)
Where C1 = derived cost for Q1 units of capacity and C2 = known cost for Q2 units of capacity
α = a factor reflecting capacity-cost relationship. This is usually between 0.2 and 0.9.

(iv) Market conditions— The anticipated market for the product/service has an important
bearing on plant capacity. If the market for the product is likely to be very strong, a plant of
higher capacity is preferable. If the market is likely to be uncertain, it might be advantageous to
start with a smaller 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 further additions to
capacity may be affected with the growth of market.
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(v) Resources of the firm— The resources, both managerial and financial, available to a firm
define a limit on its capacity decision. Obviously, a firm cannot choose a scale of operations
beyond its financial resources and managerial capability.
(vi) Governmental policy— The capacity level may be constrained by governmental policy.
Given the level of additional capacity to be created in an industry, within the licensing
framework of the government the government may decide to distribute the additional capacity
among several firms.

6. Location and site

The choice of location and site follows an assessment of demand, size, and input requirement.
Though often used synonymously, the terms 'location' and 'site' should be distinguished.
Location refers to a fairly broad area like a city, an industrial zone, or a coastal area; site refers to
a specific piece of land where the project would be set up. The choice of location is influenced
by a variety of considerations: proximity to raw materials and markets, availability of
infrastructure, governmental policies, and other factors.
The study for plant location is done in two phases. First a particular region/ territory is chosen
that is best suited for the project. Then, within the chosen region, the particular site is selected.
Thus, we may say that there are two major factors, viz., Regional factors and site factors, to be
considered.
i) Regional Factors:
Raw Materials, Proximity to Market, Availability of Labor, Availability of Supporting
Industries, Availability of Infrastructural Facilities and Governmental policies etc.
ii) Site Factors: 
After having chosen region that is comparatively more advantageous for the location of a project.
For choosing a particular sit in the chosen region, considerations like cost of land, suitability of
land, availability and suitability of ground water, facilities for effluent disposal, etc., are to be
taken into account.

6. Selection and Procurement of Plant and Machinery

Plant and machinery form the backbone of any industry. The quality of output depends upon the
quality of machinery used in processing the raw materials (apart from the quality of raw material
itself). Uninterrupted production is again ensured only by high quality machines that do not
breakdown so often. Hence no compromise should be made on the quality of the machinery and
the project promoter should be on the lookout for the best brand of machinery available in the
market.

Selection of machinery:
The machinery and equipment required for a project depends upon the production technology
proposed to be adopted and the size of the proposed. Capacity of each machinery is to be decided
by making a rough estimate, as under; thumb rules should be avoided.
Take into consideration the output planned.
 Arrive at the machine hours required for each type of operation.
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 Arrive at the machine capacity after giving necessary allowances for machinery
maintenance/breakdown, rest time for workers, set up time for machines, time lost
during change of shifts, etc.
 After having arrived at the capacity of the machinery as above, make a survey of
the machinery available in the market with regard to capacity and choose that
capacity which is either equal to or just above the capacity theoretically arrived at.
 In case of process industries, the capacity of the machines used in various stages
should be so selected that they are properly balanced.

Procurement of Machinery:
The performance of the machinery functioning elsewhere may be studied to have a firsthand
information before deciding upon the machinery supplier.
For procuring plant and machinery, order for different items of plant and machinery may be
placed with different suppliers or on a turnkey contract may be given for the entire plant and
machinery to a single supplier.
The factors to be considered in selecting the supplier of plant and machinery are the desired
quality of machinery, the level of technological sophistication, the relative reputation of various
suppliers, the expected delivery schedules, the preferred payment terms, and required
performance guarantees. If in-house technical expertise is inadequate, external consultants may
be employed to select plant and machinery and supervise the installation of the same.

7. Structures and civil works

Structures and civil works may be divided into three categories: (i) site preparation and
development, (ii) buildings and structures, and (iii) outdoor works.
(i) Site preparation and development— This covers the following: (i) grading and
leveling of the site, (ii) demolition and removal of existing structures, (iii) relocation of
existing pipelines cables, roads, power lines, etc., (iv) reclamation of swamps, draining
and removal of standing water, (v) connections for the following utilities from the site to
the public network: electric power (high tension and low tension), water (use water and
drinking water), communications (telephone, fax, etc.), roads, railway sidings, and (vi)
other site preparation and developmental work.
(ii) Buildings— Buildings and structures may be divided into: (i) factory or process
buildings; (ii) ancillary buildings required for stores, warehouses, laboratories, utility
supply centers, maintenance services, and others; (iii) administrative buildings; (iv) 15
staff welfare buildings, cafeteria, and medical service buildings; and (v) residential
buildings.
(iii) Outdoor works— Outdoor works cover (i) supply and distribution of utilities (water,
electric power, communication, steam and gas); (ii) handling and treatment of emissions,
wastages, and effluents; (iii) transportation and traffic arrangements (roads, railway
tracks, paths, parking areas, sheds, garages, traffic signals, etc.): (iv) outdoor lighting; (v)
landscaping; and (vi) enclosure and supervision (boundary wall, fencing, barriers, gates,
doors, security posts, etc.).
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8. Project Charts and Layouts

Once all the above steps are completed and respective data and information available,
project charts layouts may be prepared. They provide the basis for detailed project
engineering and estimation of investment, DPR and production costs.
The efficiency of a manufacturing operation depends upon the layout of the plant and
machinery. Plant layout is the arrangement of the various production facilities within
the production area. Plant layout should be so arranged that it ensured steady flow
production and minimizes the overall cost.

The important charts and layouts drawings are as under:

i) General Functional Layout
This shows the general relationship between equipments, buildings, and civil
works. In preparing this layout, the primary consideration is to facilitate smooth
and economical movement of raw materials, work-in-process, and finished
goods.
ii) Material Flow Diagram
This shows the flow of materials, utilities, intermediate products bye-products
and emissions. Along with material flow diagram, a quantity flow diagram
showing the quantities of flow may be prepared.
iii) Production Line Diagrams
These show how the production would progress along with the key information
for main equipments.
iv) Transport Layout
This shows the distance and means of transport outside the production line.
iv) Utility Consumption Layout
This shows the principal consumption points of utilities (power, water, gas,
compressed air etc) and their required quantities and qualities. These layouts
provide the basis for developing specifications for utility supply installations.
vi) Communication Layout
This shows how the various parts of the project will be connected withdifferent
communication channels.
vii) Organizational Layout
This shows the organizational set-up of the project along with information on
personnel required for various departments and their interrelationship.
viii) Plant Layout
The plant layout is concerned with the physical layout of the factory. In process
industries, the plant layout is dictated by production process adopted. In
manufacturing industries, there is much greater flexibility in defining the plant
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layout.

The following factors should be considered while deciding plant-layout:

i) The layout should be such that future expansion can be done without much
alteration of the existing layout.
ii) The layout should facilitate effective supervision of work.
iii) Equipments causing pollution should be arranged to be located away from
other plant and machinery. For example, generator is a major source of noise
pollution.
iv) There should be adequate clearance between adjacent machinery and
between the wall and machinery to enable undertaking of regular inspection
and maintenance work.
v) The plant layout should ensure smooth flow of men and material from one
stage to another.
vi) The plant layout should be one that offers maximum safety to the personnel
working inside the plant.
vii) The plant layout should provide for proper lighting and ventilation.
viii) The plant layout should properly accommodate utilities like power and
water connections and provisions for effluent disposal.

9. Work Schedule / Project Scheduling:

The work schedule as the name suggests reflects the plan of work concerning
installations and commissioning well as initial operation. Project Scheduling is
nothing but the arrangement of activities of the project in the order of time in which
they are to be performed.
The schedule which broadly indicates the logical sequence of events would be as
under:
i) Land acquisition,
ii) Sit development,
iii) Preparing building plants, estimates, designs, getting necessary
approvals and entrusting the construction work to contractors,
iv) Construction of building, machinery foundation and other related civil
works and completion of the same,
v) Placing order for machinery,
vi) Receipt of machinery at site,
vii) Erection of machinery,
viii) Commissioning of plant and taking trial runs,
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ix) Commencement of regular commercial production.

Each of the above mentioned activities consume resources, viz., time, money and
effort. The sequence of activities should be so planned as to minimize the resource
consumption.