CHAPTER 8

PREPARATION OF PROJECT
by
VINAY KUMAR
Learning objectives

Understand the meaning of project

Describe the project identification process

Explain the project selection phase

Describe project report and its need

Explain components of project report

Learning objectives

Describe the steps in formulation of project

report

Explain guidelines of planning commission on

project report

Describe the use of network analysis in project

management
Learning objectives
Explain the errors in project reports

Understand process of project appraisal

Explain market feasibility study

Explain technical feasibility study

Describe financial feasibility study

Understand the meaning of social feasibility study

 Project
The project management body of knowledge
(PMBOK) published by the project management
institute (PMI) defines project as

Any undertaking with a definite starting

point and defined objectives by which
completion is defined.

Projects by definition includes all types of

undertakings-construction, manufacturing, new
product or process development, new business
development, machinery installation etc.
Features of project
It has definite objectives

It consists of interrelated activities

It requires multiple skills

It has constraints of time, resources and

budget

It is unique
Control variable in project

1. Time

2. Cost

3. Quality

4. Scope

5. Risk
Project life cycle

The project life cycle has identifiable start and

end points, which can be associated with a time
scale.

A project passes through several distinct phases

as it matures.

The life cycle includes all phases from point of

inception to final termination of the project.
 The interfaces between phases are rarely
clearly separated.

Initiation or birth phase

Planning phase

Execution phase

Closure or exit phase

Project management

Project management is the discipline of

planning, organizing and managing the
resources to bring about the successful
completion of specific project goals and
objectives
Project management activities

Analysis and design of objectives and events.

Planning the work according to the

objectives.

Assessing
and controlling risk (or Risk
management).

Estimating resources

Allocation of resources
 Organizing the work

Acquiring human and material resources

Assigning tasks

Directing activities

Controlling project execution

 Tracking and reporting progress
( Management information system)

Analyzing the results based on the facts

achieved.

Defining the products of the project

Forecasting future trends in the project

Quality management
 Issues management

Issue solving

Defect prevention

Identifying, managing & controlling changes

Project closure ( and project debrief)

Communicating to stakeholders
Increasing / decreasing a companys workers
 Project report

Project report is a written document

prepared by the entrepreneur that
describes all the relevant external and
internal elements involved in starting a
new venture.

It is an integration of all functional plans like

marketing, finance, manufacturing and
human resources, which are required for
successful implementation of project.
Need for project report
It helps the entrepreneur to decide where he
wants to go

It helps him to determine the viability of the

venture

It provides guidance to the entrepreneur in

planning realistic goals and targets, in organizing
and even in identifying possible roadblocks

It is a pre-requisite to obtain finance

Components of project report
Summary a brief overview of the plan

Business description what the company does

Market analysis who is the customer, market size,

trends

Competitive analysis- who else is out there, local,

domestic, foreign

Product / service advantages why is yours better

 Objectives quantifiable targets.

Marketing strategy how to reach those

targets.

Operations - how will the company produce.

Organization & management who will run it.

 Timing when will things happen

Financial information historical, actual,

projected

Exhibits/appendices brochures, photos,

news clippings , etc.
Summary
A brief description of the business

Estimated market potential and competitive

assessment

Products advantages and market need it will meet

Objectives for the business

Market strategies
How will the product perform the service
 Experience with the product or service or industry

Projected sales and profits

Own investment in the project

How much financing is needed?

Wheres is this coming from and what it will be used

for
How and when the financing will be repaid
Business description

The legal form of the business. ( e.g.,

partnership, sole owner, private limited, public
limited, etc)

Specific product or service

The present or proposed location of the business

Existing or potential customers and their

geographic area, domestic, international
 A brief history of the business, how did you get
here?

How was the business financed until now?

Who are, or who will be, the owners

Market analysis
Market size

Market profile

Who are the customers?

Where are they?

When will they buy?

Why they buy?

What are their expectations?

Competition

How many companies you will be competing

against?

Where are they located, how long have they

been in business?

How do they distribute the product or service?

What is their respective market share?

 What are their strengths and weaknesses in
marketing, operations and finance, what are their
strategies?

How does your product compare in terms of

price, quality, service, design, delivery or their
features?

Do you intend to take market share away from

the competition?
Product or service advantages

Product description

Proprietary position

Barriers to competition

Regulatory requirements

Product extension
Objectives

Target markets

Estimated sales and market share

Marketing strategy

Product features

Pricing

Distribution

Promotion
Operations

Location and space requirements

Equipment requirements

Personnel requirements

Production or service operations

Organization and management

Organization

Key managers

Compensation

Ownership

Board membership
Timing

Schedule that reflects major milestones in your

business plan for the next three to five years

This can be very effectively presented by using a

chart and brief explanations

Planned product introductions, changes in

workforce or management, noteworthy sales
events (e.g., trade shows, selling seasons,
promotions, significant changes or events in your
marketing and significant changes to your
customer base
Financial information

Source and use of proceeds

Cash flow projection

Income statements and balance sheets

Breakeven analysis

Spreadsheets
Issues to be considered for
preparing a project report
The target audience

Business strategy

Competition

Involvement of people for creating the project

plan
Sources of information for project
identification
Consumers

Existing products and services

Distribution channels

Government sources

Observation

Trade and professional journals

PLANNING COMMISSION GUIDELINES

In order to process investment proposals and

arrive at investment decisions, the planning
Commission has issued guidelines for
preparing/formulating industrial projects.

The guidelines have been summarized as

follows:
 General information

The feasibility report should include an analysis

of the industry to which the project belongs.

It should deal with the past performance of the

industry

The description of the type of industry should

also be given, i.e., the priority of the industry,
increase in production, role of the public sector,
allocation of investment of funds, choice of
technique, etc
 Preliminary analysis of
alternatives:
This should contain, data on the gap between
demand and supply for the outputs.

The capacity that would be available from projects

that are in production or under implementation at
the time the report is prepared.

complete list of all existing plants in the industry,

giving their capacity and their level of production
actually attained.
All options that are technically feasible should
be considered at this preliminary stage
Project description:

The feasibility report should provide a brief

description of the technology/process chosen
for the project.

The report should contain a list of important

items of capital equipment and the operational
requirements of the plant, requirements of
water and power, requirements of personnel
etc.
Marketing plan

It should contain the following items:

Data on the marketing plan, demand and

prospective supply in each of the areas to be
served.

The methods and the data used for making

estimates of domestic supply and selection of
the market areas should be presented.

It should contain an analysis of past trends in

prices.
 Capital requirements and cost

The estimates should be reasonably complete

and properly calculated.

Information on all items of costs should be

carefully collected and presented.
 Operating requirements and
costs
Operating costs are essentially those costs which
are incurred after the commencement of
commercial production.

Operating costs relate to cost of raw, materials,

fuel, utilities, labour, repair and maintenance,
selling expenses and other expenses.
Financial analysis

The purpose of this analysis is to present some

measures to asses the financial viability of the
project.

The feasibility report should take into account

income tax rebates for priority industries,
incentives for backward areas, accelerated
depreciation, etc.

The sensitivity analysis should also be

presented.
PROJECT FEASIBILITY STUDY

Market feasibility

Technical feasibility

Financial feasibility

Economic feasibility

Ecological feasibility
Market feasibility

Market feasibility is concerned with two

aspects the aggregate demand for the
proposed product/service, the market share of
the project under consideration.
 Consumption trends in the past and the present
consumption level

Past and present supply position

Imports and exports

Structure of competition

Cost structure

Consumer behavior, intentions, motivations, attitudes,

preferences and
 Technical Analysis

Technical analysis seeks to determine whether

prerequisites for successful commissioning of the
project have been considered and reasonably
good choices have been made with respect to
location, size, and so on.
Important questions raised in
technical analysis

Has the availability of raw material, power,

and other inputs been established?

Is the selected scale of operation optimal?

Is the production process chosen suitable?

Are the equipment and machines chosen

appropriate?
Financial Analysis

Financial analysis is necessary as ascertain

whether the propose project is financially viable
and whether the propose project will satisfy the
return expectations of those who provide the
capital.
The aspects to be looked into while
conducting financial appraisal
Investment outlay and cost of project

Means of financing.

Project profitability

Break-even point

Cash flows of the project

Level of risk
Economic/Social Cost-benefit
Analysis
This is concerned with judging a project from
the larger social point of view, where in the
focus is on social costs and benefits of a
project, which may often be different from its
monitory costs and benefits.
Ecological Analysis

Today, environmental concerns assured a great

deal of significance and hence ecological
analysis should be done.

Projects like power plants and irrigation,

industries like chemicals, leather processing
etc.
 Project appraisal

Project appraisal is an exercise where by a lending

financial institution makes an independent and
objective assessment of various aspects of an
investment proposal to arrive at the financing
decision

It consists of technical, financial, commercial,

economic, ecological, social and managerial
aspects of the project.
 Project network analysis

A project consists of a number of constituted

activities. When these activities represented in the
form of a graphical portrayal it is called as
network.

Network analysis is a technique used by

managers for the planning and controlling of the
projects.

Network analysis is a vital technique in project

management which enables a systematic
quantitative structured approach to the problem
of managing a project through to successful
completion.
 A network generally comprises a set of symbols
connected with each other in a sequential
relationship with each step making the
completion of an event.

The network diagram and scheduling

computations enable the project team to identify
the longest series of activities through the project
implementation phase which determines the
project duration.
Critical Path Method
(CPM):
The CPM is a logical mathematical model of
the project based upon the optimal duration
required for each activity and optimal use of
available limited resources. It is a deterministic
model.
Program Evaluation and
Review Technique (PERT):
The PERT is primarily a scheduling technique. It
shows any job or project as a set of processes
of operations called activities which must take
place in a certain sequence.

All activities have to be compelled in order to

accomplish the project.
 Graphical Evaluation and
Review Technique (GERT):
The GERT is a more recently used network. This
is superior to CPM and PERT.

It allows for probabilistic events while all events in

CPM and PERT are deterministic.

The networks representing research and

development project, the process is repeated till
the desired out come is achieved. CPM and PERT
are not suitable in such situations.

In GERT network simulation can be used.

Line of Balance (LOB):

Line of balance uses graphic techniques to

show the progress achieved on the project with
respect to key events.
Program Evaluation and review
technique (PERT)
Program evaluation and review technique ( PERT)
charts depict task, duration, and dependency
information. Each chart starts with an initiation node
from which the first task, or tasks, originates.
Optimistic time: It is shortest time possible if
everything goes as per plan without any hurdles
Pessimistic time: It is the longest time conceivable
and it is the time required when unusual delays occur
Most likely time: It is the best estimate of what
normally would occur
Program evaluation and review
technique (PERT)
te = ( to + 4 tm+ tp) /6
- where te is mean time
- to is optimistic time
- tm is most likely time
- tp is pessimistic time
The basics of using PERT/CPM
Define the project and its all significant activities
Determine precedence relationship among the
activities
Estimate time to complete each activity
Draw the network connecting all the activities and
label it with time estimates
Compute largest time path (critical path) through the
network
Use the network to plan, schedule, monitor and
control the project
PERT
Advantages of PERT:
Helps management for best possible use of resources
to achieve the goal
Helps in handling uncertainties
Helps in taking right action, at right point, at right time
Limitation:
Estimating times for non-repetitive tasks is very difficult

PERT do not consider resources required for different

stages of project
CPM (Critical Path Method)
Critical path method (CPM) charts are similar to PERT charts
and are sometimes known as PERT/CPM
In a CPM chart, the critical path is indicated
A critical path consists of that set of dependent tasks (each
dependent on the preceding one) which together take the
longest time to complete
Tasks which fall on the critical path should receive special
attention by both the project manager and the personnel
assigned to them
CPM uses two time- cost estimates for each activity- one for
normal situation and other for crash situation
Crashing is reducing time for an activity by adding more
resources
CPM (Critical Path Method)
Advantages of CPM:
Helps in ascertaining the time schedule
It makes project control easy
Helps in giving attention to most critical elements of
project
Helps in better project planning
Limitations
Do not make use of statistical analysis in determining

time estimates
It is based on assumption of precise known time for

each activity, but this may not be true

Difference between PERT and CPM
Errors of project report
Lack of good market research leading to
underestimation or over estimation of
customer needs
Improper product selection and leading to
failure in acquiring market as per projection
Selection of improper technology, resulting in
either poor quality of product or increased
cost of manufacturing
Failure to make realistic project cost and time
estimations
Errors of project report
Failure to select a suitable location leading to
unexpected stoppages
Failure to understand sociological and
ecological impact
Failure to anticipate accurately the cash flow
thus facing cash crunch
Failure due to ownership pattern which is not
suitable
Lack of sufficient skills for report preparation
Failure to collect relevant data