Course No.

ET ZC414

Project Appraisal
BITS Pilani
Hyderabad Campus

Module 2 Session 26
S. Hanumantharao Date : 1/24/2014

Total ppt : 26

BITS Pilani
Hyderabad Campus

Chapter 5
Technical Analysis

Objectives
Materials and inputs
Production technology
Choice of technology
Product Mix
Plant capacity
Location and site
Structures and civil works
Environmental aspects
Machinery and equipment
Project charts and layouts
Work Schedule

Technical analysis
implies the adequacy
of the proposed plant
and equipment to
prescribed norms.
It should be ensured
whether the required
know how is
available with the
entrepreneur

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Materials and inputs

An important aspect of technical appraisal is concerned with
defining the materials and inputs required, specifying their
properties in some detail, and setting up their supply
programme.
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:
1)
2)
3)
4)

raw materials,
processed industrial materials and components,
auxiliary materials and factory supplies,
And utilities.
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Production technology
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.
Paper, using bagasse as the raw material, can be manufactured
by the kraft process or the soda process or the Simon Cusi
process.
Vinyl chloride can be manufactured by using one of the following
reactions: acetylene on hydrochloric acid or ethylene on
chlorine.
Soap can be manufactured by semi boiled process or fully boiled
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process.

Choice of Technology
Principal inputs
the quality of limestones determines whether the wet or dry process should be
used for a cement plant.

Investment outlay and production cost

Use by other units
Product mix
Latest developments
Ease of absorption

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Appropriateness of Technology
Whether the technology utilizes local raw materials?
Whether the technology utilizes local manpower?
Whether the goods and services produced cater to the
basic needs?
Whether the technology protects ecological balance?
Whether the technology is harmonious with social and
cultural conditions?

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Technical collaboration
The nature of support to be provided by the collaborators during
the designing of the project, selection and procurement of
equipment, installation and erection of the plant, operation and
maintenance of the plant, and training of project personnel.
Process and performance guarantees in terms of plant capacity,
product quality, and consumption of raw materials and utilities.
The price of technology in terms of one-time licensing fee and
periodic royalty fee.
The continuing benefit of research and development work being
done by the collaborator.
The period of collaboration agreement.

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Technical collaboration
The assistance to be provided and the restrictions to be
imposed by the collaborator with respect to exports.
The level of equity participation and the manner of sharing
of management control, especially if the technical
collaboration is backed by financial collaboration.
Assignment of the agreement by either side in case of
change of ownership.
Termination of the agreement or other remedies when
either party fails to meet its obligation.
Approach to be adopted in force majeure situations.

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Product mix
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 under different
situations.
The degree of flexibility chosen may be based on a careful
analysis of the additional investment requirement for
different degrees of flexibility.

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Plant capacity

The maximum capacity generally is different from the capacity that produces
optimal results.
For particularly in process type industries, there is a certain minimum
economic size determined by the technology: a cement plant should have a
capacity of at least 300 tons per day to use the rotary kiln method;
otherwise, it has to employ the vertical shaft method suitable for lower
capacity.
Economics of scale:
= a factor reflecting capacity-cost relationship. (0.2 to 0.9)
if capacity-cost relationship factor is 0.6,
and the known investment cost for 5,000 units of capacity for the manufacturer of a certain item is
Rs.10,00,000,
then the capacity cost for 10,000 units is 10,00,000 * (10000/5000)^0.6 = 15,16,000

.. Now we have to consider the cost of; and access to investment.

Government Policy

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Location and site

Location refers to a fairly broad area like a city, an industrial
zone, or an 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, labor situation, governmental
policies, and other factors.
Several other factors have to be assessed before arriving at
a location decision:

Climatic conditions
General living conditions
Proximity to ancillary units
Ease in coping with pollution

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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) supply and distribution of utilities (water electric power, communication, steam,
and gas);
(ii) handling and treatment of emission wastages, and effluents;
(iii) transportation and traffic signals;
(iv) outdoor lighting:
(v) landscaping;
and (vi) enclosure and supervision (boundary wall, fencing, barriers gates, doors,
security posts, etc.)

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Environmental aspects
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.
Projects that produce physical goods like cement, steel,
paper, and chemicals by converting natural resource
endowments into saleable products are likely to cause
more environmental damage. Hence the environmental
aspects of these projects have to be properly examined.
What are the types of effluents and emissions generated?
What needs to be done for proper disposal of effluents and treatment of emissions?
Will the project be able to secure all environmental clearances and comply with all
statutory requirements?

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Machinery and
equipment
1) There may be a limited availability of power to set up an
electricity intensive plant like, for example, a large
electric furnace;
2) There may be difficulty in transporting a heavy
equipment to a remote location;
3) Workers may not be able to operate, at least in the
initial periods, certain sophisticated equipment such as
numerically controlled machines;
4) The import policy of the government may preclude the
import of certain types of machinery and equipment.

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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-inprocess, and finished goods. This means that:
The layout should seek to allow traffic flow in one direction to the extent possible,
with a minimum of crossing.
Godowns, workshops, and other services must be functionally situated with
respect to the main factory buildings.

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General Functional Layout

Material Flow Diagram This shows the flow of materials,
utilities, intermediate products, final products, byproducts, and emissions. Along with the material flow
diagram, a quantity flow diagram showing the quantities
of flow may be prepared.
Production Line Diagrams These show how the production
would progress along with the main equipments.
Transport Layout This shows the distances and means of
transport outside the production line.

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General Functional Layout

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.
Communication Layout This shows how the various parts of
the project will be connected with telephone, internet,
intercom, etc. '
Organizational Layout This shows the organizational set-up
of the project along with information on personnel
required for various departments and their
interrelationship.
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Plant Layout
The plant layout is concerned with the physical layout of
the factory. In certain industries, particularly process
industries, the plant layout is dictated by the production
process adopted. In manufacturing industries, however,
there is much greater flexibility in defining the plant
layout. The important considerations in preparing the
plant layout are:

Consistency with production technology

Smooth flow of goods from one stage to another
Proper utilization of space
Scope for expansion
Minimization of production cost
Safety of personnel

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Schedule of project implementation

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

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BITS Pilani, Hyderabad Campus

Work Schedule
The work schedule, as its name suggests, reflects the plan
of work concerning installation as well as initial
operation. The purpose of the work schedule is:
To anticipate problems likely to arise during the installation phase and suggest
possible means for coping with them.
To establish the phasing of investments taking into account availability of
finances.
To develop a plant of operations covering the initial period (the running in period).

Often, it is found that the required inputs like raw material

and power are not available in adequate quantity when
the plant is ready for commissioning, or the plant is not
ready when the raw material arrives.

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Summary
For manufacturing a product/ service often two or more
alternative technologies are available. The choice of
technology is influenced by a variety of considerations:
plant capacity, principal units, investment outlay,
production cost, use by other units product mix, latest
developments, and ease of absorption.
Satisfactory arrangements have to be made to obtain the
technical know-how needed for the proposed
manufacturing process

BITS Pilani, Hyderabad Campus

Summary
An important aspect of technical analysis is concerned with defining the
material and inputs required, specifying their properties in some
detail, and setting up their supply programme. Materials may be
classified into four broad categories: (i) raw materials, (ii) processed
industrial materials and components, (iii) auxiliary materials and
factory supplies, and (iv) utilities.
The acquisition of technology from some other enterprise may be by
way or (i) technology licensing, (ii) outright purchase, or (iii) joint
venture arrangement. Appropriate technology refers to those
methods of production which are suitable to local economic, social,
and cultural conditions.
Several factors have a bearing on the plant capacity decision:
technological requirements, input constraints, investment cost,
market conditions, resources of the firm, and governmental policy.

BITS Pilani, Hyderabad Campus

Summary
The choice of location is influenced by a variety of
considerations: proximity to raw materials and markets,
availability of infrastructure facilities, and other factors.
Once a broad location is chosen, the attention needs to
be focussed on the selection of site - a specific piece of
land where the project would be set up.
The requirement of machinery and equipment is dependent
on production technology and plant capacity. Further, it is
influenced by the type of product.
Structures and civil works may be divided into three
categories: (i) site preparation and development, (ii)
buildings and structures, and (iii) outdoor works.
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Summary
A project may cause environmental pollution in various ways. Hence
the environmental aspects have to be properly examined.
Once data are available on the principal dimensions of the project,
project charts and layouts may be prepared. The important charts
and layout drawings are: (i) general functional layout, (ii) material
flow diagrams, (iii) production line diagram (iv) transport layout,
(v) utility consumption layout, (vi) communication layout (vii)
organisational layout, and (viii) plant layout
As part of technical analysis, a project implementation schedule is
also prepared.
The work schedule reflects the plan of work concerning installation
as well as initial operation .

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