Advanced Project Analysis and

Management

CFIM 6123
 Chapter 1: Project Identification
1.1. Overview of project and Project Cycle
oProject is an investment activity in which specific
resources are committed within a given time frame, to
create capital assets over an extended period of time in
expectation of benefits that exceed the committed
resource.
oA project is a non-repetitive activity that is goal oriented,
that has a particular set of constraints, the output of which
is measurable and that changes something when carried
out.
 A. Characteristics of projects
 Project involves the investment of scarce
resources in expectation of future benefits
 Involves a single definable purpose
 Every project is unique
 Has a defined life span with a beginning and
an end.
 A project is a temporary activity
 A project utilises skills and talents from
multiple organisations and professions
 Completed by a team of people – Team spirit
 Dynamic in nature
 B. Projects Vs Operations
Project Operations
1. New process or product 1. Repeat process or product
2. One objective 2. Several objectives
3. One shot – limited life 3. On-going
4. More heterogeneous 4. People are homogeneous
5. Systems must be created 5. Systems in place
6. Performance, cost & time 6. Performance, cost, & time
less certain known
7. Outside of line 7. Part of the line
organization organization
8. Violates established 8. Follows established
practice practice
 C. Project Classification
Projects can be classified based on
several criteria. Some of them are:
1. Based on Ownership
Private sector- mostly projects
undertaken by business enterprises.
Public sector- projects undertaken by
national and local government body.
NGO’s – development projects are most
often undertaken by non-government
and not for profit organizations.
 2. Based on the Sources of Finance
• Government treasury- projects entirely financed by
government budget as per its priority.
• Government treasury and external sources- most
projects are financed by the joint partnership of the
government and donor groups. For example, a
road project may be financed 50% by the
government and 50% by a foreign donors
• External Sources of Finance- projects may be
financed totally by parties other than the
government but established for the wellbeing of the
citizens and the ownership may be for the
government or the public.
 3. Based on purpose
•New projects: New investment is designed to
establish a new productive process independent
of previous lines of production. They often include
a new organization financially independent of
existing organizations.
•Expansion projects: They involve repeating or
expanding an existing activity with same output,
technology and organization.
•Updating projects: They involve replacing or
changing some elements in an existing activity
without a major change of output.
•They involve some change in technology but
within the context of an existing through
Other Bases of classification

 Location: Local Vs International

 Time Horizon: Short term Vs Long Term

 Sector: Mining, Industry, Agriculture,

Service
D. National Development Planning & Projects
Dev’t goal

Dev’t
Strategies

Dev’t plan

Program 1 Program 2 Program 3

Project 1 Project 2
Project 2 Project 1 Project 2
Project 1 Project 3
 Criteria Program Project
Scope/Objectivities Wide/diverse Narrower/limited

Location diffused/wide Specific

Life time Non-time bound Time bound

Beneficiaries Not specific Specific

Resources Larger budget Limited budget

 E. Project Cycle
• The sequence of phases through which the project
will evolve
• A project is basically defined by its phases,
according to which a project swims through &
finally reaches to handover stage.
• The main features of this process are
• information gathering,
• analysis and
• decision-making.
• There are various models that deal with the project
cycle.
 Baum Project Cycle
 The concept of the project cycle was first
popularized by a World Bank publication by
Warren Baum in 1970 with four elements
 Evaluation was added in a later version in 1978.
Five phases:
1) identification (finding the project)
2) preparation/analysis (Does it have merit?)
3) appraisal (critical review, independent)
4) implementation (getting it started)
5) evaluation (success or failure)
 Identification Phase
 Involves finding individual projects
 Sources:
 Resource based
 Market based
 Need based
 Technical specialists & local leaders
 Proposals to extend existing projects
 Bank reports
 Identification of potential stakeholders, particularly
primary stakeholders
 Carry out problem assessment and decide upon key
objectives
 Preparation/Analysis Phase
 The technical, commercial, institutional,
economic, environmental, and financial issues
facing the project studied and addressed
 including whether there are alternative methods for
achieving the same objectives.
 Assessing feasibility as to whether and
determining whether to carry out more
advanced planning.
 Project plan developed which can be appraised.
 Appraisal Phase
 Critical review,  Aspects to be
independent covered:
evaluation  Technical
 Financial
 re-examines every
 Commercial
aspect of the project
 Incentive
plan to assess its  Economic
logic/value prior to  Managerial
release of big money.  Organizational
 may involve new  environmental
information
 Implementation Phase
 Objective of previous phases is to have a
project that can be implemented to the
benefit of recipients
 the better and more realistic the project
plan, the easier to implement & more likely
it will be successful or beneficial
 implementation needs to be flexible,
though, considering changes in prices and
technology
 the greater the uncertainty or novelty of
the project, the more changes will occur
 Evaluation Phase
 This phase regards evaluation of success or
failure elements of a project
 Are or have objectives being/been met?
 If not, were the objectives realistic?
 Are the decisions or actions taken by the
management sound & responsible?
 usually takes place throughout the project, but
sometimes only at the end
 undertaken by management, sponsoring
company, agency, etc.
 some projects have separate internal units for
this or use outsiders
 UNIDO – Project Cycle
 UNIDO has established a project cycle
comprising three distinct phases.
 The pre – investment
 The investment
 The operational phases
 They are presented in to two concentric circles:
 The inner circle consists of the major phases
 The outer circle consists of the detailed steps in
each phase
 The activities on the lines indicate transition
from one phase to another.
 I. The pre-investment phase
 The pre – investment phase comprises
the following stages:
 opportunity studies

 Pre-feasibility study

 Support or functional studies

 Feasibility study

 Project appraisal and investment

decision
II. The investment/implementation Phase
 Can be divided into the following stages:

 Establishing the legal, financial and organizational basis for

the implementation of the project

 Technology acquisition and transfer

 Detailed engineering design and contracting

 Acquisition of land, construction work and installation

 Pre-production marketing

 Recruitment and training

 Plant commissioning and start up

III. Operational phase
Initial period after start-up (short-term view)
 Adaptation of production techniques
 Operational difficulties with equipment
 Low labor productivity
 Mostly originated from implementation phase

Full production (long-term view)

 Review of chosen strategies and related production and
marketing costs as well as sales revenues
 Comparison of projections made at the pre-investment phase
with reality
 Remedial measure either difficult or expensive
 Direct relationship with the projections made at the pre
investment phase
1.2. Project Identification
 Overview of Project Identification
 Project Identification is a repeatable process for
documenting, validating, ranking and approving
candidate projects.
 Purposes:
 Validate the business reason for each candidate
project.
 Establish a more objective ranking of candidate
projects.
 Allow a more effective matching of scarce resources
to the right project.
 Avoid over-allocating limited resources.

 Make Project Initiation faster and more efficient.

 Project identification is the initial phase of the
project development cycle.
 It begins with the conceiving of ideas or intentions
to set up a project.
 These ideas are then transformed into a project.
Project ideas may originate from:
 prevailing problems in a given area.
 availability of resources in a given location.

 Projects are conceived by:

 Individuals/Families
 Groups of individuals (community)/Local leaders
 NGOs
 Policy makers/Planners
 International development agencies
 Government pronouncements
1.3. Identification of Projects for Business Firms
 An entrepreneur has an infinitely wide choice with
respect to projects in different dimensions such as
 product/ service,

 market,

 technology,

 equipment,

 scale of production and location.

 The identification of investment opportunities

(projects) calls for understanding the environment in
which one operates, sensitivity to emerging
investments possibilities, and imaginative analysis of
a variety of factors.
 It is the first task of an entrepreneur to find out
suitable business idea
 which is feasible and promising and
 which merit further examination and appraisal.
 Therefore, it has to first search for a sound and
workable business idea and give a practical shape
to its idea.
 the entrepreneur has to tackle the various problems
from time to time to achieve the ultimate success.
 Since the good project ideas are elusive, a variety
of sources should be trapped to stimulate the
generation of project ideas.
 1.4. Steps in project identification
 Project ideas are like other ideas which don’t take
concrete shape immediately.
 There are several stages of making propositions, their
considerations and scrutiny for their soundness.
 This project identification may be broadly divided into
four stages,
 conceptual stage – project ideas are generated;

 screening stages – at which unviable ideas are

eliminated;
 identification stage – at which viable projects are
selected;
 Pre-feasibility state – at which prefeasibility studies
are taking up.
Conceptual Stage
 A number of project ideas may be generated

 either by those officials or non-officials and

 entrepreneurs individually or collectively who are

conversant with the area.

 In this context, one has to examine

 the potentialities of development and

 the problems, needs and aspirations of the

people of the concerned area.
 Sources of project ideas
 Project ideas could originate from various sources,
 examining the inputs and outputs of industries;
 plan outlays and government guidelines;
 suggestions of financial institutions
 investigation of local materials and resources;
 economic and social trend of the economy;
 new technological developments;
 project profiles and industrial potential surveys;
 visits to trade fairs;
 unfulfilled psychological needs;
 possibility of reviving sick units.
Analyze the performance of existing industries
 A study of existing industries in terms of their
profitability and capacity utilization
 The analysis of profitability and breakeven level of
various industries indicates promising investment
opportunities which are profitable and relatively
risk free.
 An examination of capacity utilization of various
industries provides information about the potential
for further investment.
 Such a study becomes more useful if it is region wise,
particularly, for products which have high
transportation costs.
Examine the inputs and outputs of industries
 An analysis of the inputs required for various
industries may throw up project ideas.
 Opportunities exist when

 materials purchased are presently being procured

from different sources with attendant time lag and
transportation costs and
 several firms produce internally some components
which can be supplied at a lower cost by a single
manufacturer who can enjoy economies of scale.
 A study of the output structure of existing industries
may reveal opportunities for further processing of
output or even processing of waste.
Examine imports and exports
 An analysis of import statistics for a period of five to
seven years is helpful in understanding the trend of
imports of various goods
 the potential for import substitution.

 Indigenous manufacture of goods currently imported is

advantageous for several reasons:
 it improves the balances of payments situations;

 it provides market for supporting industries and

services;
 it generates employment.

 An examination of export statistics is useful in

learning about the exports possibilities of various
products.
Plan outlays and government guidelines
 The government plays a very important role in
our economy.
 Its proposed outlay in different sectors provides
useful pointers toward investment opportunities.
 They indicate the potential demand for goods
and service required by different sectors.
 Leads to input output analysis also.

 For instance, Condominium Housing Projects

by the government will lead to schools,
Hospitals and other consumer goods projects
by businesses
Visit to trade fairs
 Attending National and International trade fairs -
excellent opportunity to know about new products
 The sources of project ideas may be generated by
 government agencies,
 credit institutions,
 non-governmental organizations and the public.
 The government has the largest resources and the
necessary information to generate project ideas and it
plays a predominant role in this sphere.
 Banks and other financial institutions are actively involved in
sharing the social responsibility of achieving the national
objectives of economic development.
Screening Stage
 Here, project ideas generated above are screened
in a preliminary exercise to weed out the unviable
ideas.
 All project ideas would not pass the screening test.
Some project ideas may be imaginary to warrant
any serious consideration.
 The third and fourth stages may be called as
investment opportunity study.
 This study is preliminary and is a broad one having a
limited objective of providing planners with projects from
which they can make a selection.
 Prefeasibility study can be differentiated from opportunity
study and a detailed feasibility study mainly on the basis
of information required for respective stages.
Factors for Preliminary Screening
 Compatibility with the Promoter
 It Fits the Personality of the Entrepreneur
 It is Accessible to Him
 It offers him the Prospect of Rapid Growth and High Return
on the Invested Capital
 Consistency with the Government Priorities
 Is the Project Consistent with the National Goals and
Priorities?
 Are there any Environmental Effects Contrary to
Governmental Regulations?
 Can Foreign Exchange Requirements of the Project be
Easily Accommodated?
 Will there be Any Difficulty in Obtaining the License of the
Project?
 Availability of Inputs
 Are the Capital Requirements of the Project within
Manageable Limits?
 Can Technical Know-How Required for the Project
be Obtained?
 Are the Raw Material Required for the Project
Available Domestically at a Reasonable Cost? If the
Raw Materials Have to Be Imported, Will there be
Problems?
 Is the Power Supply for the Project Reasonably
Obtainable from External Sources and Captive
Power Resources
 Adequacy of Market- size of market must fit
prospect of adequate sales volume.
 Factors are:
 Total Present Domestic Market

 Competitors and Their Market Share

 Export Markets

 Sales and Distribution System

 Projected Increase in Consumption

 Barriers to the Entry of New Units

 Economic, Social and Demographic Trends

 Patent Protection
 Reasonableness of Cost
 cost structure enables to realize acceptable profit
 Cost of Material Inputs, Labour Costs, Factory
Overheads, General Administrative Expenses,
Selling and Distribution Cost, Service Cost,
Economies of Scale
 Acceptability of Risk Level
 Technological Changes

 Competition from Substitutes

 Competition from Imports

 Governmental Control Over Price and

Distribution
 Project Rating Index
The steps involved in determining the project
rating index are as follows:
 Identify factors relevant for project rating
 Assign weights to these factors ( the weights are supposed to
reflect their relative importance)
 Rate the project proposal on various factors, using a suitable
rating scale (Typically a 5-point scale or a 7-point scale is used
for this purpose.)
 For each factor, multiply the factor rating with the factor weight
to get the factor score
 Add all the factor scores to get the overall project rating index
 Project Rating Index
Factor Rating
Factor Weight Factor
VG G A P VP score
5 4 3 2 1

Input availability 0.25  0.75

Technical know-how 0.10  0.40
Reasonableness of cost 0.05  0.20
Adequacy of market 0.15  0.75
Complementary relationship
with other products 0.05  0.20
Stability 0.10  0.40
Dependence on firm’s
strength 0.20  1.00
Consistency with
governmental priorities 0.10  0.30

Rating Index 4.00

 1.5. Project Identification For An Existing Company

• Existing companies which seek to identify new project

opportunities should undertake a “SWOT” analysis
• They have to make a more intensive analysis of their
resources and environment and conceive of projects on the
basis of their existing activities.
• They should analyze:
• Capability of raising external financial resources
• Availability of production facilities
• Technological capabilities of the company
• Availability of different sources of raw materials and its utilization
TOWS Matrix
• They should analyze:
• Availability of infrastructural facilities
• Cost structure and profit margins of the company
• Distribution network of the company
• Market share of the company
• Capability of top management of the company
• Likely changes in the governmental policies
• Existence and severity of competition
• Changes in the customers preferences
1.6. Identification of Development Projects
 Development projects usually refer to projects
undertaken by government and NGOs.
 Clear identification of these projects allows to
answers questions like:
 How do the projects come about?
 Where do projects come from?
 Why are projects where they are?
 There are two major approaches to project
identification
 Top-down approach
 Bottom-up approach
 Top-Down Approach
 Projects are identified based on demands from beyond the
community.

 This may include directives from:

 international conventions (such as Kyoto Protocol/climate

change)

 international institutions or NGOs that have determined

particular priorities and thus projects

 national policy makers identifying projects that pertain to

party manifestos and/or national plans.
 Advantages of Top-Down Approach
 It may be a rapid response to disasters like
floods, war outbreak because there is limited
time and chance to consult the beneficiaries.
 It can be effective in providing important
services like education, health, water, roads
etc.
 It can contribute to wider national or
international objectives and goals
 and therefore potentially be part of a wider benefit
(as in the case of trans-boundary resources, such
as climate, water or others)
 Limitations of Top-Down Approach
 Does not help in modifying strongly established ideas
and beliefs of people.
 Assumes external individuals know better than the
beneficiaries of the service.
 Communities have little say in planning process
rendering approach devoid of human resource
development.
 Community develops dependency syndrome on
outside assistance and does not exploit their own
potential.
 The development workers (change agents) become
stumbling blocks to people-led development
 tendency to impose their own biases, etc. on
people.
 Bottom-Up Approach
 In this approach community/beneficiaries are encouraged
to identify and plan the projects themselves with or without
outsiders.
 Advantages of Bottom-Up Approach
 Interveners accomplish more with limited resources
since people tend to safeguard what they have provided
for themselves.
 Develops people’s capacity to identify problems and
needs and to seek possible solutions to them.
 Provides opportunities of educating people.
 Helps people to work as a team and develop a “WE”
attitude - makes project progressive and sustainable.
 Resources are effectively managed; dependence
reduces, there is increased equity, initiative,
accountability, financial and economic discipline.
Limitations of Bottom-Up Approach
 Not always effective for projects that require
urgency to implement
 Time-consuming and requires patience and
tolerance.
 People sometimes dislike approach because
they do not want to take responsibility for
action.
 The agency using this approach is never in
control and cannot guarantee the results it
would want.
 The priorities of communities may not fit with
national or international priorities that seek to
have a broader impact
 The problem statement
 The process of project identification ends with
the formulation of a problem statement.
 It takes the form of:
 Listing all the problems/needs in the
community/area/ organization.
 Prioritizing the problems and selecting 1 – 3 core
(major) problems.
 Finding out the root causes of the problems.
 Setting the likely effects of the problems on the
community.
 Suggesting the probable solutions to the
problems.
 Identifying the (projects) from the solutions.
 Chapter 2:
Market/Demand Analysis
 2.1 Overview of Feasibility study
 Feasibility study is an analysis of the ability to complete
a project successfully, taking into account legal,
economic, technological, scheduling and other factors..

 It allows project managers to investigate the possible

negative and positive outcomes of a project before
investing too much time and money.

 For example, if a private school wanted to expand its

campus to alleviate overcrowding, it could conduct a
feasibility study to determine whether to follow through.
 This study might look at
 where additions would be built

 how much the expansion would cost

 how the expansion would disrupt the school year

 how students and parents feel about the proposed

expansion

 what local laws might affect the expansion

 Business plan Vs Feasibility study

 Different concepts
Reasons to Do a Feasibility Study
 Give focus to the project and outline
alternatives by narrowing them
 Surface new opportunities through the
investigative process
 Identify reasons not to proceed
 Enhance the probability of success
 Provide quality information for decision
making
 Help to increase investment in the company

 Help in securing funding from the

sources
Reasons given not to do a Feasibility Study
 We know that it is feasible as an existing
business is already doing it
 Why do we do another feasibility study when
one was done just a few years ago?
 Feasibility studies are just a way for consultants
to make money
 The market analysis has already been done by
the business that is going to sell us the
equipment
 Feasibility studies are a waste of time
2.2 Market & Demand Analysis
 A market is any place where the sellers can
meet with the buyers where there is a
potential for a transaction to take place.
 Marketing is a business activity of
presenting products or services to potential
customers in such a way as to make them
eager to buy
 Market analysis is a process of assessing
the level of demand for the product or
service to be produced by the project.
2.2.1 Role of Market/Demand Analysis
Market analysis usually ranks top in the
sequence of the core chapters of a feasibility
study.
 Analysts who have to calculate the socio – economic
costs and benefits of a project, can only start their job, if
market analyst delivers sales forecast and market
strategy.
 market analysis is obviously more ambitious and risky in
comparison to the other parts of a feasibility study, as it
has to fight with the future.
 The marketing demand and sales forecast is necessarily
subjective and vague, since, in the final end it has to
deal with the behavior of human beings
2.2.2 Steps In market and Demand
Analysis
 Collection of Demand
Secondary Forecasting
Information

Situational
Characterizat
Analysis and
ion of the
Specifications of
Market
Objectives

Conduct of Market
Market Survey Planning
1. SITUATIONAL ANALYSIS AND SPECIFICATIONS OF OBJECTIVES
 An informal survey of what information is available in the area
 The analyst may informally talk to the customers,
competitors, middlemen, and others in the industry
 To learn about:
◦ the preferences and purchasing power of customers
◦ actions and strategies of competitors
◦ practices of the middlemen.

 To carryout formal study after this stage, it is necessary to

specify objectives of market study at this stage.
◦ May be structured in the form of questions.
 The objectives of the market and demand analysis
may be to answer the following questions:
Who are the buyers of the product?
What is the total current demand for the product?
How is the demand distributed temporally &
geographically?
What is the break-up of demand for products of different sizes?
What price will the customers be willing to pay for the
improved product?
How can potential customers be convinced about the
superiority of the new product?
What channels of distribution are most suited for the product?
2 COLLECTION OF SECONDARY INFORMATION

 There are two types of secondary

information:
 General Sources of Secondary
Information
 Industry Specific Sources of Secondary
Information
 Evaluation of Secondary Information
 Timeliness and accuracy
 3 CONDUCT OF MARKET SURVEY

 Census Survey
 Sample Survey

 Steps in a Sample Survey

 Define the Target Population
 Select the Sample Size and Sampling Scheme
 Develop the Questionnaire
 Recruit and Train the Field Investigators
 Obtain Information as Per the Questionnaire
from the Sample of Respondents
 Scrutinize, analyze and interpret the Information
 4 CHARACTERISATION OF THE MARKET

 Effective Demand in the Past and Present

Production + Imports – Exports – Change in stock level
 Breakdown of Demand
 Nature of Product
 Consumer Groups
 Geographical Division
 Price
 Methods of Distribution and Promotion
 Consumers
 Supply and Competition
 Government Policy
 5. DEMAND FORECASTING

Two main types: qualitative and quantitative

I. Qualitative (Subjective) Methods
 These methods rely essentially on the judgment
of experts to translate qualitative information into
quantitative estimates
 Used to generate forecasts if historical data are
not available (e.g., introduction of new product)
 The important qualitative methods are:
 Jury of Executive opinion Method
 Delphi Method
5 DEMAND FORECASTING

II. Quantitative (Objective) methods

 Employ one or more mathematical models that
rely on historical data and/or causal/indicator
variables to forecast demand.
 Major methods include:
 time series projection methods
 causal models
UNCERTANITIES IN DEMAND
FORECASTING

 Data about past and present markets.

 Lack of standardization
 Few observations
 Influence of abnormal factors
 Methods of forecasting
 Inability to handle unquantifiable factors
 Unrealistic assumptions
 Excessive data requirement
UNCERTANITIES IN DEMAND
FORECASTING

 Environmental changes
 Technological changes
 Shift in government policy
 Developments on the international scene
 Discovery of new source of raw material
COPING WITH UNCERTAINTIES
 Conduct analysis with data based on
uniform and standard definitions.
 Ignore the abnormal or out-of-ordinary
observations.
 Critically evaluate the assumptions
 Adjust the projections.
 Monitor the environment.
 Consider likely alternative scenarios.
 Conduct sensitivity analysis
6 Market Planning
 Marketing plan is product specific, market
specific , or company-wide plan that describes
activities involved in achieving specific marketing
objectives within a set time frame.

 A marketing plan shows the specifics of how you

will market or attempt to sell your product or
service.
6 Market Planning
It has the following key components
 1. Current marketing situation: market situation,
competitive situation, distribution situation, macro-
environment, etc.
 2. Opportunity and issue analysis: SWOT analysis
 3. Objectives: clear-cut, specific, and achievable.
 4. Marketing strategy: Target segment, positioning,
product line, price, distribution, sales force, promotion,
etc.
 5. Action program: what will be done, when it will
begin or be completed, who will accomplish the tasks,
what financial resources are required, etc
The End