Chapter Four
Technical Analysis of Project
1
Points:
1. Briefly describe pant capacity issues
2. Explain the raw materials and supplies issues of a project
3. Discuss location and site selection analysis of projects.
4. Describe the environment impact assessment of projects.
5. Describe technology and engineering issues of projects.
6. State organization and human resource aspect of projects.
2
4.0 Introduction
In this chapter, you will get fundamental technical issues
in Project Analysis.
Practically applicable (Availability)
Most optimum formulation (best)
3
4.1 Overview of Technical Analysis
What mean technical Analysis?
The broad purpose of technical analysis is:
a. To ensure that the project is technically feasible in the
sense that all the inputs required to set up project are
available (Practically applicable).
b. To facilitate the most optimal formulation (best) of the
project in terms of technology, size, location,
machinery, equipment, etc.
4
Cont…
The following are basic issues pertaining to technical
analysis using common sense and economic logic.
4.1.1 Plant capacity
4.1.2 Raw materials and Supplies study
4.1.3 Location and site, and environmental impact
4.1.4 Technology and engineering
4.1.5 Human resource organization
5
4.1.1 Plant Capacity
How do you understand Plant Capacity?
Volume or number of units that can be produced
during a given period.
Plant capacity may be seen from two perspectives:
1. Feasibility normal capacity (FNC)
Capacity of the plant under normal working conditions.
taking into account the installed equipment, technical
conditions of the plant, such as normal stoppages, down time,
holidays, maintenance, tool changes, desired shift patterns,
indivisibilities of major machines, management system
applied, etc.
6
Cont…
2. Nominal maximum capacity (NMC)
A higher capacity – nominal maximum capacity
Taking into account overtime, excessive consumption of
factory supplies, utilities, spare parts and wear – and tear
parts, as well as disproportionate production cost increases.
What could be the determinants of Plant Capacity?
Factors Determining Capacity Decision:
1. Technological Requirement
2. Input Constraints
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 import may be
inadequate, etc. 7
Cont…
3. Market Condition
Very strong market = Higher capacity is preferable
Uncertain market = start with small capacity
4. Resources of the firm, etc.
Both managerial and financial available
8
4.1.2 Raw Materials and Supplies study
An important aspect of technical analysis is concerned
with defining the materials and utilities required.
Issues to be raised in relation to materials and parts
include:
What types of materials are needed?
Where are the sources of the materials and supplies?
How the materials and supplies are obtained?
How the materials and supplies will be provided such as
normal purchase, and the like
9
Cont…
What are the costs of each materials?
Both unit and total costs of materials.
Environmental factors
Resources depletion and concern for pollution-
environmental degradation and deforestation are critical
problems these days.
10
4.1.3 Location and Site
Location vs site?
Although most often the terms ‘location’ and ‘site‘ are used
synonymously, they should be distinguished.
Location refers to a relatively broad area like a city, or an
industrial zone, or a coastal area,
But site refers to a specific piece of land where the project
would be set up.
From one location several alternative sites can be considered.
11
Cont…
1. Location Analysis
Some of the basic aspects of location selection are considered:
a. Climatic Conditions
Includes: Rainfall, dust, fumes, and other factors.
Means of transport may becomes less reliable in the case of
heavy snow or rainfall, causing interrupted supplies of perishable
products to distant market.
Fluctuating quantities and qualities of raw materials owing to
extreme weather conditions.
Skilled labor force is reluctant to work in areas with climatic
conditions, which leads to less efficient or more expensive.
12
Cont…
b. Ecological Requirements
Some projects may not have a negative environmental impact
themselves. But they may be sensitive to such effects.
Management and labor may be reluctant to work in a factory
located in a polluted area with healthy risks.
c. Environmental Impact Assessment (EIA)
Environmental consequences of a project.
d. Public Policies
Incentives to encourage investment projects etc are important
location factors. For example, some area may be prioritized for a
certain project and/or tax holiday may be given for projects in a
certain area.
13
Cont…
e. Infrastructural Conditions
Includes:
14
Cont…
Final Choice of Location, Generally,
Raw materials based project – Located near resource.
A perishable based project – Located near consumption center.
Imported material based project - located near a port.
2. Choice of Site
• Once the location or alternative locations are decided upon, a
specific project site or alternative sites should be defined in the
feasibility study.
15
4.1.4 Technology and engineering
Some of integral parts of engineering at the feasibility stage are:
1. Technology Choice
2. Technology Acquisition and Transfer
16
Cont…
1. Technology Choice
Selection of appropriate technology and know–how is a
critical element in any feasibility study.
Selection of the most suitable alternative in relation to the
project to investment strategy chosen.
The choice of technology is depend on:
Plant Capacity.
Close relationship between plant capacity and production
technology.
17
Cont…
Use by Other Units
The technology adopted must be proven by successful use by
other units.
Latest Developments
likelihood of technological obsolescence in the near future,
at least, is minimized.
Ease of Absorption
A technology that is difficult to adapt shall be rejected.
Labor situation
A shortage and expensive labor - capital intensive technology
Excessive and cheap labor - labor intensive technology
18
Cont…
2. Technology Acquisition and Transfer
How do we get technology?
Alternative sources of technology supply:
a. Technology-Licensing
Gives the licensee the right to use patented technology.
Appropriate for continuous technology improvement.
b. Purchase of Technology
Appropriate if there is no possible improvement in technology in
the foreseeable future, and
Hard to get technological support from the seller technology.
19
Cont…
c. Joint Venture Arrangement
Getting technology in the form of equity holding
Appropriate to get technical assistance from technology suppliers.
Appropriate if the technology is highly expensive.
20
4.1.5 Human Resource and Organization
Once the production program, plant capacity, raw materials and
supplies, location and site, environmental, technological
processes to be employed and plant organization have been
determined, the human resource requirements at various levels
and during different stages of the project must be defined, as well
as their availability and costs.
Human resources categories:
General management
Production management and supervision
Administration (Finance, purchasing, marketing etc.)
Production control, etc.
21
Cont…
Human resource costs categories:
Variable and fixed costs
Direct and indirect costs of training
Administration and marketing costs etc.
22
THE END!
23
