PROJECT MANAGEMENT:

Project management is two-fold: Financial and Administrative. It is therefore imperative to understand these two aspects.

An ideal project is one which is carefully selected and prepared, thoroughly appraised/ analyzed, closely supervised and systematically evaluated. Project management deals with proper identification, formulation and appraisal. These three aspects from the basic foundation for the success of projects.

PHASES OF PROJECT MANAGEMENT:

An entrepreneur has to consider carefully various factors from the start to the finish in converting profitable opportunities into realities. The process of project management may be divided into six broad phases – identification, formulation, appraisal, selection, implementation and management of projects.  

		PHASES OF A PROJECT
S.no.	PHASE	REQUIREMENTS
1	Identification	Selection of a project after a careful scanning of the environment of investment opportunity and its likely return
2	Formulation	Translation of the idea into a concrete project with scrutiny of its important preliminary aspects. Preparation of feasibility reports.
3	Appraisal	Searching scrutiny, analysis and evaluation of market technical, financial and economic variables. Assessing the profitability, return investment and break even points.
4	Selection	Rational choice of a project in the light of objectives and inherent constraints.
5	Implementation	Expeditious completion within the allocated resources
6	Management	Judicious operation of a project / enterprise with objectives like maximisation of net present value, maximisation of return and increase and increase in the rate of return of low risk.

PROJECT IDENTIFICATION

Introduction:

Project identification is the first step of a new venture. Project identification is concerned with collection, compilation and analysis of economic data for the eventual purpose of locating possible opportunities for investment and with the development of such opportunities. Opportunities according to Drucker are of three kinds: additive, complementary and breakthrough.

Additive opportunities are those opportunities which enable the decision – maker to better utilize the existing resources without in any involving a change in the character of business. These opportunities involve minimum disturbance to the existing state of affairs and hence the least risk. Complementary opportunities involve the introduction of new ideas and as such do lead to a certain amount of change in the existing structure. Breakthrough opportunities on the other hand involve opportunities involve fundamental changes in both the structure and character of business. The element of risk is greater in the case of complementary opportunities and is greatest in the case of breakthrough opportunities.

CRITERIA FOR SELECTING A PARTICULAR PROJECT:

1.     Investment size: the investment size should be at least Rs.3 to 5 crore.

2.     Location; A new entrepreneur should locate his project to the extent possible in and around the state headquarters.

3.     Technology: The first project should be for a product which requires high technology, necessitating foreign technical collaboration. It is better to go in for product with a proven technology that is indigenously available.

4.     Equipment: The entrepreneur should select the best equipment as per advice of experienced technical consultants. He should not compromise on the quality of the equipment.

5.     Marketing: it is not advisable to get into a project particularly the first, which would mean survival amidst cut – throat competition involving direct selling to the ultimate consumer. One should to in for products with a limited number say 10 to 20 of industrial customers.

One major aspect while choosing a project idea should be a ascertain the extent of the marketability of the product proposed to be manufactured, its general use, industries which use it, its end – use and its buyers. You should therefore study the demand and supply of the product over the last few years to estimate its future demand based on the past trend. While doing so, the anticipated changes in fashions, technology and levels of income of the people. If the product proposed to be manufactured has a market throughout the country the study should take into account the demand and supply of the product for the whole country.

PROJECT FEASIBILITY ANALYSIS

            A project feasibility analysis includes market analysis, technical analysis, financial analysis and social profitability analysis.

The starting point of a project analysis is the establishment of objectives to be attained. The next stage is the pre – selection stage – the advisability of having an in depth study. The analysis stage consists mainly of three factors – market, technical and financial analysis. A market analysis is a method of screening project ideas as well as means of evaluating a project’s feasibility in terms of the market. A market analysis should cover the following areas:

1.     A brief market description including the market are, methods of transportation, existing rates of transport, channels of distribution and general trade practices.

2.     An analysis of past and present demand, determination of quantity value of consumption and identification of the major consumers of the product.

3.     An analysis of past and present supply, broken down as source (whether imported or domestic) as well as information to assist in determining the competitive position of the product such as selling process quality and marketing practices of competitors.

The technical analysis of a project feasibility study establishes whether project is technically feasible or not, and whether if offers basis for the estimation of costs. Moreover it provides an opportunity for a consideration of the effect of various technical alternatives on employment, ecology, infrastructure demands, capital services, support of other industries, balance of payments and other factors. A technical analysis should review the techniques or processes to be applied and should incorporate.

1.     A description of the product including specification relating to its physical, mechanical and chemical properties, as well as the uses of the product.

2.     A description of the selected manufacturing process, showing detailed flow charts and presenting alternative processes which may have been considered and the justification for the adoption of the selected process.

3.     A determination of the plant size and production schedule which includes the expected volume for a given time period on the basis of start up and technical factors.

4.     Selection of machinery and equipment including specifications, equipment to be purchased and its origin, quotations from suppliers, delivery dates, terms of payment and a comparative analysis of alternatives in terms of cost reliability performance and spare parts availability.   

5.     An identification of plant’s location and as assessment of its desirability in terms of its distance from raw material sources and markets. For a new project this part may include a comparative study of different sites, indicating the advantages and disadvantages of each.

6.     A design of the plant layout and an estimate of the cost of the erection of the proposed buildings and land improvements.

7.     A study of the availability of raw materials and utilizes including a description of physical and chemical properties, quantities needed, current and prospective costs, terms of payment, location of sources of supply and continuity of supply.

8.     An estimate of labour requirements, including a detailed break – down of direct and indirect labour requirements and the supervision required for the manufacture of the product.

9.     A determination of the type and quantity of waste to be disposed of together  with a description of the waste disposal method, its costs and the necessary clearance from proper authorities.

10.   An estimate of the production cost of the product.

In the financial analysis of this feasibility study, the emphasis is on the preparation of financial statements, so that the project may be evaluated in terms of the different measures of commercial profitability followed by the magnitude  of financing which requires the assembly of the market and also technical cost estimated in various proforma statements. If it is necessary to have more information on which to base an investment decision a sensitivity analysis or possibly a risk analysis may be conducted. This financial analysis should include:

1.     For projects that involve new companies, statements of total project cost, for initial capital requirements and cash flows relative to the project schedule. For all projects financial projections for future time periods including income statements, cash flows and balance sheets.

2.     For all projects supporting schedules for financial projection, stating the assumption made as to the collection period of sales, inventory levels, payment period of purchases and expenses and the element of production cost, selling, administrative and financial expenses.

3.     For all projects a financial analysis showing returns on investments returns on equity , break even volume and price analysis.

4.     For all projects, if necessary a sensitivity analysis to identify which have a substantial impact on profitability or possibly a risk analysis.

For the small entrepreneur, the studies conducted during the analysis stage of the project provide the material for an assessment. If positive results are obtained, the entrepreneur in seeking finance, will want to prepare an investment proposal. The planners or government officials, however having obtained positive conclusions from the economic feasibility study will want to evaluate the element of social profitability.

The purpose of the investment or loan application is to convince a lender ( financial institution) that the project is a desirable investment; that it not only possesses the potential for profit but that the proposed management team has the capability to achieve the potential. The investment proposal normally contains:

1.     General information on the product, company history, the nature of the industry and the reputation and qualifications of the existing or proposed management.

2.     A description of the project, which usually consists of extracts from economic feasibility selected manufacturing methods ( with detailed indication of the cost of equipment and operational expenses) and a financial statement.

3.     Miscellaneous information such as the steps taken for the implementation of the project and the qualifications of the technical partners envisaged or selected.

PROJECT FORMULATION

Project formulation is defined as taking a first a look carefully and critically at a project idea by an entrepreneur to build up an all round beneficial to project after carefully weighing its various components. It is formulated by the entrepreneur with the assistance of specialists or consultants. The aim of project formulation is to achieve the project objectives with the minimum expenditure  and adequate resources. In other words it is to derive maximum benefits from minimum expenses in a short span of time.

Sequential stages of project formulation:

The process of project development has been categorized into seven distinct and sequential stages. They are:

1.     Feasibility analysis: This is the very first stage in project formulation. At this stage the project idea is examined from the point of view of whether to go in for a detailed investment proposal or not. As project for a detailed investment proposal or not. As project idea is examined in the context of internal and external constraints three alternatives could be considered. First the project idea seems to be feasible, second the project idea is not a feasible one and third, unable to arrive at a conclusion for want of adequate data. If it is feasible we proceed to the second step if not feasible we abandon the idea and if sufficient data are not available, we make more efforts to collect the required  data and design development.

2.     Techno – economic analysis: In this step estimation of project demand potential and choice of optimal technology is made.

3.     Project Design and Network analysis: This important step defines individual activities which constitute the project and their inter – relationship with each other. The sequence of events of the project is presented. A detailed work plan of the project is prepared with time allocation for each activity and presented in a network drawing. Project design is the heart of the project entity. This paves the way for detailed identification and qualification of the project inputs, an essential step in the development of the financial and cost – benefit profile of the project.

4.     Input analysis: The step process the input requirements during the construction of the project and also during the operation of the project. In the earlier step a project was divided into several activities. Now it is better to see the inputs required for each activity and sum it up to get the  total input requirements on qualitative and quantitative terms. Inputs include materials, human resources.

5.     Financial analysis: This stage mainly involves estimating the project costs, estimating its operating costs and fund requirements. Financial analysis also help in comparing various project proposals on a common scale, thereby aiding the decision maker. Some of the analytical tools used in financial analysis are discounted cash flow, cost – volume – profit relationship and ratio analysis.

6.     Social cost benefit analysis: When we talk of cost benefit analysis we not only take in to account the apparent direct costs and direct benefits of the project but also the costs which all entities connected with the project have to bear and the benefits which will be enjoyed by all such entities.

7.     Pre – investment analysis: The project proposal gets a formal and final shape at this stage. All the results obtained in the above steps are consolidated and various conclusions arrived at to present a clear picture. At his stage, the project is presented in such a way that the project – sponsoring body, the project – implementing body and the external consulting agencies are able to decide whether to accept the proposal or not.