UNIT II

Technical Analysis

Analysis of technical and engineering aspects is done continually when a project is being

examined and formulated. Other types of analyses are closely intertwined with technical

analysis.

The broad purpose of technical analysis is:

To ensure that the project is technically feasible in the sense that all the inputs

required to set up the project are available.

To facilitate the most optimal formulation of the project in terms of technology,

size, location and so on.

Technical analysts believe that the historical performance of stocks and markets are

indications of future performance. 

Example: In a shopping mall, a fundamental analyst would go to each store, study the

product that was being sold, and then decide whether to buy it or not. By contrast, a

technical analyst would sit on a bench in the mall and watch people go into the stores.

Disregarding the intrinsic value of the products in the store, the technical analyst's

decision would be based on the patterns or activity of people going into each store.

1.1 MANUFACTURING PROCESS/ TECHNOLOGY:

For manufacturing a product or service, often two or more alternative technologies are

available.

For example:

Steel can be made either by the Bessemer processes or the open hearth process.

Cement can be made either by the dry process or the wet process.

Soap can be manufactured by the semi-boiled process or the fully boiled process.

1.1.1 Choice of Technology:

The choice of technology is influenced by a variety of considerations:

Plant Capacity

Principal Inputs

Investment Outlay and Production cost

Use by other units

Product Mix

Latest Developments

Ease of Absorption

1.1.2 Appropriateness of technology:

Appropriate technology refers to those methods of production which are suitable

to local economic, social, and cultural conditions.

The advocates of appropriate technology urge that the technology should be

evaluated in terms of the following questions:

Whether the technology utilizes the local raw materials?

Whether the technology utilizes the local man power?

Whether the technology protects ecological balance?

1.2 TECHNICAL ARRANGEMENTS:

Satisfactory arrangements must be made to obtain the technical know-how needed

for the proposed manufacturing process. When collaboration is sought, inter-alia,

the following aspects of the arrangement are:

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 the project personnel.

Process and Performance guarantees in terms of plant capacity, product

quality, consumption of raw materials and utilities.

The period of collaboration and agreement.

The assistance to be provided and the restrictions to be imposed by the

collaborator with respect to exports.

The price of technology in terms of one-time licensing fee and periodic

royalty fee Etc…

1.3 MATERIAL INPUTS AND UTILITIES:

An important aspect of technical analysis is concerned with the defining the

materials and utilities required, specifying their properties and setting up their

supply programme.

Material Inputs and utilities may be classified into four broad categories:

Raw materials

Processed industrial materials and components

Auxiliary materials and factory supplies

Utilities

1.4 PRODUCT MIX:

The choice of product mix is guided by market requirements. In the production of

most of the items, variations in size and quality are aimed at satisfying a broad

range of customers.

For example, a garment manufacturer may have a wide range in terms of size and

quality to cater to different customers.

1.5 PLANT CAPACITY:

Plant Capacity (also referred to as production capacity) refers to the volume or

number of units that can be manufactured during a given period.

Plant capacity may be defined in two ways: Feasible Normal capacity (FNC) and

Nominal Maximum Capacity (NMC).

Factors that have a bearing on the capacity decision are:

Technological Requirement

Input constraints

Investment cost

Market conditions

Resources of the firm

Governmental Policy

1.6 LOCATION AND SITE:

The choice of location and site follows on assessment of demand, size, and input

requirement. Location refers to a fairly broad area like a city, an industrial zone or a

coastal 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

Other Factors:

o Climatic conditions

o General living conditions

o Proximity to ancillary units

o Ease In coping with environmental pollution

Site Selection:

Once the broad location is chosen, attention needs to be focused on the selection

of a specific site. Two or three alternative sites must be considered and evaluated

with respect to cost of land and cost of site preparation and development.

1.7 MACHINERIES AND EQUIPMENT:

The requirements of machineries and equipment are dependent on production

technology and plant capacity. It is also influenced by the type of project. For a

process-oriented industry, like a petrochemical unit, machineries and equipments

required should be such that various stages are matched well.

To determine the kinds of machinery and equipment required for a manufacturing

industry, the following procedure may be followed:

Estimate the likely levels of production over time.

Define the various machining and other operations.

Calculate the machine hours required for each type of operation.

Select machineries and equipment required for each function.

The equipment required for the project may be classified into the following types:

Plant (process) equipment

Mechanical equipment

Electrical equipment

Instruments

Controls

Internal transportation system

1.8 STRUCTURE AND CIVIL WORKS:

Structure and civil works may be classified into three categories:

Site Preparation and Development:

This covers the following:

o Grading and leveling of the site.

o Demolition and removal of existing structures.

o Relocation of existing pipelines, cables, roads, power lines etc.

o Reclamation of swamps and draining and removal of standing water.

Buildings and Structure:

Buildings and Structures may be divided into:

o Factory or process buildings.

o Ancillary buildings required for stores, warehouses, laboratories,

utility supply centers, maintenance services etc.

o Administrative buildings

o Staff welfare buildings, cafeteria and medical service buildings

o Residential buildings

Outdoor Works:

Outdoor works cover:

o Supply and distribution of utilities (water, electric power,

communication, steam and gas).

o Handling and treatment of emission, wastages and effluents.

o Transportation and traffic signals

o Outdoor lighting

o Landscaping

o Enclosure and supervision (boundary wall, fencing, barriers, gates,

doors, security posts etc.)

1.9 ENVIRONMENTAL ASPECTS:

A project may cause environmental pollution in various ways:

o It may throw gaseous emissions.

o It may produce liquid and solid discharges.

o 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.

1.10 PROJECT CHARTS AND LAYOUTS:

Once data is available on the principal dimensions of the project- market size, plant

capacity, production technology, machineries and equipments, buildings and civil

works, conditions obtaining at the plant site, and supply of inputs to the project-

project charts and layouts may be prepared. These define the scope of the project

and provide the basis for detailed project engineering and estimation of the

investment and production costs.

The important charts and layouts are:

o General Functional layout

o Material flow diagram

o Product line diagrams

o Transport layout

o Utility consumption layout

o Communication layout

o Organisational layout

o Plant layout

1.11 SCHEDULE OF PROJECT IMPLEMENTATION:

A well-designed project implementation schedule clarifies and describes what the

project should deliver and within what time-frames. The project implementation

schedule is an important time management document that defines and schedules the

major phases of project work being carried out to fulfill the desired project

objectives and the achieve the expected deliverables.

The development of the project implementation schedule refers to the following

two statements:

The schedule creates a framework for the whole project implementation plan

and facilitates creation of the work breakdown structure (WBS) by placing

the related activities, tasks and responsibilities on timeline.

The schedule outlines the project phases and their overlaps and shows them

on the common project’s timeline.

In the project implementation schedule, the following information (the key

components) should be provided in a clear and easy-to-read format:

Number and brief descriptions of project phases.

The deliverables set being archived within each project phase.

Major activities for each deliverable.

Key milestones.

Responsibilities and assignments

Dependencies

Work Schedule reflects the plan of work concerning installation as well as initial

operation.

1.12 NEED FOR CONSIDERING ALTERNATIVES:

There are alternative ways of transforming an idea into a concrete project. These

alternatives may differ in one or more of the following aspects:

Nature of project

Production Process

Product quality

Scale of operation and time phasing

Location

Market Analysis

The goal of a market analysis is to determine the attractiveness of a market and to

understand its evolving opportunities and threats as they relate to the strengths and

weaknesses of the firm.

David A. Aaker outlined the following dimensions of a market analysis:

Market size (current and future)

Market growth rate

Market profitability

Industry cost structure

Distribution channels

Market trends

Key success factors

Market Size

The size of the market can be evaluated based on present sales and on potential sales if

the use of the product were expanded. The following are some information sources for

determining market size:

government data

trade associations

financial data from major players

customer surveys

Market Growth Rate

A simple means of forecasting the market growth rate is to extrapolate historical data into

the future. While this method may provide a first-order estimate, it does not predict

important turning points. A better method is to study growth drivers such as demographic

information and sales growth in complementary products. Such drivers serve as leading

indicators that are more accurate than simply extrapolating historical data.

Important inflection points in the market growth rate sometimes can be predicted by

constructing a product diffusion curve. The shape of the curve can be estimated by

studying the characteristics of the adoption rate of a similar product in the past.

Ultimately, the maturity and decline stages of the product life cycle will be reached.

Some leading indicators of the decline phase include price pressure caused by

competition, a decrease in brand loyalty, the emergence of substitute products, market

saturation, and the lack of growth drivers.

Market Profitability

While different firms in a market will have different levels of profitability, the average

profit potential for a market can be used as a guideline for knowing how difficult it is to

make money in the market. Michael Porter devised a useful framework for evaluating the

attractiveness of an industry or market. This framework, known as Porter's five forces,

identifies five factors that influence the market profitability:

Buyer power

Supplier power

Barriers to entry

Threat of substitute products

Rivalry among firms in the industry

Industry Cost Structure

The cost structure is important for identifying key factors for success. To this end,

Porter's value chain model is useful for determining where value is added and for

isolating the costs.

The cost structure also is helpful for formulating strategies to develop a competitive

advantage. For example, in some environments the experience curve effect can be used to

develop a cost advantage over competitors.

Distribution Channels

The following aspects of the distribution system are useful in a market analysis:

Existing distribution channels - can be described by how direct they are to the

customer.

Trends and emerging channels - new channels can offer the opportunity to

develop a competitive advantage.

Channel power structure - for example, in the case of a product having little brand

equity, retailers have negotiating power over manufacturers and can capture more

margin.

Market Trends

Changes in the market are important because they often are the source of new

opportunities and threats. The relevant trends are industry-dependent, but some examples

include changes in price sensitivity, demand for variety, and level of emphasis on service

and support. Regional trends also may be relevant.

Market Survey

A market survey is a tool used to gather information about existing or potential customers

in a certain market or population. Researchers select a sample of customers from the

population. The information from the survey is then used to assess attitudes and beliefs,

and in turn predict market behavior, such as buying intentions.

Telephone interviews: This is an inexpensive, fast way to get information from potential

customers. Prepare a script before making the calls to ensure you cover all your

objectives. Most people don't like to spend a lot of time on the phone, so keep your

questions simple, clearly worded and brief. If you don't have time to make the calls

yourself, hire college students to do it for you.

Direct-mail interviews: If you want to survey a wider audience, direct mail can be just

the ticket. Your survey can be as simple as a postcard or as elaborate as a cover letter,

questionnaire and reply envelope. Keep questionnaires to a maximum of one page, and

ask no more than 20 questions. Ideally, direct-mail surveys should be simple, structured

with "yes/no" or "agree/disagree" check-off boxes so respondents can answer quickly and

easily. If possible, only ask for one or two write-in answers at most.

Fax/e-mail interviews: Many of the principles used in direct-mail interviews also apply

to these surveys. One exception: Never send an unsolicited fax that is more than one

page. Give clear instructions on how to respond, and be appreciative in advance for the

data you get back.

Characteristics of effective survey:

Sufficient demographic information - Even if you use a customer list or other targeted

list for a customer satisfaction or other study, you may later want to analyze the results by

smaller segments. Identify segments of interest at the beginning. Then, include a few

relevant demographic questions, e.g., zip code or region, company size and industry,

product or service used, or respondents' job titles.

Focused surveys - Avoid question creep. If you are asking questions about service and

support, resist requests from colleagues to insert questions on other issues, such as

branding, that waste questions or make the survey seem unfocused.

Clear questions - Make questions easy to understand by avoiding acronyms, technical

words, complex sentences, and ambiguous language. Define terms, such as "cloud

computing" or "the cloud," that can mean different things. Simplify sentences. Be

concrete.

Logical sequencing of questions - When you have formulated the questions, check if the

sequence of questions is logical. If you say go from Question 9 to Question 12, make sure

to have a Question 12, and make sure that Question 12 logically follows Question 9.

Motivation - Use approaches, such as email, phone calls, or direct mail, to invite the

target group to participate in the study. Make sure that participants are sympathetic with

the purpose of the survey or are interested in the subjects covered in the survey. Provide

an incentive or share some of the results.

Openness - Use results as you promised. If you say you will report aggregate data, do not

reveal participants' names or company names. Deceptive practices give companies bad

reputations and cloud future relationships with participants.

Well-designed surveys help you identify new markets and new customers and ultimately

new sources of revenue. They can also help you find ways to derive more revenue from

existing customers. Whether you use an online or traditional survey instrument, you

should first think of the desired uses and the expected benefits of the survey, and then

develop good survey questions and survey logic.

Conduct of market survey:

(1) Determine and define the nature, extent, and size of your market: Before

conducting a survey in a given market, you need to know what market you're

targeting. Choose geographic and demographic parameters, identify customers by

types of product, and get an idea of how many people there are in the market.

Narrow your market research to a short list of desired data: buying habits, for

example, or average income

(2) Determine what aspects of the market you want to investigate.

(3) Find out where and when you can reach customers in your market: You

might conduct a survey at the mall or on the street, via telephone, online, or

through the mail. Your results may change based on the time of day and year.

Choose a method and time that best suits your research

(4) Choose a sample size: Your sample size should be as large as possible to

maximize the accuracy of your results. You may want to create sub-samples--e.g.,

"males," "18-24 year-olds," etc.--to decrease the risk of biasing your results

towards certain types of people.

(5) Prepare a list of questions with answers that will provide the data you need

for your market research: Your questions should be pointed and specific. Craft

questions with answers you can predict. Do not ask the same thing in two

different ways. Try to use as few words as possible

(6) Devise a way to quantify the answers you receive: If you are asking about

preferences, you may want to ask respondents to rank their feelings numerically

or using keywords. If you are asking about money, use ranges of values. If your

answers will be descriptive, decide how to group these responses after the survey

is complete so that they can be grouped in categories.

(7) Identify variables that might affect your results (usually characteristics of

people who are more likely to answer surveys) and figure out how to reduce

their influence.

(8) Set a time period and location for your survey that is likely to result in the

largest sample size.

(9) Prepare your survey forms: Conduct your survey, maximizing sample size and

accuracy of responses

Project Charts and Lay Outs

Once data are available on the principal dimensions of the project market size, plant capacity, production technologies, machineries and equipments, buildings and civil works, and supply ofinputs to the project , project charts and layouts maybe prepared. These define the scope of the project and provide the basis for detailed project engineering and estimation of investment and production costs.

The important charts and layouts are briefly described as:(i) General Function Layout:

This shows the general relationship between equipments, buildings ,and civil works. In preparing this layout, the primary consideration.

ii) Material Flow Diagram:

This shows the flow of materials, utilities, final products, and by-products. Along with the material flow diagram, a quantityflow diagram showing the quantities of flow may be prepared.

iii) Production Line Diagrams:

These show how the production would progress along with the main equipments.

iv) Transport Layout:

This shows the distances and means of transport outside the production line.

i) Utilities Consumption Layout:This shows the principal consumption point of the utilities (power,water, gas, compressed air etc.)

ii) Communication Layout:This shows how the various parts of the project will be connected with telephone, internet, intercom etc. 

iii) Organizational Layout:This shows theorganizational set up of the project along with information on personnel required for various departments and their inter-relationship.

 iv) Plant Layout:

The plant layout is concerned withthe physical layout of the factory.

DEMAND FORECASTING

MEANING

Demand forecasting is the activity of estimating the quantity of a product or service that

consumers will purchase.

UNCERTAINITY IN DEMAND FORECASTING

Demand forecasts are subject to error and uncertainty which arise from three different

sources:

Ø Data about past and present market

Ø Methods of forecasting

Ø Environment change

Data about past and present market:

The analysis of past and present markets, which serve as the springboard for the

projection exercise, may be vitiated by the following inadequacies of data:

Lack of Standardization: Data pertaining to market features like product, price,

quantity, cost, income, etc. may not reflect uniform concepts and measures.

Few observations: observations available to conduct meaningful analysis may not be

enough.

Influence of abnormal factors: Some of the observations may be influenced by

abnormal factors like war or natural calamity.

Method of forecasting:

Methods used for demand forecasting are characterized by the following limitations:

Inability to handle unquantifiable factors: most of the forecasting methods, being

quantitative in nature, cannot handle unquantifiable factors which sometimes can be of

immense significance.

Unrealistic assumptions: Each forecasting method is based on certain assumptions. For

example, the trend projection method is based on the mutually compensating affects

premise and the end use method is based on the constancy of technical coefficients.

Uncertainty arises when the assumptions underline the chosen method tend to be realistic

and erroneous.

Exercise data requirement: In general, the more advanced a method, the greater the

data requirement. For example, to use an econometric model one has to forecast the

future values of explanatory variables in order to project the explained variable.

Environmental Changes:

The environment in which a business functions is characterized by numerous

uncertainties. The important sources of uncertainty are mentioned below:

Technological Change: This is a very important and very hard-to-predict factor which

influences business prospects. A technological advancement may create a new product

which performs the same function more efficiently and economically, thereby cutting into

the market for the existing product. For example, electronic watches are encroaching on

the market for mechanical watches.

Shift in Government Policy: Government resolution of business may be extensive.

Changes in government policy, which may be difficult to anticipate, could have a telling

effect on the business environment.

Development on the International Scene: Development on the International Scene may

have a profound effect on industries.

Discovery of New Sources of Raw Material: Discovery of new sources of raw

materials, particularly hydrocarbons, can have a significant effect on the market situation

of several products.

Vagaries of Monsoon: Monsoon, if plays an important role in the economy of a country,

is somewhat unpredictable. The behavior of monsoon influences, directly or indirectly,

the demand for a wide range of products.

TECHNIQUES OF DEMAND FORECASTING

Qualitative Methods

These methods rely on experts who try to quantify the level of demand from the available

qualitative data. The two most widely followed methods are:

Jury of execution opinion method:  Opinions of a group of experts is called for

and these are then combined to arrive at the estimated demand.

Delphi Method: In this method a group of experts are sent questionnaires through

mail. The responses received are summarised without disclosing the identities.

Further mails are sent for clarification in cases of extreme views. The process is

repeated till the group reaches to a reasonable agreement.

Quantitative Methods

These methods forecast demand levels based on analysis of historical time series. The

important methods in this category are:

a. Trend projection methods

These methods involve determining the trend of consumption based on past consumption

and project future consumption by extrapolating this trend. The trend relations may be

represented in one of the following ways:

Linear relationship Yt = a + b t

Exponential relationship Yt = a ebt

Polynomial relationship Yt = a0 + a1 t + a2  t2 +…+ an  tn

Cobb Douglas relationship  Yt = a tb

In the above relationships Yt represents the demand for the year t, a and b are constants.

b. Exponential smoothening method

In this method, forecasts are modified whenever errors are observed. For example, if the

forecast value for the year t, Ft, is less than the actual value for the year St, the forecast

value for the year Ft+1 is set more than Ft. In general,

Ft+1 = Ft+ et

a Smoothening parameter (value lies between 0 and 1) ; Ft+1Forecast for the year t+1

et error in the forecast for the year t = Ft  - St

c. Moving Average Method

According to this method, the forecast for the next period represents a simple or weighted

arithmetic average of the last few observations.

Project Management

Project management as "the application of knowledge, skills, tools and techniques to a

broad range of activities in order to meet the requirements of a particular project." The

process of directing and controlling a project from start to finish may be further divided

into following phases:

Initiation phase

The initiation phase is the beginning of the project. In this phase, the idea for the project

is explored and elaborated. The goal of this phase is to examine the feasibility of the

project. In addition, decisions are made concerning who is to carry out the project, which

party (or parties) will be involved and whether the project has an adequate base of

support among those who are involved.

In this phase, the current or prospective project leader writes a proposal, which contains a

description of the above-mentioned matters. Examples of this type of project proposal

include business plans and grant applications. The prospective sponsors of the project

evaluate the proposal and, upon approval, provide the necessary financing. The project

officially begins at the time of approval.

The choice for a particular type of project largely determines its results. For example, a

research and development project delivers a report that examines the technological

feasibility of an application. A project in which a prototype is developed delivers all of

the functionalities of an application, but they need not be suitable for use in a particular

context (e.g. by hundreds of users). A project that delivers a working product must also

consider matters of maintenance, instructions and the operational management of the

application.

Many misunderstandings and conflicts arise because the parties that are involved in a

project are not clear on these matters. Customers may expect a working product, while

the members of the project team think they are developing a prototype. A sponsor may

think that the project will produce a working piece of software, while the members of the

project team must first examine whether the idea itself is technically feasible.

Definition phase

After the project plan (which was developed in the initiation phase) has been approved,

the project enters the second phase: the definition phase. In this phase, the requirements

that are associated with a project result are specified as clearly as possible. This involves

identifying the expectations that all of the involved parties have with regard to the project

result.

Design phase

The list of requirements that is developed in the definition phase can be used to make

design choices. In the design phase, one or more designs are developed, with which the

project result can apparently be achieved. Depending on the subject of the project, the

products of the design phase can include dioramas, sketches, flow charts, site trees,

HTML screen designs, prototypes, photo impressions and UML schemas. The project

supervisors use these designs to choose the definitive design that will be produced in the

project. This is followed by the development phase.

Development phase

During the development phase, everything that will be needed to implement the project is

arranged. Potential suppliers or subcontractors are brought in, a schedule is made,

materials and tools are ordered, instructions are given to the personnel and so forth. The

development phase is complete when implementation is ready to start. All matters must

be clear for the parties that will carry out the implementation.

In some projects, particularly smaller ones, a formal development phase is probably not

necessary. The important point is that it must be clear what must be done in the

implementation phase, by whom and when.

Implementation phase

The project takes shape during the implementation phase. This phase involves the

construction of the actual project result. Programmers are occupied with encoding,

designers are involved in developing graphic material, contractors are building, the actual

re organisation takes place. It is during this phase that the project becomes visible to

outsiders, to whom it may appear that the project has just begun

. When the time came, an external specialist was brought in to take over his work, in

order to keep the team from grinding to a halt. Although the team was able to proceed,

the external expertise put a considerable dent in the budget.

At the end of the implementation phase, the result is evaluated according to the list of

requirements that was created in the definition phase. It is also evaluated according to the

designs. For example, tests may be conducted to determine whether the web application

does indeed support Explorer 5 and Firefox 1.0 and higher. It may be determined whether

the trim on the building has been made according to the agreement, or whether the

materials that were used were indeed those that had been specified in the definition

phase. This phase is complete when all of the requirements have been met and when the

result corresponds to the design.

Follow-up phase

Although it is extremely important, the follow-up phase is often neglected. During this

phase, everything is arranged that is necessary to bring the project to a successful

completion. Examples of activities in the follow-up phase include writing handbooks,

providing instruction and training for users, setting up a help desk, maintaining the result,

evaluating the project itself, writing the project report, holding a party to celebrate the

result that has been achieved, transferring to the directors and dismantling the project

team.

The central question in the follow-up phase concerns when and where the project ends.

Project leaders often joke among themselves that the first ninety per cent of a project

proceeds quickly and that the final ten per cent can take years. The boundaries of the

project should be considered in the beginning of a project, so that the project can be

closed in the follow-up phase, once it has reached these boundaries.