(a) Project

A project can be defined as a scheme of things to be done during a specified period in future for deriving expected benefits under certain assumed conditions.

(b) Promotional Stages of the Project

The promotion stage is a crucial stage in the entire life cycle of a project. Promotion in relation to a project will comprise broadly the following functions:

(i) IDENTIFICATION OF A PROJECT

The first step in the project promotion is the identification of a project. An industrial project originates as an idea in a promoter when he observes the existence of a potential market for a certain product. The promoter, on the basis of his experience, background and ability, then considers the feasibility of manufacturing and marketing the product at a remunerative price. The product to be manufactured may be an existing product for which there is an unsatisfied demand in the market. The product may also be one which is generally imported and indigenous manufacture thereof may lead to import substitution result¬ing in cost savings and conservation of foreign exchange. Sometimes, it may be a new product, market for which will require to be developed.
Under all these situations, apart from the technical feasibility of manufacturing the product, market demand is of vital importance. It is therefore, necessary to carry out feasibility-investigations carefully.

(ii) FEASIBILITY INVESTIGATION

A detailed feasibility study is costly exercise. It is, therefore, desirable that, before it is undertaken, marketability of the product to be manufactured is firmly established. There are agencies, specializing in market research, which conduct such market studies. Promoters may take advantage of their services. A market study aims at assessing the aggregate demand for a product.

When this exercise is completed, future demand as well as supply of the product would have been reasonably forecast. Shortfall in supply in relation to the demand will be the market share available to the promoter. The success of the venture will lie in how effectively it captures the available and potential market.

The promoter will now undertake the detailed feasibility investigation proper, comprising two feasibility studies:

• the technical feasibility study
• the economic feasibility study

 

• Technical feasibility study covers the following aspects:

•    Location of the project
•    Lay-out of the plant
•    Size of the plant
•    Construction of Work Shed
•    Availability of required Machinery, Tools and Implements
•    Manufacturing process/technology
•    Connectivity and other utility services
•    Process design
•    Product design
•    Scale of operation
•    Infrastructural facilities

Acceptability of any product in the market being vitally important, product design and, therefore, process design are the core of technical feasibility study. Just as a new product carries the risk of not being accepted in the market, adoption of a new technology is equally risky. The utilization of new technology, which is pioneering in nature, is usually undertaken by established enterprises with long industrial experience, and substantial resources at their command. Obsolescence is another factor to be examined, while selecting a technology. New scientific and technological advancements may render an established/ standard technical process obsolete. Investment in plant and machinery based on such obsolete technology will prove to be worthless as products manufactured there under will not beable to compete with improved products manufactured with the help of improved processes.

• The Economic Feasibility Study:

As we have seen before, the prime objective of setting up a project is to derive a fair return on the investment. Economic feasibility study, therefore, concerns itself with matching of economic resources with the physical requirements of a- project and determining the viability of investment therein. The investment pattern of a project will generally revolve around.

• Availability of suitable and sufficient land,
• Creation of infrastructural facilities such as factory buildings, roads, railways siding etc.
• Availability of Water, Power, Transport Facilities, Communication Network, Road
• Availability of power/water, fuel, transportation, etc.
• Availability of raw material
• Availability of suitable Man Power Resources, and
• Selection of technical and administrative personnel.
• Demand in domestic and export markets
• Installed capacity 
• Evaluation of production cost
• Estimated Turn Over
• Expected revenue and so on

All these aspects require to be examined from the points of view of cost, quality and suitability. For example, in selecting a location, a comparative study of a few potential locations would be made to assess their technical suitability for the project, nearness to sources of raw materials, availability of other inputs, nearness to markets, etc.


(iii) ASSEMBLING THE PROPOSITION

When a promoter is satisfied about the technical feasibility and economic viability of a project, the next task is to work out cost of the project and means of financing it. The following format indicates broadly the various components of project cost:
(Amount in Rupees) 

(i)     Land (including site development) and buildings
[Cost of land will not be included in the Project Cost]

(ii)    Plant and machinery

(iii)   Miscellaneous fixed assets

(iv)   Technical know-how and Engineering Fees

(v)    Preliminary and preoperative expenses

(vi)   Provision for contingencies

(vii) Working capital

Total capital cost               _____________
Total project cost              _____________

Technical feasibility study would give a fairly accurate idea of the cost of land and land development. On the basis of requirements and prevailing market prices of construction materials, the cost of construct¬ing factory and administrative buildings can be arrived at. Competitive quotations tendered by suppliers of plant and machinery would be useful in determining cost thereof to which would be added the cost of transportation, erection/installation, technical know-how fees, etc. Miscellaneous fixed assets would comprise systems for supply of water and electricity, generation of steam, coal handling plant, packing and storage facilities, transportation, office furniture, laboratory equip¬ments etc. Expenses incurred by a promoter in the course of setting up of a project such as legal expenses, registration fees, interest on funds obtained during construction period etc. are classified under prelimi¬nary and preoperative expenses. Even the best of estimates can go awry. To provide, therefore, for unforeseen price escalations, a provision of 5 to 15% of the cost of non-firm items (the cost of which cannot be firmed up) is made to meet such contingencies. When a project commences production, it needs working capital to support its opera¬tions. Part of the working capital requirement is financed by sundry creditors and other current liabilities.