Technical Analysis

Purpose of Technical Analysis

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 Analysis will include

Selection of Technology
Material Input & Utilities
Plant Capacity
Location & Site
Machinery & Equipment
Structures & Civil Works
Environmental Aspects
Project Charts & Layouts

Choice of Technology
Choice of Technology is influenced by
1) Plant Capacity
2) Principal Inputs
3) Investment Outlay & Production Cost
4) Use by other Units
5) Product Mix
6) Latest Developments
7) Ease of Absorption

Material Input & Utilities

Material Inputs & utilities may be classified
into 4 broad categories
(1) Raw Material
(2) Processed
Industrial
Materials
&
Components
(3) Auxiliary Materials & Factory Supplies
(4) Utilities

 Raw Material: Can be in the form of

Agricultural Products, Mineral Products,

Livestock & Forest Products
Processed Industrial Materials & Components:
Semi-processed
materials,
manufactured
components or parts represent important input
for many industries. Few Questions that need
to addressed with reference are Total
requirement of the project? There domestic
availability & foreign import? How
dependable are their supplies?

 Auxiliary Material & Factory Supplies: Apart

from various raw material and manufactured

components a project may even require various
auxiliary material & factory supplies like
packaging material, paint, varnishes, grease,
oil, cleaning material. Their supplies should be
taken into account in the feasibility study
Utilities: A broad assessment of utilities like
power, water, steam, fuel etc needs to be done.
Since the successful operation of the project
depends on them so shortages, bottlenecks and
alternative supplies should be answered in the
beginning

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 of
time
Factors affecting capacity decision:
Technological Requirement
Input constraints
Investment Cost
Market conditions
Resources of the firm
Governmental Policies

 Technological Requirement: In many industrial

projects certain minimum production is

determined by the type of technology being
used.
Input Constraints: Many constraints are there on
the availability of certain inputs like power
supply, basic raw material my be scarce etc.
These limitations should be addressed in the
beginning while deciding upon the plant
capacity.
Investment Cost: Identification of the
investment cost is important. As plant capacity
increases the investment cost per unit decreases.

 Market Conditions: The anticipated market for

the product/services has a direct bearing on the

plant capacity. In a strong market situation the
plant of higher capacity is preferable. In case
of uncertain market conditions it is suggested
to start with smaller capacity
Resources of the firm: Constitutes the
Managerial & Financial resources. Firm
cannot choose a capacity beyond its resources.
Govt. Policy: Capacity level gets influenced
by the Govt. Policy. Concept of minimum
economic capacity adopted by the Govt.

Location & Site

Location & Site used synonymously. But

Location refers to a broad area like city,

industrial zone , coastal area. Site refers to a
piece of land Eg. Where the industry is set up.
Choice of location influenced by a variety of
considerations: Proximity to Raw Material,
Availability
of
Infrastructure,
Labour
Situation, Governmental Policies.

 Proximity

to Raw Materials & Markets:

Resource based projects like a cement plant &
steel plant need to be need to be close to the
resource supply but it is not applicable to all
industries
Availability of Infrastructure: Adequate supply
of water, power, communication, transportation
should be assessed before a location decision is
made.
Labour Situation: Labour intensive project have
to carefully assess factors like skills of labour,
state of IR & Unionization, prevailing labour
rates.

 Govt. Policies: Govt. policies have a bearing

on both public & private sector projects. Eg. In

most of the public sector projects Govt. selects
the location of setting up the industries. In
private sector Govt. poses restriction on setting
up industries in congested areas. Gives special
inducements to set up industries in backward
areas.
Other Factors: Climate conditions, General
Living conditions, Ease in coping with
pollution

Site Selection: On the clear identification of the

location in the next stage is to select the specific
site for execution. Two to Three alternative sites
should be considered with respect to 2 important
criteria:
1) Cost of land: Cost of land differs from place to
place in the same location. One near to the city
will cost more in comparison to the one in the
away from city.
2) Cost of site preparation & development: cost of
demolish in the current site, obtaining utilities
power, water, communication facilities

Machines & Equipments

Requirement of machinery & equipment will

depend upon Production Technology & Plant

Capacity .
In order to determine the machinery & equipment
required the procedure followed is:
1)Estimate the likely level of production over time
2) Define the operation
3) Calculate the machine hours
4) Select Machinery & Equipment for each function

Constraints in Selecting Machineries &

Equipment
Limited power
Difficulty in transporting heavy equipment to

remote location
Workers at least in initial phase not able to
operate certain highly technical machines
Import policy of the govt. at some point of
time may preclude import of certain
machineries & equipment.

Structures & Civil Works

Divided into Three Categories:
1) Site Preparation & Development
2) Buildings and Structures
3) Outdoor Works

Environmental Aspects
Questions that need to be addressed
What are the pollutants generated?
What needs to be done for proper disposal
Will the project be able to meet the statutory

requirements related to pollution?

Project Charts & Layouts

General Functional Layout: Focuses on

smooth & economical movement of raw

material, work-in-process and finished goods
Material Flow Diagram: Flow of material,
utilities, intermediate products, final product &
emissions.
Production Line Diagram: Shows how the
production how the production would progress

 Transport Layout: Shows distance & means of

transport outside the production line.

Utility Consumption Layout: Shows the
principal consumption points of utilities along
with their quantity of requirement.
Communication Layout: How phone lines and
communication network will be established
Organizational Layout: Organizational Setup
along with the structure
Plant Layout: Physical Layout of the Factory

FinancialEstim ations
Project Costs

Definition
The sum total of all funds required to
complete a business purchase
transaction.

 Typical project costs include:

Business purchase price.
Working capital.
Closing costs.
Professional fees such as those

charged by the CPA and attorney.

Lender fees.
Business appraisal fees.
Business license fees.

Source of Funds for the Project

Internal Sources
Retained Profit
Savings
Limitations on working capital
Trade Credit
External Sources
Indigenous Bankers
Advances
Loans from Banks
Venture Capital

Cost of Production
Cost

incurred
by
a
business
when
manufacturing a good or producing a service.
Production costs combine raw material and
labor.
To figure out the cost of production per unit,
the cost of production is divided by the
number of units produced. A company that
knows how much it will cost to produce an
item, or produce a service, will have a clearer
picture of how to better price the item or
service and what will be the total cost to the
company.