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Technical Analysis

Considerations for Choice of Technology

• Plant capacity
• certain production technology may be viable to meet a given capacity requirement
Manufacturing Technology

• Principal inputs
• raw materials available influence the technology chosen
• Investment outlay and production cost
• Use by other units
• Product mix
• Latest developments
• Ease of absorption

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Appropriateness of Technology
• Refers to the methods of production which are suitable to local economic,
social, and cultural conditions
• Whether the technology utilises local raw materials?
Manufacturing Technology

• Whether the technology utilises local manpower?

• Whether the goods and services produced cater to the basic needs?
• Whether the technology protects ecological balance?
• Whether the technology is harmonious with social and cultural conditions?

Technical Arrangements
• When collaboration is sought, the following aspects of the agreement must
be worked out in detail
• The nature of support to be provided by the collaborators
Manufacturing Technology

• 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 project personnel
• Process and performance guarantees in terms of plant capacity, product
quality, and consumption of raw materials and utilities.
• The price of technology in terms of one-time licensing fee and periodic
royalty fee.
• The continuing benefit of research and development work being done by the
collaborator.
• The period of collaboration agreement

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Technical Arrangements
• The assistance to be provided and the restrictions to be imposed by the
collaborator with respect to exports.
• If the technical collaboration is backed by financial collaboration, the level of
Manufacturing Technology

equity participation and the manner of sharing management control.

• Assignment of the agreement by either side in case of change of ownership.
• Termination of the agreement or other remedies when either party fails to
meet its obligation
• Approach to be adopted in force majeure situations.

Material Inputs and Utilities

• Define the materials and utilities required, specify their properties in some
detail, and set up their supply program.
Material Inputs and Utilities

• Classification of materials and utilities

• Raw materials
• Processed industrial materials and components
• Auxiliary materials and factory supplies
• Utilities

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Material Inputs and Utilities

• Raw materials
• Agricultural products
• Quality
Material Inputs and Utilities

• Quantity required for present and future

• Mineral products
• Quantum of exploitable deposits
• Location, size, and depth of deposits
• Viability of opencast (open-pit) or underground mining
• Composition of the ore, level of impurities, need for beneficiation, and physical, chemical
properties
• Livestock and forest products
• Secondary sources of data is not reliable
• Marine products
• Assessing the potential availability and cost of collection is difficult

Processed Industrial Materials and Components

• Base metals, semi-processed materials, manufactured parts, components,
and sub-assemblies
• Questions to be asked:
Material Inputs and Utilities

• In the case of industrial materials, what are their properties?

• What is the total requirement of the project?
• What quantity would be available from domestic sources?
• What quantity can be procured from foreign sources?
• How dependable are the supplies?
• What has been the past trend in prices?
• What is the likely future behavior of prices?

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Auxiliary Materials and Factory Supplies

• Chemicals, additives, packaging materials, paints, varnishes, oils, grease,
cleaning materials, etc.
• The requirements of auxiliary materials and supplies should be considered
Material Inputs and Utilities

in the feasibility study

Utilities
• A broad assessment of utilities (power, water, steam, fuel, etc.) may be
made at the time of input study
• Detailed assessment can be made only after formulating the project with
Material Inputs and Utilities

respect to location, technology, and plant capacity

• Successful operation of a project critically depends on adequate availability
of utilities
• What quantities are required?
• What are the sources of supply?
• What would be the potential availability?
• What are the likely shortages/bottlenecks?
• What measures may be taken to augment supplies?

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Product Mix
• The choice of product mix is guided by market requirements
• Variations in size and quality are aimed at satisfying a broad range of
customers
• While planning the production facilities of the firm, some flexibility with
respect to the product mix must be sought
Product Mix

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Plant Capacity (Production Capacity)

• Volume or number of units that can be manufactured during a given period
• Feasible normal capacity (FNC)
• Capacity attainable under normal working conditions
• Established based on the installed capacity, technical conditions of the plant, normal stoppages,
downtime for maintenance and tool changes, holidays, and shift patterns
• Nominal maximum capacity (NMC)
Plant Capacity

• Capacity which is technically attainable

• Often corresponds to the installed capacity guaranteed by the supplier of the plant
• Several factors have a bearing on the capacity decision:
• Technological requirement
• Input constraints
• Market conditions
• Investment cost
• Resources of the firm
• Governmental policy

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Plant Capacity
• Technological Requirement
• For many industrial projects, particularly in process type industries, there is a
certain minimum economic size determined by the technological factor.
• Example: a cement plant should have a capacity of at least 300 tonnes per
day in order to use the rotary kiln method; otherwise, it should employ the
Plant Capacity

vertical shaft method which is suitable for lower capacity

• Input Constraints
• Power supply may be limited
• Basic raw materials may be somewhat scarce
• Foreign exchange available for imports may be inadequate

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Plant Capacity
• Investment Cost
𝑄2
𝐶2 = 𝐶1
𝑄1
Where 𝐶2, is the derived cost for 𝑄2, units of capacity, 𝐶1, is the known cost for
Q1, units of capacity, and α is a factor reflecting capacity-cost relationship. This
Plant Capacity

is usually between 0.2 and 0.9.

• Market Conditions
• Strong market forecast: higher capacity
• Uncertain market: smaller capacity
• Rapidly growing market: initial capacity may be higher than the initial level of
demand

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Plant Capacity
• Resources of the Firm
• The resources, both managerial and financial, available to a firm define a limit
on its capacity decision
• Government Policy
Traditionally, the policy of the government was to distribute the additional
Plant Capacity

capacity to be created in a certain industry among several firms, regardless of

economies of scale. This policy has been substantially modified in recent years
and the concept of 'minimum economic capacity' has been adopted in several
industries.

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Location and Site

• Location: broad area
• Site: specific piece of land
• The choice of location is influenced by,
• Proximity to raw materials and markets
Location and Site

• Availability of infrastructure
• Labor situation
• Governmental policies
• Other factors

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Proximity to raw materials and markets

• Optimal location is one where the total cost (raw material transportation
cost plus production cost plus distribution cost for the final product) is
minimized
• Resource-based projects should be located close to the source of basic
Location and Site

material
• Examples: limestone in the case of a cement plant and iron-ore in the case of a steel plant
• Projects based on imported material may be located near a port
• Projects manufacturing perishable products should be close to the centre of
consumption
• For many industrial products proximity to the source of raw material or the
centre of consumption may not be very important
• Example: Petrochemical units or refineries

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Availability of Infrastructure
• Availability of power, transportation, water, and communications should
be carefully assessed
Location and Site

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Labour Situation
• Availability of labour, skilled, semi-skilled and unskilled
• Prevailing labour rates
• Labour productivity
• State of industrial relations judged in terms of the frequency and severity
Location and Site

of strikes and lockouts

• Degree of unionization

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Governmental Policies
• Public sector projects
• location is directly decided by the government
• may be based on a wider policy for regional dispersion of industries
• Private sector projects
Location and Site

• Government may prohibit the setting up of industrial projects in highly

congested areas
• Government offers inducements for establishing industries in backward
areas
• E.g: subsidies, concessional finance, reliefs from indirect taxes, income tax benefits, lower
promoter contribution

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Other Factors
• Climatic conditions
• General living conditions
• Proximity to ancillary units
• Ease in coping with pollution
Location and Site

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Site Selection
• Two to three alternative sites must be considered and evaluated with
respect to cost of land and cost of site preparation and development
• Cost of land
• Tends to differ from one site to another in the same broad location
Location and Site

• Sites close to a city cost more

• Cost of site preparation
• Physical features of the site, need to demolish and relocate existing
structures
• Obtaining utility connections

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Machineries and Equipment

• Depends on production technology and plant capacity
• Process-oriented industry, like a petrochemical unit
• Machinery and equipment required should be such that the various stages
Machineries and Equipment

are matched well

• Manufacturing industry
• Wider choice
• Various machines can perform the same function with varying degrees of accuracy
• Determination of equipment
• Estimate the likely levels of production over time
• Define various machining and other operations
• Calculate the machine hours required for each type of operation
• Select machinery and equipment required for each function

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Constraints in Selecting Machineries and Equipment

• Limited availability of power to set up an electricity intensive plant.
• e.g: a large electric furnace
• Difficulty in transporting heavy equipment to a remote location
Machineries and Equipment

• Workers may not be able to operate certain sophisticated equipment (e.g:

CNC machines) in the initial periods
• Import policy of government may preclude the import of certain machines
and equipment

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Procurement of Plant and Machinery

• Factors to be considered
• Desired quality of machinery
• The level of technological sophistication
Machineries and Equipment

• The relative reputation of various suppliers

• The expected delivery schedules
• The preferred payment terms
• The required performance guarantee
• If inhouse technical expertise is inadequate, external consultant(s) may
be employed to select plant and machinery and supervise the installation
of the same.

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Structures and Civil Works

• Categories of structures and civil works
• Site preparation and development
• Buildings and structures
Structures and Civil Works

• Outdoor works
• Site preparation and development
• grading and levelling of the site
• demolition and removal of existing structures
• relocation of existing pipelines, cables, roads, power lines, etc.
• reclamation of swamps and draining and removal of standing water
• connections for utilities from the site to the public network
• electric power (high tension and low tension), water for drinking and other purposes,
communications (telephone, telex, internet etc.), roads, railway sidings
• Other site preparation and development work

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Structures and Civil Works

• Buildings and Structures
• factory or process buildings
• ancillary buildings required for stores, warehouses, laboratories, utility supply centres,
maintenance services
Structures and Civil Works

• administrative buildings
• staff welfare buildings, cafeteria, and medical service buildings
• residential buildings
• Outdoor Works
• supply and distribution of utilities (water, electric power, communication, steam, and gas)
• handling and treatment of emissions, wastages, and effluents
• transportation and traffic signals
• outdoor lighting
• landscaping
• enclosure and supervision (boundary wall, fencing, barriers, gates, doors, security posts)

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Environmental Aspects
• A project may cause environmental pollution in various ways:
• gaseous emissions
• liquid and solid discharges
Environmental Aspects

• noise, heat, and vibrations

• Projects that produce goods like cement, steel, paper, and chemicals are
likely to cause more environmental damage
• The key issues to be considered:
• What are the types of effluents and emissions generated?
• What needs to be done for proper disposal of effluents and treatment of
emissions?
• Will the project be able to secure all environmental clearances and comply
with all statutory requirements ?

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Project charts and layouts

• General Functional Layout
• Shows the general relationship between equipment, buildings, and civil works
• Primary consideration is to facilitate smooth and economical movement of
Project charts and layouts

raw materials, work-in-process, and finished goods

• Should allow traffic flow in one direction to the extent possible, with a minimum of crossing
• Godowns, workshops, and other services must be functionally situated with respect to the main
factory buildings

• Material Flow Diagram

• Shows the flow of materials, utilities, intermediate products, final products,
by-products, and emissions
• Along with the material flow diagram, a quantity flow diagram showing the
quantities of flow may be prepared

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Project charts and layouts

• Production Line Diagrams
• Show how the production would progress along with the main equipment
• Transport Layout
Project charts and layouts

• Shows the distances and means of transport outside the production line
• Utility Consumption Layout
• Shows the principal consumption points of utilities (power, water, gas,
compressed air, etc.) and their required quantities and qualities
• Provides the basis for developing specifications for utility supply installations
• Communication Layout
• Shows how the various parts of the project will be connected with telephone,
internet, intercom, etc.

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Project charts and layouts

• Organisational Layout
• Shows the organisational set-up of the project along with information on
personnel required for various departments and their inter-relationship
Project charts and layouts

• Plant layout
• Shows the physical layout of the factory
• Not much flexibility in process industries
• Greater flexibility in manufacturing industries
• Important considerations:
• Consistency with production technology
• Smooth flow of goods from one stage to another
• Proper utilisation of space
• Scope for expansion
• Minimisation of production cost
• Safety of personnel

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Schedule of Project Implementation

• Information required to prepare schedule of project implementation:
• List of all possible activities from project planning to commencement of production
Schedule of Project Implementation

• The sequence in which various activities have to be performed

• The time required for performing various activities
• The resources normally required for performing various activities
• The implications of putting more resources or fewer resources than are normally
required
• Work Schedule reflects the plan of work concerning installation as well as initial
operations
• Purpose of the work schedule
• To anticipate problems likely to arise during the installation phase and suggest
possible means for coping with them
• To establish the phasing of investments considering the availability of finances
• To develop a plan of operations covering the initial period (the running in period)

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The 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
• Manufacture of all the parts and components
• Assembly type
• Up to finished stage or semi-finished stage
• Production process
• availability and characteristics of raw materials
• cost structure
• nature of markets served
• Product quality
• choice of quality is fairly wide, particularly for consumer products like textiles and footwear
• depends on the characteristics of the market, the elasticity of demand, consumer preferences,
and the nature of competition

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The Need for Considering Alternatives

• Scale of operation and time phasing
• Depends on financial resources available, the nature of competition, the nature of demand, and
the economies of scale
• Capital cost of capacity installation (single stage or multiple stages?)
• Location
• (i) a single plant for the entire market; or
• (ii) one large plant for the bulk of the market with a few smaller plants for the remaining market;
or
• (iii) several plants of similar size spread over the market areas
• trade-off between economies of scale in manufacturing and economies of distribution

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Key Project Inter-linkages

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