Professional Documents
Culture Documents
Evaluation of Projects-Technical & Financial Aspects
Evaluation of Projects-Technical & Financial Aspects
FEASIBILITY STUDIES
To implement any project an entrepreneur needs to carry out
different types of feasibility studies. These feasibility studies
evaluate all the risks and returns and try to balance them and
help the entrepreneur to finalize his plans.
TECHNICAL FEASIBILTY
Under Technical appraisal the necessary facilities required for
production are analyzed viz.
Basic infrastructure - Land/Building/Utilities
Technology/Technical Process
Machinery/Raw Material/Labour
Licensing/Registration/Clearances
EVALUATION OF TECHNOLOGICAL
OPTIONS
The technology should be:
CHOICE OF TECHNOLOGY
The choice of technology is influenced by many factors
such as:
Plant capacity
Principal Inputs
Investment outlay and production cost
Use by other units
Product mix
Latest Developments
Ease of Integration
CPM/PERT
CPM/PERT can answer the following important questions
How long will the entire project take to be completed? What are
the risks involved?
Which are the critical activities or tasks in the project, which
could delay the entire project if they were not completed on
time?
Is the project on schedule, behind schedule or ahead of
schedule?
If the project has to be finished earlier than planned, what is
the best way to do this at the least cost?
10
FINANCIAL ANALYSIS
A wide range of criteria are available to judge the worthiness of
investment projects. They fall into two broad categories:
Discounting criteria
1. Net Present value
2. Benefit cost ratio
3.Internal rate of return
Non-discounting criteria
1.
Payback period
CFt
t=0 (1+k) t
where,
CFt
= discount rate
12
13
BENEFITS:
DRAWBACKS
15
16
17
BENEFITS
As this measures NPV Per rupee of outlay, it can discriminate
large and small investments and hence is preferable to NPV
method.
18
DRAWBACKS
Under unconstrained conditions, this method will accept and
reject the same projects as NPV.
It provides no means for aggregating several projects into a
package that can be compared with a large project.
When cash outflows occur beyond the current period, the
Benefit- Cost
19
20
BENEFITS
IRR is closely related to NPV.
This method is easy to understand and interpret.
21
DRAWBACKS
This method may lead to multiple rates of return
This method may result into incorrect decisions in comparing
mutually exclusive projects
22
23
BENEFITS / DRAWBACKS
BENEFITS
project
The problem of multiple rates does not exist
DRAWBACKS
For choosing among mutually exclusive projects of different
size, NPV is a better alternative in measuring the contribution
of each project to the value of the firm.
24
25
BENEFITS /DRAWBACKS
BENEFITS
It is simple in concept and application
It is a rough and ready method for dealing with risk
DRAWBACKS
It does not consider the time value of money
It ignores cash flows beyond the payback period
It is a measure of capital recovery and not profitability
26
27
ARR
28
BENEFITS / DRAWBACKS
BENEFITS
It is simple to calculate
It is based on information that is easily available
It considers benefits over entire life of the project
DRAWBACKS
It is based on accounting profit and not cash flow
It does not take into account Time value of money.
It is internally inconsistent
29
CONCLUSION
To conclude,
For small sized projects, it is best to use Pay back and ARR
method and for larger projects, IRR method is suitable.
30
31
32
STEP 1:
A project exists to produce a unique product, service, process,
or plan. Since each product is unique, each set of steps to create
the product should be unique. Hence, rather than starting from
the scratch on each project and making up a set of steps, most
projects can work off a process template that serves as a
starting point for how to create the deliverable.
33
34
STEP 2
Project success depends on the project team. The new project
management approach is team-based and participative. The
project leader acts as a facilitator to the team and as a guide
through the project management process. The team creates the
project plan, monitors and controls the project and assesses
what went well and what should be improved for the next
project.
35
36
STEP 3
Project results are improved when a project management methodology
is used. Project management methodology is a set of tools and
techniques that help project team to:
Produce deliverables that will satisfy the client.
Get the project done on time.
Prevent constantly changing project requirements.
Get the project done within budget.
Make sure the project doesnt drag on forever.
Ensure that all stakeholders have a voice in the process.
Make the project a more satisfying experience for team members.
37