Project Feasibility & Planning

Implementation Planning & Budgeting

Session- 14
 Implementation planning
• The project implementation phase embraces the period from the decision to invest to the start of
commercial production.

• It is very important to carefully plan and analyse this critical phase of the project cycle, because
deviations from the original plans and budgets could easily endanger the entire project.

• A primary objective is therefore to determine the technical and financial implications of the
various stages of project implementation, with a view to securing sufficient finance to float the
project until and beyond the start of production.

• A series of simultaneous and interrelated activities taking place during the implementation phase
have to be identified, including the financial implications they might have for the project.

• When preparing the implementation plan for the feasibility study it should also be borne in mind
that, at a later stage, this plan will be the basis for monitoring and controlling the actual project
implementation.

• The implementation schedule must present the costs of project implementation as well as the
schedule for the complete cash outflows (for all initial investments), in order to allow the
determination of the corresponding inflows of funds, as required for financing the investments.
 Objectives of implementation planning
• To implement a project means to execute all the on- and off-site work tasks
necessary to bring a project from the feasibility study stage to its operational
stage.

 While the preparation of the preliminary implementation plan is a part of the

feasibility study, the execution of the implementation plan is usually entrusted
to a project implementation team.

• A realistic schedule should be drawn up for the various stages of the project
implementation phase. This is an essential part of the feasibility study, as the
implementation of every project must be related to a time schedule.

 Such a schedule must initially define the various implementation stages in

terms of the resources and duration of activities required for each stage.
 Construction Project Gantt chart

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 Objectives of implementation planning

• The implementation plan should then establish a time schedule that combines
the various stages into a consistent pattern of activities that join together into
each other.

• This comprehensive schedule should cover the entire investment phase,

including the period between the investment decision and the initial production
stage, of which the actual construction period is only one, although the most
important, part.

• Project implementation planning is considered here mainly in order to draw the

attention of the project planner to the financial implications of project
scheduling and to the possibilities of the early detection of implementation
delays and their financial consequences.
 Objectives of implementation planning
• Varying periods of time are required for various stages of implementation
in different projects. These depend on the circumstances prevailing in a
country and the specific nature and requirements of a particular project.

• A considerable amount of time may elapse between the moment when

the investment decision is taken and the actual start of operation. This
period comprises the following main activities:
 appointment of the implementation team
 company formation
 financial planning
 organizational build-up
 technology acquisition and transfer
 basic engineering
 pre-qualification of contractors, consultants and suppliers
 preparation of tender documents
 Objectives of implementation planning
 Tendering
 opening of bids
 evaluation of bids
 negotiations and award of contracts
 detailed engineering
 acquisition of land
 construction works
 installation of equipment
 purchase of materials and supplies
 pre-production marketing
 training and plant commissioning
 start-up and initial production
 Objectives of implementation planning
• In some cases the implementation period may be so long that the cost data
given in the feasibility study become outdated and need to be reviewed.

• If a construction period of two, three or more years follows, the cost data used
for the investment decision may be several years old by the time of the start-
up.

• Thus it is vital that all cost data are updated and documented to allow for a
continuous cost monitoring by way of both projections and gathering actual
data.

• By comparing the actual data growing during the construction stage with the
data provided in the feasibility study, it will be possible to detect the effects any
cost overruns may have on the financing requirements and overall profitability
of the project.
 Objectives of implementation planning
• Implementation planning and budgeting includes the following major tasks:
 Determination of the type of work tasks, on- and off-site, that are necessary to implement
the project

 Determination of the logical sequence of events in the work tasks

 Preparation of a time-phased implementation schedule, positioning all the work tasks

correctly in time and allowing for adequate time to complete each individual task

 Determination of the resources needed to complete the individual tasks and the taking out
of the corresponding costs

 Preparation of an implementation budget and cash flow that will ensure the availability of
adequate funds throughout the implementation phase

 Documentation of all implementation data allowing the implementation plan and budget,
as well as the forecasts made in the feasibility study, to be updated.
 Critical path in project schedule

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 Stages of project implementation
• The main stages of project implementation planning, which are dealt with in
further detail for the case of a new industrial investment project, do not always
lend themselves to a stage-by-stage analysis with one stage invariably leading
to the other. A great deal of overlapping and simultaneous planning of various
activities is inevitable.

• Training activities, for example, may start very early when key personnel from
the company participate in out-of-the country training for a long period, while
the training of maintenance technicians and operators is undertaken later
during construction and start-up.

• It is particularly important to link socio-economic conditions of a country, or

indeed a region of a country, to many activities of the implementation period in
order to evaluate their consequences for the scheduling of the individual
activities.
 Appointment of the implementation team
• The realization of a project is usually entrusted to a project implementation
team. If the company in process of formation has qualified personnel, it may
decide to establish a project implementation team under its own management.
Alternatively, a professional consultant may be selected to act on behalf of the
investor.

• The team may undertake the entire work or only a part of it. Particularly in the
case of large projects some of the tasks, for example detailed engineering or
supervision of construction and installation works, are often subcontracted.

• The main objective in the appointment of a project team is to ensure that the
execution of all works comply with the implementation plan and budget, and
that proper countermeasures can be enforced in case the actual
implementation work and costs deviate from the plan.
 Governmental approvals

• Government approval procedures may take considerable time in certain

developing countries, even at the initial stage, particularly if foreign investment
is involved. Government approval is required, in many cases, to import
machinery and equipment and in respect of technology supply arrangements

• The import of materials, parts and components, may also require the sanction
of governmental agencies at the production stage.

• In all these cases, adequate time should be provided to obtain the necessary
approvals and to avoid creating bottlenecks. It is difficult to specify a fixed time-
frame, as conditions differ from country to country, but in those countries in
which approvals have to be obtained, from 1 to 6 months is necessary in most
cases.
 Financial planning
• After the decision to invest has been taken and once the total investment
costs and their scheduling are known, detailed arrangements for project
financing need to be initiated in line with the financial requirements of
project implementation.

• A sound debt-equity ratio should be aimed at, taking into account

supplier credits, institutional loan financing and investor funds.

• There must be a good understanding at the feasibility stage of all the

implementation costs. Only with such a comprehensive assessment will it
be possible to determine the financial requirements.
 Project management and organization
• The implementation plan and schedule prepared for the feasibility study will
normally form the basis for the future work of a project management team.

• When implementing a project, the investor should first set up a project

management team. It is usually advisable to appoint a key person who
would build up a company-internal management team, or select outside
project management consultants.

• The team should have the necessary authority regarding contractors and
consultants to ensure the efficient and timely implementation of the
project. It would also be an asset if the team members have an intimate
knowledge of local conditions.

 The team should not only remain active during the implementation period,
but should ideally form the nucleus of the managerial, technical and
operational staff that is to be put in charge of operating the plant.
 Project management and organization
Organizational build-up
• During the stage of organizational build-up the recruitment of human
resources is initiated. The recruitment schedule outlining when personnel in
the various categories is needed depends on the type of manufacture, and the
availability of labour and staff. Training of new employees may begin at a very
early stage, and might require that some of the key people be trained abroad.

• Moreover, to begin other training activities, expatriate instructors may have to

be mobilized, training materials provided and training facilities made ready.

• Consequently, the training plan that has been prepared earlier in the feasibility
study is an important planning tool for the implementation team.

 Recruitment is too often left to a very late stage, and training programmes are
initiated only when the plant is ready to commence production, leading to
unnecessarily poor capacity utilization in the early production stages
 Technology acquisition and transfer
• The acquisition of technology is a key element of the implementation phase.
The selected technology has many legal, financial and technical aspects, and
negotiations with technology suppliers may take considerable time in certain
cases.

• Legal problems such as patent rights or restrictions on the transfer of

technology and trade names may sometimes have to be solved. If the
contractual obligations of the technology suppliers include training, this should
be included in the training plan.

• The feasibility study should contain a projection of the time schedule and the
costs related to the acquisition and transfer of the technology chosen for the
project.

• Moreover, the time allocated for the detailed engineering design will depend
on the kind and complexity of the technology.
 Detailed engineering and contracting
Detailed engineering
• The final plant layout and design as prepared in the feasibility study will be the point of
departure for detailed engineering.
 During the implementation phase the entire documentation for site preparation, ordering of
machinery and equipment, civil works and plant erection will be elaborated.

• The generation of drawings, descriptions, bills of quantity and equipment specifications

engages many engineers, architects and planners, and will require efficient coordination.
 The time required and the cost of this work have to be estimated in the feasibility study.

• A complete set of technical documentation must be supplied to the implementation team

well ahead of the start of the construction and installation stage.

• An important aspect usually not receiving proper attention is the provision of operating and
maintenance manuals.
 In case of different suppliers the manuals should be arranged in such a way that the text,
drawings and diagrams can be easily utilized by the future operators and maintenance
personnel
 Detailed engineering and contracting
Tendering, negotiations and award of contracts
• The phase of tendering, negotiations and contract awards includes;
 prequalification of contractors, consultants and suppliers
 preparation of tender documents
 Tendering
 evaluation of tenders
 contract negotiations and award of contracts.

• There is usually a considerable lapse of time between the invitation for

quotations and the final award of contracts. This period can, however, be
projected without too much difficulty.

• The time elapsing until equipment is delivered may also be very long. It ranges
normally from a few months for relatively simple plant and equipment to two
years or more for more complex installations.
 Detailed engineering and contracting
• When ordering the equipment, the delivery time should be planned according to the
progress of the erection work on site and the requirements for the various construction
stages, to ensure that the equipment arrives in a sequence that is optimal from both the
delivery and construction points of view.

• All problems related to the transfer of construction and plant equipment must be solved
before delivery to avoid undue delays.
 The feasibility study should identify any such problem areas that could be critical for the
feasibility of the project. It may, for example, be necessary to simulate all transport stages
for critical supply items, such as very bulky or heavy machinery and equipment.

• Quality control must have been;

 performed at the factories of the suppliers
 shipping and transport routes determined
 commercial and customs documents prepared according to the local laws and
regulations.
• Even the greatest care taken to ensure an optimal delivery sequence will not, however,
rule out the need for interim warehouses where some of the equipment can be safely
stored until it is installed in the plant.
 Detailed engineering and contracting
• In cases where both imported and domestic equipment is installed, problems
relating to the sequence of delivery become all the more significant.

• In many instances, equipment manufactured domestically in developing

countries takes considerably longer to deliver than imported equipment, and
orders need to be planned in advance to a greater extent, owing to the limited
capacities available locally.

• The performance testing of the plant is sometimes a serious problem. These

tests, in particular their duration and the conditions of testing, will have to be
specified in the contract documents with such detail and clarity that future
disputes and claims can be avoided.

 Although performance tests may be a matter that is handled directly between

suppliers and the purchaser, an independent consultant will often be
appointed to conduct the tests.
 Detailed engineering and contracting
• The feasibility study should indicate which performance tests are recommended or
required, and also contain a projection of a time schedule as well as of the related
costs.

• The outcome of the performance test is critical to both suppliers and purchasers
because it has contractual effects.

• The approval of the test by the purchaser is normally the condition for the release of
a retention money to the supplier.

• The test is equally critical for the investors, inasmuch as an unsuccessful performance
test inevitably means a delayed start-up of plant operation and production.

• Although suppliers or contractors will normally have to issue a performance bond, its
value may only be marginal compared with the production loss suffered by the
investors.
 Detailed engineering and contracting
• It is a common experience that a badly specified performance test, without a
clear statement of objectives, plant operation and testing procedures, as
well as of the obligations of all parties concerned, often leads to delays and
legal problems.

• In many contracts performance tests are followed by a guarantee period.

• The acceptance of a performance test would then be provisional only, and

the final acceptance certificate is issued after expiry of the entire period,
subject to satisfactory performance by the supplier or contractor.
 Projecting the implementation budget
• The objective of implementation budgeting is to determine the cost of
resources required to implement an investment project, once the project has
been approved and the investment decision is made.

• The feasibility study should determine the cost of resources in accordance

with the timing of the various stages of project implementation described
above.

• The estimated implementation costs are capitalized pre-production costs

forming part of the total initial investment costs.

• The cost estimates are based on the implementation activities and tasks
determined for the project.
 Projecting the implementation budget
• For various cost items, standard costs can be found in publicly available reference
material.

 For example, associations of architects and engineers in many countries have

established unit costs per man-day and rules for calculating fees for architectural and
engineering services (calculated on the basis of the type and scope of the project and
the work).

• Other cost items such as housing, transport, legal fees and duties may require local
surveys.

• Price and cost estimates should include contingencies for probable price increases,
projected for the most likely starting date of project implementation.

 In case the actual starting date is delayed, it will be necessary to update all cost and
income projections and recompute the schedules required for project financial
analysis.