MODULE 2 PAPC Generation and screening of project ideas Team structure: Group works together at the same time

together in a room to generate ideas. Hybrid structure: Individuals generate their ideas independently, then meet together in a group. : Project ideas are generated through different sources liEvaluation of an Idea ke customers, competitors, and employees. Sometimes they are discovered through accident. Project manager should try to enhance people's creativity, scan the entire business environment and appraise the companys strengths and weaknesses to generate a large number of ideas. Techniques like attribute listing, brainstorming, and delphi technique are useful for improving the creativity at individual and group level. Evaluation of an Idea Whether the Idea would work at all Whether it would be Practical What about the Cost of Implementing? Whether the Idea is new

GENRATION OF IDEAS Stimulating the Flow of Ideas SWOT Analysis Clear Articulation of Objectives Fostering a Conducive Climate MONITORING THE ENVIRONMENT Economic Sector State of the Economy

Overall Rate of Growth Growth Rate of Primary, Secondary and Tertiary Sectors Cyclical Fluctuations Linkage with the World Economy Trade Surplus / Deficit Balance of Payment Situation Governmental Sector Industrial Policy Government Programmes & Projects Tax Framework Subsidies, Incentives and Concessions Import & Export Policies Financing Norms Lending Conditions of Financial Institutions and Commercial Banks Technological Sector Emergence of New Technologies Access to Technical Know-How, Foreign as well as Indigenous Receptiveness on the Part of Industry Socio-Demographic Sector Population Trends Age Shifts in Population Income Distribution Educational Profile Employment of Women Attitudes Towards Consumption and Investment Competition Sector

Number of Firms in the Industry and the Market Share of the Top Few Degree of Homogeneity and Differentiation Among Products Entry Barriers Comparison with Substitutes in Terms of Quality, Price, Appeal and Functional Performance Marketing Policies and Practices Supplier Sector Availability and Cost of Raw Materials and Sub-Assemblies Availability and Cost of Energy Availability and Cost of Money Corporate appraisal A critical assessment of the strengths, weakness, opportunities and threats (SWOT analysis) in relation to the internal and environmental factors affecting an entity in order to establish its condition prior to the preparation of the long term plan CORPORATE APPRAISAL Marketing and Distribution Market Image Product Line Market Share Distribution Network Customer Loyalty Marketing and Distribution Cost Production and Operations Condition and Capacity of Plant and Machinery Availability of Raw Materials, Sub-Assemblies and Power Degree of Vertical Integration Locational Advantage

Cost Structure Research and Development Research Capabilities of Firm Track Record of New Development Laboratories and Testing Facilities Co-ordination Between Research and Operations Corporate Resources and Personnel Corporate Image Clout with Governmental and Regulatory Agencies Dynamism of Top Management Competence and Commitment of Employees State of Industrial Relations Financial and Accounting Financial Leverage and Borrowing Capacity Cost of Capital Tax Situation Relations with Shareholders and Creditors Accounting and Control System Cash Flows and Liquidity TOOLS FOR IDENTIFYING INVESTMENT OPPORTUNITIES Porter model Life cycle approach And experience curve Porter Model: profit potential of Industries

Threat of New Entrants The new entrants have to invest substantial resources to enter the industry. Economics of scale are enjoyed by the industry Existing firms control the distribution channels, benefit from product differentiation in the form of brand image and customer loyalty. The government policy limits or even prevents new entrants. Rivalry between Existing Firms The number of competitors in the industry is large. The level of fixed costs is high, generating strong pressures for all firms to achieve a higher capacity utilization level. There is chronic over capacity in the industry. Pressure from substitute products All the firms in an firms in an industry face competition from industries producing substitutes products. Performing the same function as the original product, substitutes products may limit the profit potential of the industry by imposing a ceiling on the prices that can be charged by the firms in the industry.

The threat from substitute products is high when: The switching costs for prospective buyers are minimal. The substitute products are being produced by industries earning superior profits. Bargaining power of Buyers Buyers are a competitive force. They can bargain for price cut, ask for superior quality and better service, and induce rivalry among competitors. If they are powerful, they can depress the profitability of the supplier industry. The bargaining power of a buyer group is high when: Its purchases are large relative to the sales of the seller. Its switching costs are low. It poses a strong threat of backward integration. Bargaining power of suppliers Suppliers, like buyers, can exert a competitive force in an industry as they can raise prices, lower quality. Suppliers have strong bargaining power when: The switching costs for the buyers are high Suppliers do present a real threat of forward integration. Life Cycle Approach

Stages Pioneering stage Rapid Growth stage Maturity and stabilization stage Decline stage The Experience Curve The experience curve shows how the cost per unit behaves with respect to the accumulated volume of production. The accumulated volume of production is the total number of units produced cumulatively from the very beginning.

SCOUTING FOR PROJECT IDEAS Analyze the Performance of Existing Industries Examine the Inputs and Outputs of Various Industries Review Imports and Exports Study Plan Outlays and Governmental Guidelines

Look at the Suggestions of Financial Institutions and Development Agencies Investigate Local Materials and Resources Analyze Economic and Social Trends Study New Technological Developments Draw Clues for Consumption Abroad Explore the Possibilities of Reviving Sick Units Identify Unfulfilled Psychological Needs Attend Trade Fairs Stimulate Creativity for Generating New Product Ideas PRELIMINARY SCREENING It involves a first attempt to specify more concretely the design parameters of the new product. The point is to get a more precise representation of the idea so that potential user reactions can be researched. At this point the representative of the local markets will bring to bear their particular market needs, wants, and preferences. Compatibility with the Promoter Compatibility with the Promoter It Fits the Personality of the Entrepreneur It is Accessible to Him It offers him the Prospect of Rapid Growth and High Return on the Invested Capital Consistency with the Government Priorities Is the Project Consistent with the National Goals and Priorities? Are there any Regulations? Environmental Effects Contrary to Governmental

Can Foreign Exchange Accommodated?

Requirements

of

the

Project

be

Easily

Will there be Any Difficulty in Obtaining the License for the Project? Availability of Inputs Are the Capital Requirements of the Project within Manageable Limits? Can Technical Know-How Required for the Project be Obtained? Are the Raw Material Required for the Project Available Domestically at a Reasonable Cost? If the Raw Materials Have to Be Imported, Will there be Problems? Is the Power Supply for the Project Reasonably Obtainable from External Sources and Captive Power Resources Adequacy of Market Total Present Domestic Market Competitors and Their Market Share Export Markets Sales and Distribution System Projected Increase in Consumption Barriers to the Entry of New Units Economic, Social and Demographic Trends Patent Protection Reasonableness of Cost Cost of Material Inputs Labour Costs Factory Overheads General Administrative Expenses Selling and Distribution Cost Service Cost Economies of Scale

Acceptability of Risk Level Vulnerability of Business Cycles Technological Changes Competition from Substitutes Competition from Imports Governmental Control Over Price and Distribution PROJECT RATING INDEX When a firm evaluates a large number of project ideas regularly, it may be helpful to streamline the process of preliminary screening. For this purpose, a preliminary evaluation may be translated into a project rating index. The steps involved in determining the project rating index are as follows. Steps Identify factors relevant for project rating. Assign weights to these factors (the weights are supposed to reflect their relative importance). Rate the project proposal on various factors, using a suitable rating scale. (Typically a 5 point scale or a 7 point scale is used for this purpose) For each factor, multiply the factor rating with the factor weight to get the factor score. Add all the factor scores to get the overall project rating index.

sources of positive NPV Economies of Scale Product Differentiation Effective Advertising and Superior Marketing Exceptional Service Innovative Product Features High Quality and Dependability Cost Advantage Accumulated Experience and Comparative Edge on the Learning Curve Monopolistic Access to Low Cost Materials A Favourable Location More Effective Cost Control and Cost Reduction

Marketing Reach Technological Edge Government Policy Restrictive Licensing Import Restrictions High Tariff Walls Environmental Controls Special Tax Reliefs ON BEING AN ENTREPRENEUR 1. Are my goals Well Defined? Personal Aspirations Business Sustainability and Size Tolerance for Risk 2. Do I have the Right Strategy Clear Definitions Profitability and Potential for Growth Durability Rate of Growth 3. Can I Execute the Strategy? Resources Organizational Infrastructure The Founders Role QUALITIES AND TRAITS OF A SUCCESSFUL ENTREPRENEUR Willingness to Make Sacrifices Leadership Decisiveness

Confidence in the Project Marketing Orientation Strong Ego Open mindedness MARKET AND DEMAND ANALYSIS SITUATIONAL ANALYSIS AND SPECIFICATIONS OF OBJECTIVES

Who are the buyers of air coolers? What are the total current demand for air coolers? How is the demand distributed temporally and geographically? What is the break up of demand for air coolers of different sizes? What price will the customers be willing to pay for the improved air cooler? How can potential customers be convinced about the superiority of the new cooler?

What price and warranty will ensure its acceptance? What channels of distribution are most suited for the air cooler? What trade margins will induce distributors to carry it? What are the prospects of immediate sales? COLLECTION OF SECONDARY INFORMATION General Sources of Secondary Information Industry Specific Sources of Secondary Information Evaluation of Secondary Information SECONDARY SOURCES OF DATA 1. Pakistan Economic Survey 2. Pakistan Basic Facts 3. Reports of Export Working Groups on Various Industries 4. Census of Manufacturing Industries 5. Pakistan Statistical Yearbook 6. Monthly Statistical Bulletin 7. Annual Report of State Bank of Pakistan 8. Annual Reports and Accounts of the Companies Listed on the Stock Exchange 9. Annual Reports of the Various Associations of Manufacturers CONDUCT OF MARKET SURVEY SECONDARY INFORMATION Census Survey Sample Survey Steps in a Sample Survey Define the Target Population Select the Sampling Scheme and Sample Size Develop the Questionnaire or GENERAL SOURCES OF

Recruit and Train the Field Investigators Obtain Information as Per the Questionnaire from the Sample of Respondents Scrutinizes the Information Gathered Analyze and interpret the Information CONDUCT OF MARKET SURVEY or GENERAL SOURCES OF SECONDARY INFORMATION Plan reports India year book Statistical year book Economic survey Annual reports The stock Exchange Directory Monthly studies of production of selected Industries Publications of advertising Agencies CONDUCT OF MARKET SURVEY Total demand and rate of growth of demand Demand in different segments of the market Income and price elasticity of demand Motives for buying Satisfaction with existing products Attitude towards various products CHARACTERISATION OF THE MARKET Effective Demand in the Past and Present Production + Imports Exports Change in stock level Breakdown of Demand Nature of Product

Consumer Groups Geographical Division CHARACTERISATION OF THE MARKET Price Methods of Distribution and Sales Promotion Consumers Supply and Competition Government Policy DEMAND FORECASTING I Qualitative Methods It based on opinion & intuition These methods rely essentially on the judgment of experts to translate qualitative information into quantitative estimates Used to generate forecasts if historical data are not available (e.g., introduction of new product) The important qualitative methods are: Jury of Executive Method Delphi Method JURY OF EXECUTIVE OPINION METHOD This method, which is very popular in practice, involves soliciting the opinions of a group of managers on expected future sales and combining them into a sales estimate. Small group of upper-level managers collectively develop forecasts

Advantages: It is an expeditious method for developing a demand forecast. It has immense appeal to managers who tend to prefer their judgment to mechanistic forecasting procedures.

Combine knowledge and expertise from various functional areas People who have best information on future developments generate the forecasts Disadvantages: The biases underlying subjective estimates can not be unearthed easily. The reliability of this technique is questionable. Expensive No individual responsibility for forecast quality Risk that few people dominate the group DELPHI METHOD This method is used for eliciting the opinions of a group of experts with the help of a mail survey. The steps involved in this method are: (1) A group of experts is sent a questionnaire by mail and asked to express their views. (2) The responses received from the experts are summarized without disclosing the identity of the experts, and sent back to the experts, along with a questionnaire Meant to probe further the reasons for the extreme views expressed in the first round. (3) The process may be continued for one or more rounds till a reasonable agreement emerges in the view of the experts. Main advantages It is simple to conduct Can forecast long-term trend without availability of historical data It is inexpensive It takes little time Main drawbacks

Slow process Experts are not accountable for their responses Little evidence that reliable long-term forecasts can be generated with Delphi or other methods

II TIME SERIES PROJECTION METHODS:

Trends Projection Method Trend projection method is a classical method of business forecasting. This method is essentially concerned with the study of movement of variable through time. The use of this method requires a long and reliable time series data. The trend projection method is used under the assumption that the factors responsible for the past trends in variables to be projected (e.g. sales and demand) will continue to play their part in future in the same manner and to the same extend as they did in the past in determining the magnitude and direction of the variable. It is based on the assumption that the future is an extension of the past. Historical data is used to predict future demand. There are two trend methods: Graphical method Algebraic method Graphical method: The past data will be plotted on a graph. The identified trend will be extended further in the same pattern to ascertain the demand in the forecast period. In the figure trend 1 is linear, trend 2 is non linear

Exponential Smoothing Method

Moving Average Method As per the moving average method of sales forecasting, the forecast for the next period is equal to the average of the sales for several preceding periods.

III CASUAL METHODS Chain Ratio Method The potential sales of a product may be estimated by applying a series of factors to a measure of aggregate demand. EX General Foods estimated the potential sales for a new product, a freeze fried instant coffee, in the following manner:

Several years ago a firm planning to manufacture stainless steel blades in India tried to estimate its potential sales in the following manner: Consumption level Method This method estimates consumption level on the basis of elasticity co efficiently, the important ones being the income elasticity of demand and the price elasticity of demand. Income Elasticity: This reflects the responsiveness of demand to variations in income. It is calculated as:

Where demand Q1 = quantity demanded Q2 = quantity demanded I1 = income level I2 = income level in the following year

E1 = Income elasticity of in in in the base the following the base year year year

Price Elasticity: This reflects the responsiveness of demand to variations in price. It is calculated as:

As

Where EP = Price elasticity of demand Q1 = quantity demanded in the base year Q2 = quantity demanded in the following year (price per unit) in the base year P2 = price level (price per unit) in the following year End use Method This method forecasts the demand based on the consumption coefficient of the various uses of the product. Steps: (1) Identify the possible uses of the product (2) Define the consumption coefficient of the product for various uses. (3) Project the output levels for the consuming industries. (4) Derive the demand for the product. Leading Indicator Method This method uses the changes in the leading indicators to predict the changes in the lagging indicators. Steps Identify the appropriate leading indicator Establish the relationship between the leading indicator The variable to be forecast Econometric Method An advanced forecasting tool, it is a mathematical expression of economic relationships derived from economic theory. Single Equation Model Dt = a0 + a1 Pt + a2 Nt Where Dt = demand for a certain product in year t. P1 = price level

Pt = price of the product in year t. Nt = income in year t. Simultaneous equation method GNPt = Gt + It + Ct It = a0 + a1 GNPt Ct = b0 + b1 GNPt Where GNPt = gross national product for year t. Gt = Governmental purchase for year t. It = Gross investment for year t. Ct= Consumption for year t. UNCERTAINTIES IN DEMAND FORECASTING Data about past and present market Lack of standardization Few Observations Influence of Abnormal Factors Methods of forecasting Inability to Handle Unquantifiable Factors Unrealistic Assumptions Excessive Data Requirement Environmental changes Technological change Shift in Govt policy Discovery of new sources of Raw Material COPING WITH UNCERTAINTIES Conduct analysis with data based on uniform and standard definitions.

Ignore the abnormal or out-of-ordinary observations. Critically evaluate the assumptions Adjust the projections. Monitor the environment. Consider likely alternative scenarios. Conduct sensitivity analysis MARKET PLANNING Components: Current marketing situation Opportunity and issue analysis Objectives Market strategy Action programme

TECHNICAL ANALYSIS:
Manufacturing process and technology Cement can be made either by the dry process or the wet process. Soda can be made by the electrolysis method or the chemical method. Soap can be manufactured by the semi-boiled process or the fully boiled process. Choice of Technology: Plant capacity Principal inputs Investment outlay and product cost Use by other units Product mix

Latest developments Material Inputs and Utilities May be classified into 4 broad categories 1) Raw Material - Agricultural products - Mineral products 2) Processed Industrial Material and Components 3) Auxiliary Material and Factory Supplies PLANT CAPACITY Technological requirement Input constraints Investment cost Market conditions Resource of the firm Governmental policy LOCATION AND SITE The choice of location is influenced by a variety of considerations: Proximity to Raw Materials and Markets Availability of Infrastructure Labour situation Governmental policies Other Factors - Climatic conditions - General living conditions - Ease in coping with Environmental pollution MACHINERIES AND EQUIPMENT

The following procedure may be followed: i) Estimate the likely levels of production over time. ii) Define the various machining and other operations. iii) Calculate the machine hours required for each type of operation. iv) select machineries and equipment required for each function. The equipment required for the project may be classified into the following type: i) plant equipment, ii) Mechanical equipment, iii) Electrical equipment, iv) Internal transportation Constraints in Selecting Machineries and Equipment There may be a limited availability of power to set up an electricity intensive plant. There may be difficulty in transporting heavy equipment to a remote location. Workers may not be able to operate, at least in the initial periods, cartain sophisticated equipments such as numerically controlled machines. The import policy of the government. STRUCTURES AND CIVIL WORKS Site preparation and development Grading and leveling of the site Demolition and removal of existing structures Relocation of existing pipelines, cables, roads, power lines.

Connections for the following utilities from the site to the public networks: electric power and water for drinking, communication, roads, railways. Buildings and structures - Factory buildings - Ancillary buildings required for stores, warehouses, laboratories, utility supply centers, maintenance services.

- Administrative buildings - staff welfare buildings, cafeteria, and medical services buildings - Residential buildings Outdoor works - supply and distribution of utilities - Handling and treatment of emission, wastage. - Transportation and traffic signals - Outdoor lighting PROJECT CHARTS & LAYOUTS General Functional Layout Material Flow Diagram Production Line Diagrams Transport Layout Utility Consumption Layout Communication Layout Organizational Layout Plant Layout Consistency with production technology Smooth flow of goods from one stage to another Proper utilization of space Scope of expansion Minimization of production cost Safety of personnel SCHEDULE OF PROJECT IMPLEMENTATION For preparing the project information is required. implementation schedule the following

List of all possible activities from project planning to commencement of production. The sequence in which various activities have to be performed. The time required for performing the various activities. The resources normally required for performing the various activities. The implications of putting more resources or less resources than are normally required. WORK SCHEDULE The purpose of the work schedule is: To anticipate problems likely to arise during the installation phase and suggest possible means for coping with them. To establish the phasing of investments taking into account the availability of finances. To develop a plan of operations covering the initial period. NEED FOR CONSIDERING ALTERNATIVES Nature of project Production process Product quality Scale of operation & time phasing location