Project Management PHHA 422 Needs Analysis PDF

Project Management PHHA 422 Chapter 4 Needs analysis 1 Project Needs analysis Project Needs analysis: Feasibility Analysis Technical Analysis Market and Demand or Commercial Analysis Economic Analysis (Social Cost- Benefit Analysis)...

Project Management PHHA 422 Chapter 4 Needs analysis 1 Project Needs analysis Project Needs analysis: Feasibility Analysis Technical Analysis Market and Demand or Commercial Analysis Economic Analysis (Social Cost- Benefit Analysis) Financial Analysis 2 What is Feasibility Analysis?  Feasibility Analysis ◦ Preliminary evaluation of idea to determining if it’s worth pursuing ◦ Provides more secure notion that a project idea is viable ◦ As project ides is examined 3 alternatives could be considered  The project idea seems to be feasible: Then, proceed to the next step  The project idea is not feasible: Abandon the idea  Unable to arrive at a conclusion: Make more efforts to collect the required data  Postpone till a final decision can be taken 3 Four Components of Full Feasibility Analysis An Overview  Product/Service Feasibility ◦ Composed of two primary tests  Concept testing  Usability testing  Industry/Market Feasibility ◦ Three primary issues a proposed business should consider:  Industry attractiveness  Market timeliness  Identification of a niche market. (Subset of the market on which a specific product is focused)  Organizational Feasibility ◦ There are two primary issues to consider in this area:  Management ability  Resource sufficiency  Financial Feasibility ◦ The most important issues to consider at this stage are:  Capital requirements  Financial rate of return  Overall attractiveness of the investment 4 Feasibility Analysis Role of feasibility analysis in developing successful project ideas 5 Technical Analysis Determine whether the prerequisites for the successful commission of the project have been considered and reasonably good choices have been made with respect to location, size, process etc. The technical aspects of a typical project idea can be scrutinized in detail to evaluate its technical feasibility While the various aspects to be examined the following are more common ones: Objectives: First, the project proposal must fall within the ambit of the stated mission of the sponsor(s). Next the, proposal must be able to further the objectives and priorities of the sponsor(s). 6 Technical Analysis  Location and site: Initially, as many locations as possible should be identified which meet the most fundamental operational requirements of the proposed project.  Plant Size: Determination of an optimum plant size is critical to the success of a project.  Technology: The same product or service can generally be obtained using quite different technologies  Design, Layout & Plant & Machinery: The feasibility study should broadly specify the recommended design of the processes and plant  Construction Process: This needs to be tackled in. the feasibility study  Inputs: These relate to the operation phase of the project, but need to be identified at this stage of the feasibility study to examine the technical feasibility 7 Technical Analysis Infrastructural Facilities: Availability and characteristics of roads, bridges, railway facilities (like station, yards), air transportation, waterways, ports, etc Manpower: The availability in needed numbers, of manpower of requisite skills where and when required, has to be studied Environment Impact Assessment (EIA):  The greater the thoroughness with which the technical analysis is carried out, the more reliable and complete the Project Specifications are, and the lesser the chances of major unforeseen problems cropping up and jeopardizing the project. 8 Market and Demand Analysis  Consumer driven markets – Healthcare  Market size and demand is vital to any project  Market Analysis is concerned with – what would be the market share of the project/service under appraisal?  Demand Analysis – what would be the aggregate demand of the proposed product/service in future?  Market and Demand Analysis is concerned with estimation of the potential size of the market for the proposed product/service to be offered and get an idea about the market share that is likely to be captured. 9 Key steps in market and Demand analysis Collection of Secondary Demand Information Forecasting Situational Analysis & Characterizat Specification ion of the of Objectives Market Market Conduct of Planning Market Survey 10  Market and Demand Analysis Steps in conducting Market and Demand Analysis: 1. Situational Analysis 2. Collection of Secondary Information 3. Conduct of Market Survey 4. Characterisation of the market 5. Demand forecasting and 6. Market Planning 11 Economic Analysis (Social Cost- Benefit Analysis)  Economic Analysis (Social Cost- Benefit Analysis) or economic analysis is the methodology designed for evaluating investment projects from the point view of society or economy as a whole.  It is a tool for evaluating the value of money, particularly in public sector projects  Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the benefits and costs to the community of projects to establish whether they are worthwhile. 12  Objectives Of Social Cost Benefit Analysis (SCBA)  SCBA focuses on the following objectives that a project is expected to fulfill: ◦ Contribution of the project to the GDP of the economy. ◦ Contribution of the project to improve the benefits to the poorer sections of the society and to reduce the regional imbalances in growth and development. ◦ Justification of the use of scarce resources of the economy by the project. ◦ Contribution of the project in protecting/improving the environmental conditions. 13 Rational or Need for SCBA 1. Market imperfection 2. Externalities 3. Taxes and substitutes 4. Concern for savings 5. Concern for distribution 6. Merit wants 14 Approaches for SCBA  There are two main approaches to Social Cost Benefit Analysis:  UNIDO approach and  Little-Mirrlees approach The suitability of an approach to a project depends upon many factors such us the present level of development of the country, the extent and nature of future development that the country strives to achieve etc. 15 Approaches for SCBA UNIDO Approach to SCB Analysis  Famous economists Stephen Marglin, Amartya Sen and Partha Dasgupta prepared a manual based on UNlDO's experience in cost-benefit analysis of projects.  UNIDO published this manual in 1972 under the title "Guidelines for Project Evaluation".  The UNIDO approach places emphasis on 'aggregate consumption' for the reason that it is one of the important parameters for the measurement of the standard of living.  As per UNIDO approach, the raising of the standard of living of people, and hence the raising of aggregate consumption is an important objective for social projects. 16  Approaches for SCBA UNIDO Approach to SCB Analysis - Stages I. Arriving at the financial profitability of the project based on market prices. II. Using shadow prices for the resources to arrive at the net benefit of the project at economic prices. III. Adjustment of the net benefit for the project's impact on savings and investment. IV. Adjustment of the net benefit for the project's impact on income distribution. V. Adjustment of the net benefit for the goods produced whose social values differ from their economic values. 17  Approaches for SCBA The Little- Mirrlees Approach  I.M.D. Little and James A. Mirrlees produced the "Manual of Industrial Project Analysis in Developing Countries" in 1968 for the Development Centre of the Organisation for Economic Cooperation and Development (OECD).  Little and Mirrless brought out a second volume titled "Project Appraisal and Planning for Developing Countries" in the light of practical applications to S.C.B. analysis of projects.  L-M's numeraire (unit of account) is "present uncommitted social income measured in terms of convertible foreign exchange of constant purchasing power". 18  Approaches for SCBA The Little- Mirrlees Approach – Steps 1. Calculating accounting or shadow prices particularly for foreign exchange savings and unskilled labour 2. Considering the factor of equity 3. Use of Discounted Cost of Factor (DCF) analysis In LM approach, output and inputs of a project and their shadow prices are classified into: Traded goods Non-Traded goods Labour 19  SCBA - Components The social cost benefit analysis consists of the following:  Definition of project: proposed reallocation of resources scope  Identification of project impacts Which impacts are economically relevant? Physical quantification of relevant impacts  Monetary valuation of relevant effects (i) predict prices for value flows extending into the future (ii) correct market prices where necessary (iii) calculate prices (relative values in common units) where none exist  Discounting of cost and benefit flows  Applying the NPV or IRR test  Sensitivity analysis 20 Financial Analysis Financial analysis seeks to determine whether the proposed project will be financially viable. Financial Analysis Defined as a analysis which compare the costs and benefits over time to determine whether a project is profitable or not. To achieve this the following financial indicators are used:  Net Present Value (NPV)  Internal Rate of Return (IRR)  Sensitivity Analysis 21 Steps in conducting a Financial Analysis 1. Identify the costs 2. Identify the benefits 3. Calculate the costs and benefits with financial formulas/indicators 4. Assess the financial indicators to determine if the project is financially favourable. 22