Module 4

Technical Study

Overview

Discusses the Technical Aspect of the feasibility study its importance and contents..

Module Objectives

At the end of this module, the students are expected to be able to:

1. Understand the importance of the Technical Aspect in a Feasibility Study

2. Know the contents of the Technical Aspect
3. Prepare the Techmical Aspect of the feasibility study

Course Materials

Technical Aspect

After determining the marketability of the proposed product, the next step is to analyze
the Technical Feasibility of the Project.
The Technical Aspect covers the following:
1. Selecting the:
a. Manufacturing Process
b. Machinery Capacity and design
c. Machinery Supplies
d. Plant Location
e. Plant Layout
f. Structure Specification
g. Raw Materials and their sources

2. Determining the:
a. Quantity and quality of the products to be produced
b. Labor needed, both the skilled and unskilled
c. Utilities required
d. Waste Disposal Method
e. Transportation necessary

3. Providing estimates of the Total Project Cost and enumerating the major items of capital
cost.

4. Listing down in detail estimated production and overhead costs that will go into operating
the proposed plant.
A. Technical Product Description

This portion describe the product to be manufactured and sold or the service to be
offered. The description specifies the products physical, mechanical, and chemical
components and identifies their various uses both as finished goods and industrial inputs.

The product description may be short with only few statements or it may be long,
giving particulars on size, shape, color, materials used, etc. Sample product are generally
presented to help understand the product being offered.

The following are the key concern in writing a good technical description of the
product:
1. Know the reader/panel – the description to be used must be readable and acceptable
to the layman’s term.
2. Do not be over detailed – avoid using unnecessary details or descriptions.
3. Make it understandable – keep organization simple and logical. Maintain a consistent
terminology and style
4. Proofread and edit – Check grammar and rewrite it if necessary.

B. Manufacturing Process

Manufacturing Process describe the step by step process of making the product or
providing the service. This is usually done with the aid of a flowchart. Wikipedia define the
flowchart as a type of diagram that represents a workflow or process. A flowchart can also
be defined as a diagrammatic representation of an algorithm, a step-by-step approach to
solving a task. The flowchart shows the steps as boxes of various kinds, and their order by
connecting the boxes with arrows. This diagrammatic representation illustrates a solution
model to a given problem.

Flowchart Symbols:

Use for start/end of Process

Use for Process

Use for input or output

Use for decision

 Use to denote the flow of process

Use to connect separate processes on the same page of

the flowchart.

C. Plant Size and Production Schedule

Plant Size refers to the capacity of the plant to produce in a given time. This usually
express in terms of number of units and based on the number of machineries and its
capacity.

To determine the daily production capacity, the following information must be taken into
consideration:
a. Plant Capacity in Hours - Check how many machine the factory has, its capacity and
how many working hours in the day.
Example: Total No. of Machine 5
Working Hrs./day 8
Factory Capacity 40 hrs.

b. Product SAM (Standard Allowed Minutes) – SAM means the time (in minutes) shall it
takes a worker to complete a specific operation or produce a product. This is usually
taken using a stopwatch (Time & Motion Study in Engineering)

c. Line Efficiency (Average) – Like individual efficiency, the efficiency of the production
line or section is also important to determine the production capacity in terms of units

Example: Product SAM 15 minutes

Ave. line efficiency 75%
Estimated Production Capacity is
40 hrs x 60/15 minutes x .75 = 120 pieces per day

Production Schedule refers to the number of working hours per day, number of shift and
the number of days in a week/month.

The purpose of production planning and scheduling is basically to sustain flow. The
personnel in charge of production scheduling regulates the labor force and process flow to
attain a standard utilization of company resources with negligible downtime, least
bottlenecks and a level of output constant with all the resources being put into the process
 Using the example given above we can calculate the expected production schedule and
volume can be determine.

Table 5: Expected Production Schedule and Volume

Product Daily Weekly Monthly Yearly

T-Shirt 120 120 x 5 600 x 4 weeks 2,400 x 12 mos

Mon – Fri

Total Production 120 600 2,400 28,800

Knowing the expected production schedule and volume, determine the total demand for
the product based on the result of the market study. For example the total demand for
the product is 50,000 per year, this means that we have to adjust our production
schedule to meet the demand. We can increase the number of working days from 5 to
6 working days, increase the number of machines and workforce, or add additional shift.
This only shows that Market Study is important in preparing our Technical Aspect.

D. Machinery and Equipment

The required Machineries and Equipment must be identified and individually listed
according to type and use. Specifications, capacities and costs must be described
in detail. The origin/source of the machinery as well as the manner of and cost of
transporting them must be indicated.
This portion of the Technical Study can be presented using a table indicating the
number of units, the kind of machine, its specification, capacity, cost and source

Table 6 - List of Machinery and Equipment

Qty Machine Capacity Cost Source
4 Single needle 2,000-3,000 P20,000 Juki Phils
Sewing Machine stitch/minute
2 Overlock Sewing 1,000 – 1500 P30,000 Juki Phils
machine stitch/minute

E. Plant Location

In determining the most ideal plant site, the following factors must be considered:

1. Nearness to market. Products and service offerings must be sold in the vicinity of the
targeted clients or it must be near the distribution outlets. This will lessen the cost of
moving the finished products to the market. Lower cost means higher chances of
greater revenue to the business.
2. Accessibility of basic infrastructure – This includes the availability of cheaper or
moderately priced utilities like power, water and fuel. Transport facilities like road, rail
and air as well as information infrastructure is equally important. A transport facility is
 an essential factor both for getting its raw materials as well as for bringing its finished
product to the market. A good access to excellent information using reliable internet
connections is important for the selection of plant location.
3. Nearness to Raw Materials – locating near the source of raw materials is very crucial.
If the business is depended on supplies of a particular raw materials. Its abundance
must be ensured for continues production and minimal transportation expenses.
4. Availability of skilled and nonskilled workers. Access to a reliable pool of staff with
pertinent skills is important when a new business needs to hire employees. Labor
intensive businesses must seek a location in areas where traditionally low wage
earners abounds. Aside from the cost and productivity of labor, attitudes of trade
unions and the situation of industrial relations in a particular area are also imperative.
5. Prospect for Waste Disposal – Waste is a significant disadvantage of modern
industrial processes. Firms that generate a lot of harmful material must search for
location where there are existing facilities for recycling and harmless dumping of their
waste products.
6. Accessibility of Land - Land is increasingly important today. In the urban area, rental
fees keep on increasing because of land scarcity. In the choice of location, the amount
of rental fee must be treated as an important consideration.
7. Government Incentives – Government policy is very influential in the choice of
location. There are economic business programs offered by the government to new
businesses which can influence the location choice like grants, loans or tax incentives.

Location Map must be drawn indicating the main road with names and landmarks.
F. Plant Layout

The plant layout should be clearly depicted through diagrams and description. A good
plant layout is characterized by minimum material handling, effective space utilization,
smooth work flow through the plant, safe and conducive working area for the workers,
safety and sanitation facilities and flexibility of arrangements.

The objective of the layout choice is to systematize with the production facility various
elements like workstations, machines, and stock holding points in a manner that
guarantees a smooth workflow in the factory, or a particular traffic pattern in a service
organization.

Types of Layout:

1. Process/Functional Layout – This is a format in which similar equipment or function is

grouped together. The work stations and machinery are not arranged according to a
particular production sequence. Instead there is an assembly of similar operations or
similar machinery in each department. Example in a garment factory, there is a sleeve
department, collar department, etc.
2. Product Layout – this is a format in which equipment or work processes are set
according to the progressive steps by which the products is prepared. The work
stations and equipment are located along the line of production as with assembly lines.
Usually work units are moved along a line by a conveyor. Work is done in small
amounts at each of the work stations on the line.
 3. Cellular Layout – this format groups dissimilar machines into work centers or cells to
work on products that have similar shapes and processing requirements. It is similar to
a process layout in that cells are designed to perform a specific set of processes and it
is comparable to a product layout in that the cells are dedicated to a limited range of
products.

G. Building and Facilities

The size, type and cost of the building and land as envisioned in the project should be
accurately presented. The construction cost of the building and facilities should be
presented as adapted to machinery and equipment that will be used in the project. Land
improvements such as roads, drainage facilities etc. and their respective costs should be
computed and included.

A diagram/sketch of the building must be presented indicating floor area.

H. Raw Materials and Supplies

The required raw materials and supplies should be listed down and the basis for their
selection must be presented. Descriptions and specifications on their physical and chemical
properties must also be presented. The cost of raw materials, expected future cost,
availability and continuity of supply and the sources should also be included. The quantity
required must be clearly presented.

Table 7 – Example list of raw materials and supplies

Qty Unit of Description Unit cost Total Cost

measure

2 rolls Cotton Fabric (1,000 mtr/rl.) P15,000 P30,000

I. Utilities

This portion describes the amount, cost and sources of electricity, fuel, water,
telephone/internet services required. This must be determined in relation to the production
schedule and capacity utilization defined.

1. Electricity is delivered and billed to home and business for energy usage via the local
distributor. In Mariveles for example, our local provider is PENELCO fi the location is
outside the Freeport Area of Bataan, if inside the FAB, its TRANSCO.
2. Water – Running water is a must for any kind of business. From health and safety
perspective, it is important to have access to water for first aid and basic hygiene.
Consider where your business can find a water source before you decide on a business
location. If the business will be situated near a metropolitan area, the local provider can
be used. If in isolated area, dig a well and connect a pump.
3. Telephone and internet Services – Nowadays, most businesses group their
telecommunication utilities in one convenient bill. This include telephone and internet. If
 there is a need for both services, money could be saved by buying them as a package. If
there is a need for only one like internet alone, don’t pay for services that is not needed.
Look for a suitable provider. It can be Converge, PLDT, Smart or Globe.

Below Is a sample computation of utilities expenses:

Table 8 – Electricity Expense – Factory

Qty Machines KWH used per Rate/hr. Total

month/machine

6 Sewing Machine 4,000 P3 P72,000

2 Cutting Machine 500 3 3,000

Table 9 – Electricity Expense – Office

2 Desktop Computer 10 3 P60

2 All in one printer 5 3 30

1 Window type air conditioner 26 3 78

Table 10 – Water & Telephone Expense

Water Expense Cbm Rate per cbm Expense per year

above 50 cbm

Water (production 5,000,000 P2 P10,000,000

Telephone &
Fixed Rate Expense per year
Internet Expenses

PLDT Bundle
Landline & internet P2,000 P24,000

J. Waste Disposal

A description of the quantity, manner of disposal and the cost involved in doing away with
expected waste from production is necessary. The analysis must be expanded to consider
the possibilities of further using these waste.

In some localities, it is compulsive to pay and use some type of garbage collection service.
If the business is not part of metropolitan area, you may have to contact the services of a
private company that works in your area or take your trash directly to the closest landfill.
 Hazardous waste – are waste that has substantial or potential threats to public health or the
environment. Characteristics of hazardous wastes are materials that are known or tested to
exhibit one or more of the following hazardous traits: ignitability, reactivity, corrosivity. This
kind of wastes must be placed in a waste storage facilities.

K. Production Cost

Here, the monetary aspect of all the production plans is put into perspective. How much
does it cost to produce one unit of output? To arrive at this, the following must be
determined:

 Raw Material Cost

 Labor Cost
 Overhead Cost both fixed and variable costs
 Other pertinent costs

Formula to compute Production Cost:

Direct Materials _+ Direct Labor + Manufacturing Overhead

Direct Materials refers to materials which can be easily identified with the unit of
production.
Example: fabric for T-shirt, leather for bags
Direct Labor refers to the salaries and wages of workers who directly work on
the finished product. (salaries of factory workers)
Manufacturing Overhead – are indirect material costs, indirect labor cost and
other variable cost.
Indirect Material refers to supplies used in the manufacturing process but
does not become an integral part of the finished product.
Indirect Labor refers to salaries and wages of the workers which is not
directly related to the production of goods or the performance of the
services, but needed to enable others to produce the goods or services.
Example: salaries of supervisors, and maintenance personnel.
Other Manufacturing costs – examples are utilities expense,
depreciation expense of machineries & equipment, insurance of the
factory building, rental of the factory building, repairs and maintenance,
etc.

L. Labor Requirements

The various jobs and functions necessary for the operational stage must be described. For
costing, labor is generally classified into three types: Direct, Indirect and administrative.
The number of workers to be employed for each job classification, the pay scales,
employee and the aggregate labor cost must be described in detail.