Unit-3

Project Management

Project management is the application of knowledge, skills, tools, and techniques to

project activities to meet project requirements. It’s the practice of planning, organizing,
and executing the tasks needed to turn a brilliant idea into a tangible product, service,
or deliverable.

What is Project?

Projects are temporary, no matter how many years they last. This is because
projects exist to solve particular problems and achieve specific goals efficiently.

As Joseph M. Juran rightly put it, “A project is a problem scheduled for solution.”

The size of the project is thus determined by the nature of the problem it is intended to
solve. That said, the benefits of project management in organizations go beyond
merely keeping within the project’s allocated resources, including timelines, cost,
deliverables, and scope. The difference is in the value and efficiency that project
management delivers. The project manager is in full control of the project and works to
keep all stakeholders on the same page. This accords project teams the opportunity to
collaborate on tasks and own the project’s vision and align with it in the course of
executing their tasks.

Definition of Project

A project is a combination of set objectives to be accomplished within a fixed period.

They are an excellent opportunity to organize your business and non-business goals
efficiently. The changes made in the project completion process are expected to
perform better. When you work on an office project, it requires experts from different
departments to come together. When you are working on a school / college project, you
collaborate with fellow students to meet the objective. While working on a personal
project, you will be coordinating with your family or friends to accomplish the set
objectives. Therefore, we can say one individual can own that project, but it is a group
activity. These people are known as project managers.

The term “Project” has a wider meaning. A project is accomplished by performing a

set of activities. For example, construction of a house is a project. Construction of a
house consists of many activities like digging of foundation pits, construction of
foundations, construction of walls, construction of roof, fixing of doors and windows,
fixing of sanitary fittings, wirings etc. The construction of a roof, fixing of a house is
accomplished by performing the set of activities. Another aspect of “project” is the non-
routine nature of activities. Each project is unique in the sense that the activities of a
project are unique and non-routine.

What is a Project in Project Management?

In the field of project management, a project is a brief undertaking that is carried out to
produce a special good, service, or outcome. There are several planned tasks involved
all with clear outputs, boundaries, and restrictions. This article focuses on discussing
Projects in Project Management.

What is a Project in Project Management?

A project is a well-planned and controlled endeavor that follows a defined set of goals,
constraints, and time frames to produce a desired result.
1. It usually has a defined scope, budget, and resources.

2. A project has a start date and an end date.

3. It is not an ongoing operation but has a fixed duration.

4. There are many defining aspects to projects in project management.

5. These are defined by the output they produce which can be a product, a service,
or a particular outcome.

1. Clear Goals: Projects are one of a kind of projects with clear, quantifiable goals
to meet within a defined time frame in line with an organization’s strategic
priorities.

2. Scope Definition: The scope defines the scope of the project, defines the scope
of work, and defines what is not included in the scope of work.

3. Temporary Nature: Unlike ongoing operational tasks, projects have a clear

beginning and end indicating their temporary nature.

4. Cross-Functional Collaboration: Projects require cross-functional collaboration

and communication between stakeholders for success.

5. Effective Project Management: Projects need to be managed effectively in

terms of money, time, people, technology, and resources within defined
parameters.
 1. Construction Projects: These include the construction of physical constructions
projects such as buildings, roadways, bridges, and infrastructure.

2. IT Projects: Software development, system integration, network enhancements,

and technological innovation are all part of this.

3. Engineering Projects: This category includes projects that involve the design,
development, and construction of machinery.

4. Research & Development Projects: Projects focused on innovation, discovery,

and product, and service development.

5. Marketing Projects: Promotional activities such as product or service

marketing, market research, brand awareness, and advertising.

Project Life Cycle Steps

1. Initiation

A project officially begins when it enters the initiation phase. A project beginning is
known as the commencement phase. Stakeholder identification, goal-setting, scope
definition and purpose and goal definition are all part of it. Creating a project charter
which describes the goals, limitations and preliminary requirements of the project is a
common step in this phase. To make sure the project fits with organizational objectives.

In the initiation phase there are some tasks we have to follow them:

1. Definition of project’s purpose and goal: Clear the reasons behind project
existence and set the available goals.

2. Stakeholder catalogue identification: Locating and getting to know the

people and organizations interested in the project.

3. Project scope definition: Established the boundaries and deliverables of the

project.

2. Planning

Planning is a critical phase, where a detailed roadmap for the project is developed. It
involves breaking the project down into smaller tasks, the creation of a thorough
project plan resource allocation and timetables. The project execution and
management throughout its lifecycle are defined in part by planning phase.

1. Task division and planning: Breakdown the project into subdivisions or tasks
and setting timelines for their completion.

2. Resource allocation: Allocate resources such as personnel, budget, equipment

and materials needed for each task.

3. Risk management planning: Identifying the risks and providing strategies.

3. Execution

The project planning is executed in execution phase. Tasks are completed, resources
are used effectively and team members participation is crucial. Project managers make
ensures that the project proceeding according to the planned schedule and allocated
resources.

1. Task execution: Completing the assigned work as per the schedule and quality
standards.

2. Resource management: Managing resources to ensure their effective

utilization.

3. Team collaboration and communication: Encouraging the effective

communication and collaboration among team members to achieve project
objectives.

4. Monitoring and Controlling

Monitoring and Controlling stage involves monitoring the progress of the project
against the plan. Monitoring allows for the identification of deviations from the project
plan and take corrective actions to ensure the project stays on track. Control measures
are implemented to manage changes effectively and ensure project success.

1. Performance measurement: Evaluating real time progress against milestones

and deliverables as planned.
 2. Change management: Dealing with variations and making sure they are
handled without impacting project goals.

3. Quality Control: Quality management is the process of tracking and verifying

the quality of project outputs.

5. Closure

The closure phase is when all project activities are completed and project results are
delivered to project stakeholders and lessons learned are documented for future work.
The closure activities ensure a seamless transition of project outputs and a formal end
to the project.

1. Final deliverable acceptance: Transmission of project results to stakeholders

and formal adoption of results.

2. Project documentation: Documentation, such as reports, learning experiences

and final project evaluations.

3. Post project evaluation: Examining the project achievements, mistakes and

lessons learned for better project management practices in the future.

Project manager

A PM is a leader who guides projects from the drawing board to the finish line. They
make sure everything runs smoothly and stays on schedule. They gather necessary
resources, unite team members, and work on continuous improvement.

PMs connect the day-to-day work with the bigger picture. They support the broader
objectives of the company and satisfy stakeholder needs.

Project manager responsibilities & roles.

PMs juggle a variety of core responsibilities to lead a project through hurdles and
changes. Mastery in each of these areas contributes to a smoother experience from the
perspective of both team members and stakeholders:

 Project planning: PMs initiate the planning process, clearly defining the
project's scope, goals, and objectives. They develop detailed plans outlining
tasks, resources, timelines, and deliverables, creating a solid foundation for
project execution.
 Team coordination: Project managers assemble and direct project teams,
assigning tasks based on members' skills and experience. PMs focus and unify
team efforts by promoting collaboration, resolving conflicts, and leading effective
team meetings.
 Risk management: PMs identify potential risks early, analyze their possible
impact, and develop mitigation strategies. This proactive approach minimizes
disruptions to the project’s schedule, quality, and budget.
 Budget oversight: PMs estimate costs, establish budgets, track spending, and
adjust as necessary to keep the project within financial boundaries while
achieving fiscal efficiency.
 Client communication: They maintain open and transparent communication
with clients and stakeholders. PMs provide updates, respond to inquiries, and use
feedback to adapt project scope to meet or exceed client expectations.
  Maintaining quality standards: PMs implement quality control processes to
ensure deliverables meet agreed-upon standards and satisfy client requirements.
This helps maintain project integrity.

Project manager skills

The success of any project depends heavily on the unique blend of soft and hard skills
possessed by the PM. Here are some of the critical soft skills that PMs need to excel in
their role:

 Communication: PMs must master verbal and written communication to convey

project objectives, updates, and feedback to all stakeholders. This fosters
alignment and collaboration throughout the project life cycle.
 Adaptability: PMs need to respond to project shifts and unforeseen challenges
with flexibility. They must be able to adjust strategies and plans to keep projects
moving forward.
 Problem-solving: PMs must approach issues decisively. They use critical
thinking to analyze problems, devise solutions, and apply them effectively. This
minimizes the impact on project progress and outcomes.
 Leadership: PMs provide team leadership to inspire and motivate. They guide
team members, support their development, and cultivate a collaborative
environment.
 Organizational skills: Exceptional organizational abilities allow PMs to balance
multiple tasks and priorities. They skillfully map out schedules, allocate
resources, and monitor project timelines to guide their team toward success.

Project appraisal

Project appraisal is the analysis of costs and benefits of a proposed project with the
purpose of ensuring a rational allocation of limited funds among alternative investment
opportunities in view of the specified goals.

Project appraisal is carried out by the financial institutions before financing

any project. The rationale of project appraisal lies in the fact that the number of
projects to satisfy the identified needs always exceeds the availability of resources and
a choice among alternative projects is to be made. Project appraisal is undertaken with
the following objectives:

(a) To arrive at specific and predicted results of the project.

(b) To identify the expected costs and benefits of the project.

(c) To lay down yardsticks or benchmarks to determine the success or failure

of a project.

Project Appraisal vs. Project Evaluation

Project appraisal is different from project evaluation which is basically an

analysis and examination of an executed project.

Project appraisal is an ex-ante analysis of a project proposal. It assesses and

determines the expected costs and benefits of a proposed project. It is thus, a
pre-investment decision-making process. But project evaluation is an ex-post
analysis of an executed project. Thus, project evaluation is a post-investment
evaluation process. It compares the actual benefits derived and effective costs
incurred on the project. Besides, it also compares the expected project results
 (ex-ante) with the realised results (ex-post) to get an idea about the degree of
success in the attainment of project objectives.

Project appraisal is done by the financing institution before the project is

approved and implemented whereas project evaluation is done after the
project has been implemented.

ASPECTS OF PROJECT APPRAISAL

The financial institutions conduct the following types of appraisal :

1. Financial appraisal.

2. Economic appraisal.

3. Technological appraisal.

4. Commercial appraisal/ Market appraisal

5. Managerial appraisal.

6. Environmental appraisal.

FINANCIAL APPRAISAL

An entrepreneur may have a number of investment proposals regarding

various projects. But funds available with him are always limited and it is not
possible for him to invest available funds in all the proposals at a time. Thus,
he would be required to select from amongst the various competing proposals,
those which give the highest benefits. There are various methods of assessing
profitability of capital investment proposals. These are as follows:

(A) Traditional Methods

(i) Payback Period.

(ii) Accounting Rate of Return.

(B) Discounted Cash Flow Methods:

(i) Net Present Value Method.

(ii) Internal Rate of Return.

(iii) Profitability Index.

Payback Period Method

One of the most commonly used techniques for appraisal of capital investment
proposal is the cash payback or simply, the payback. It attempts to calculate the
period, known as payback period, required to recover the initial investment out of
inflow of net cash flows/savings or profits as a result of the investment. Payback period
is defined as the number of years required for the savings in costs or net cash inflow
after tax but before depreciation) to recoup the original cost of the project. In other
words, it represents the number of years in which the investment is expected to "pay
for itself". In the words of
Coge Tago a ncame k rs a ee of Firaneing to arcenine th dat

when the capital investment would be paid back."

This method is based on the principle that every capital expenditure pays itself back
over a number of years. It is called by different names Payoff Period, Payout Period,
Breakeven Period or Recoupment Period.

Payback period is the time required to recover the original investment through income
from the project. For example, if the capital investment on the project is & 20,00,000
and annual income/cash inflow is constantly

* 4,00,000 during its economic life of four years, the payback period will be 5 years (&
20,00,000 ÷ 7 4,00,000). The following formula can be applied to calculate the Payback
period :

Payback period (No. of years) - -

Original cost of investment

Annual cash inflows

The annual cash inflows will be computed as gross earnings less total operating costs
excluding depreciation. However, if the annual income is not uniform, the payback
period will be counted as the number of years over which the income accumulated
together will equal the capital invested. As a rule, the shorter the payback period, the
better is the investment proposal.

Payback period method is suitable when :

(i) the cost of the project is relatively small ;

(it) the project is expected to be completed in a short period ;

(il) the project is productive as soon as investment is made,

(iv) the project carries high risk and only the immediate future can be forecast with
certainty:

(v) the concern is likely to suffer from a shortage of cash, per funds are difficult to
obtain when tight monetary conditions are prevailing in the country and a quick return
is essential for rapid repayment:

(vi) the industry is experiencing rapid technological change and the shorter pay-off
period offers some protection from the danger of obsolescence; and only a limited
number of years.

Merits of Payback Period Method

Payback period method has the following advantages;

(i) It is a highly suitable method when the project has shorter gestation period and the
project cost is also less.

(ii) It is a very easy method to operate and simple to understand.

(iii) It is highly useful in case of projects which belong to high risk category and are
susceptible to rapid technological changes.

(iv) It is useful to the firm which is cager to get back the cash invested in a capital
expenditure project as early as possible.

(v) Since this method considers the cash flows during the payback period of the project,
the estimates are likely to be reliable and the results accurate.

(vi) It enables the entrepreneur to select an investment proposal which would yield
quick return of funds invested.

Limitations of Payback Period Method: Payback period method suffers from the
following limitations :

(i) Payback period method emphasises more on liquidity than profitability aspect. It is
because of the fact that this method gives importance to an early recovery of cash
outlay and liquidity. (ir) It does not take into account the cash inflows earned after the
payback period and hence the actual profitability of the project cannot be correctly
assessed.

(in) It ignores the time value of money and does not consider the magnitude and
timings of cash inflows. It assesses all cash flows a equal though they occur in different
periods.

(iv) It avoids the cost of capital which is a very important factor in making

any sound investment decision.

(v) It fails to determine the minimum acceptable payback period. Usually, it is a

subjective decision.

(vi) It suits only small projects requiring small investment and a short period of time.

Accounting Rate of Return (ARR) Method

This method is considered to be an improvement over the Payback period method as it

considers the earnings of a project during its entire economic life.

This method is also known as Average Rate of Return' or 'Return on Investment

method. This ratio relates project earnings to investment.

Accounting rate of return (ARR) is based on accounting profits rather han cash inflows.
It is defined as the percentage of average profit after tax to average investment
calculated over the life of the project. For this purpose, capital employed or average
investment and profit earned are determined according to commonly accepted
principle of accounting. The following formula is used to calculate ARR :

ARR = Average Profit after taxes/ Average Investment

The average return (or profit) is calculated by adding all the earnings after taxes and
dividing them by the project's economic life. Average investment is the simple average
of the values of assets at the beginning and end of the useful life of the asset, which
would be zero.
If ARR is more than the predetermined rate of return, chen the project will be accepted.
If ARR is less than the predetermined rate of return, then it will be rejected. However,
ranking of mutually exclusive projects would depend on the higher ARR.

Merits of ARR Method

ARR method has the following advantages :

(i) It is simple to calculate ARR and this method is easily understandable. (ii) It is based
on readily available accounting information. (ili) It considers total benefits during the
entire life of the project.

Limitations of ARR Method

The main limitations of ARR method are as follows :

(i) It ignores time value of money.

(i) It places more emphasis on profit and not on cach inflows flows which are more
relevant for appraising an investment proposal.

(iii) It does not consider the reinvestment of profits earned over a period of time.

(iv) It fails to differentiate between the size of the investment required for each project.
Competing investment proposals may have the same ARR, but may require different
average investment.

Discounted Cash Flow (DCF) Method

Since money has a time-value, time factor in investment is fundamental rather than
incidental for the purpose of evaluating investments. Cash flows received in different
years should not be treated to have uniform value. The nominal value of a rupee
received today is more than a rupee to be received a year later. The Discounted Cash
Flow (DCF) method takes the time factor of income into consideration while the
foregoing methods (viz., Payback and Return on Investment methods) do not take into
account the time factor.

i) Discounting: The concept of discounted cashflow has nothing to do

with inflation which reduces the value of money. But it considers the fact
that a person who foregoes spending money immediately expects to
receive a reward for his action. This reward takes the form of interest.
Discounting is just the opposite of compounding. In case of compound
rate of interest, the future value of the present money is ascertained
whereas in discounting the present value of future money is calculated.
In other words, discounting involves reducing the value of future returns
to make them directly comparable to the value at present.
ii) Discount Rate: The rate at which the future cash flows are reduced to
their present value is termed as discount rate. Discount rate, otherwise
called the time value of money, is some interest rate which expresses
the time preference for a particular future cash flow. Realistic capital
investment appraisal depends on two factors, viz., discounting period
and a suitable discount rate.
iii) Discounting Period: Normally, the economic life of a project is used as
the discounting period. However, the length of discounting period
depends on factors such as the life of equipment with the largest life-
 span, technological change, availability of raw material, market stability,
etc.

Thus, DCF technique considers the net cashflow as representing the recovery of original
investment, plus a return on capital invested. The analysis under DCF method may be
made in two ways :
(a) Internal Rate of Return (IRR) or Discounted Return Rate (DRR)
Method.
(b) Net Present Value (NPV) or Excess Present Value (EPV) Method.
The main feature of both the methods is that the return obtained from a number of
capital projects with different life assessments and having an uneven pattern of cash
flow of return from year to year, can be brought down to a common base with the help
of the Present Value Tables, (Table A and Table B given at the end of this book) so that
the results are comparable with a fair degree of accuracy. But there is one major
difference between these two methods.
Under the first method, no discount rate is assumed ; it is found out by trial of a given
rate of discount and error. But in the second method, the calculations are made with
the help of a given rate of discount.
Net Present Value (NPV)
Net Present Value is the value obtained by discounting all estimated cash outflows and
inflows of an investment proposal by a chosen hypothetical target rate of return or cost
of capital. Thus, it requires the computation of the present values of all future cash
inflows using some predetermined minimum desired rate of return, also called cut-off
rate. It is generally based on the cost of capital.
NPV takes into consideration the time value of money and attempts to calculate the
return on investments by introducing the factor of time element.
It recognises the fact that a rupee earned today is worth more than the same rupee
earned tomorrow. Thus, the cash flows arising at different periods of time differ in value
and are not comparable unless their equivalent present values are found.

Under this method the discount rate is assumed. Usually, the assumed discount rate
should be equal to be company's weighted average cost of capital.
Unless a capital project is expected to yield atleast as much as the cost of capital, the
project should not be accepted. Otherwise by getting into such uneconomical projects,
the company runs the risk of lowering its profits and the earnings per share in the long-
run.
NPV may be defined as the excess of present value of project cash inflows (stream of
benefits) over that of outflows (cash outlays). The present ralue (PV) of a future cash
flow is calculated with the help of following formula:
PV=S x 1/(1+r)t
where,

PV refers to present value

'S” refers to cash flow

't “refers to year, and

"r” refers to interest rate (also known as discount rate)

Net Present Value of any project is the aggregate present value of net cash flows over the operating

life of the project.

Advantages of NPV Method

The advantages of NPV are as follows;

(i) It recognises the time value of money and considers all cash flows over the entire economic life of

the project.

(ii) It indicates the value added to the total assets of the firm by undertaking the proposed

investment at a particular rate of discount.

(iii) It allows for the recovery of the initial investment and interest, cost of investment.

Benefit/Cost Ratio (BCR)

BCR method is a modified form of the NPV method. It is the ratio of gross discounted benefits to

gross discounted costs. Hence, this method may be used as an extension of NPV and expressed in

terms of co-efficient or percentage. The following formula may be used to calculate the BCR :

BCR =B/C x 100

(or)

Profitability Index (PI) = (B- C)/C x 100

where,

B stands for Gross discounted benefits

C stands for Gross discounted costs

In this method, higher the benefit cost/ratio, the better is the project. Projects to be accepted must

have benefit/cost ratio higher than 1. BCR method is highly useful for ranking the projects on the

basis of their profitability. It suffers from the same limitations as the PV technique.

Internal Rate of Return (IRR)

IRR method is known by many names like yield on investment method, marginal efficiency of capital

method, marginal productivity of capital method, rate of return method, time adjusted rate of return

method, discounted cash flow method, yield method, etc. This method is used when the cost of

investment and the annual cash inflows are known and the unknown rate of return is to be

calculated. It takes into account time value of money by discounting inflows and cash flows.

Internal Rate of Return is defined as the interest rate that equates the present value of the

expected future receipts (net profit plus depreciation) to the cost of the investment outlay. It is the

time adjusted rate of return as well as the maximum rate of interest that could be paid for the capital

employed over the life of an investment without loss on the project. To put it differently, it is the

discount rate that equates or breaks evenly the present value of initial outlay with the present value

of the expected net cash flows or reduces the net present value to zero.

This method is popularly known as the "trial and error" method because it involves making a series

of trial calculations in an attempt to compute the correct interest which discounts the cash flows to

zero. This rate is also known as 'Solution' or 'Yield' rate of interest.

This method is based on the following implicit assumptions:

(i) The intermediate cash inflows are realised and reinvested over the remaining life of the proposed

asset at a rate of return equal to the project's rate of return.

(ii) The intermediate cash inflows are financed at a cost of capital equal

to the project's return.

(iii) The reinvestment rates and future costs of capital are equal to each other, and the rates remain

constant over the life of the project.

C =E /(1 + r)1+ E /(1 + r)1

1 2 +……….En / (1 + r)"

where C stands for the required capital outlay,

E stands for the earnings

r stands for the rate of return.

It could also be represented by the following formula :

IRR = Sum C /(1+r)t

t
Where 'C ' is the cash flow for period 't, whether it be a net cash outflow or inflow, and 'n' is the last
t
period in which a cash flow is expected.

Procedure of Calculating IRR. The procedure involved is outlined below :

(a) List the annual sales and costs other than depreciation, and deduct the latter from the former to

obtain the net cash flow.

(b) Obtain the capital cost. Often this will be at present value because the amount spent is spent in

the base year.

(c) Calculate the present value of the net cash flow by using an appropriate rate of interest. This rate

is found by trial and error from the present value tables. The object is to make the cash flow equal to

the capital cost.

ECONOMIC APPRAISAL

Economic appraisal is done from the view point of society or economy as a whole. Thus, it is done

from a wider angle not merely in financial terms. The economic appraisal should cover whether it fits

into national priorities, contributes to the development of that sector of economy and benefits justify

the consumption of scarce resources of the nation. Hence, economic appraisa! is also called Social

Cost Benefit Analysis (SCBA). The concept of SCBA was evolved in 1844 when Jules Dupuit, a

French engineer, referred to it in his paper on the measurement of 'Utilities of Public Works.' In 1936,

Flood Control Act, 1936 of USA provided that a project should be deemed feasible only it sum-total of

benefits to whomsoever they may accrue exceeds the estimated costs, highlighting the social nature

of investment decision. In UK, this concept was applied first time in 1917, for evaluating M1
Motorway project and the nationalised industries were also directed to use SCBA. India has also been

applying the SCBA in appraising projects especially in the public sector.

Social Cost Benefit Analysis (SCBA)

SCBA is an assessment of expected total costs to be incurred and benefits derived out of a project

that is under consideration from the society or community point of view. A project is considered to be

socially viable if the benefits which accrue from the project serve the larger social purpose. The main

feature of these benefits is serving the interest of those who have no stake in that project. The

benefits resulting from a project are enjoyed ›y the people who do not directly contribute or pay for

such benefits. Such benefits are like creation of additional employment opportunities, development

of backward areas or districts, growth of village and rural industries, or development of ancillary

projects of substantial advantage to rural areas and community in general. Social costs like harmful

effects of industrialisation, environmental pollution, scarcity of resources etc. are taken into account

under social cost benefit analysis.

In social cost benefit analysis, all costs and benefits irrespective to whom they accrue and regardless

of whether they are paid for or not are relevant. The society's concern for savings and investments is

reflected in social cost benefit analysis where savings are valued higher than consumption. So the

acceptance or rejection of a project is viewed in term of total social or national impact like its effect

on national planning, employment, consumption, savings and foreign exchange flows.

SCBA is primarily used for evaluating public investments to be financed by the government. SCBA is

also relevant to private investments which have to be approved by various governmental and quasi-

governmental agencies which bring to bear larger national considerations in their decisions.

SCA aids in evaluating individual projects within the planning framework which spells out national

economic objectives and broad allocation of resources to various sectors. SCBA is concerned with

tactical decision making within the framework of broad strategic choices defined by planning at the

macro level. The perspectives and parameters provided by the macro level plans serve as the basis

of SCBA for analysing and appraisal of individual projects.

SCBA Approaches

There are two important approaches for SCBA, namely, UNIDO approach and Little-Mirrlees approach.

These approaches have been discussed below :

United Nations Industrial Development Organisation Approach

The UNIDO approach was first articulated in the guidelines for project evaluation by United Nations in

1972. It provides a comprehensive framework for SCBA in developing countries.

TECHNOLOGICAL APPRAISAL

Technological appraisal refers to the review of product mix, production capacities, process of

manufacture, engineering know-how and technical collaboration, sources of raw materials and
consumables, location and site, plant size, building, plant and equipment, manpower requirements,

water and steam, gas, fuel electricity, infrastructural facilities like roads, bridges, railways, airways,

latest technology to be adopted, availability of research and development facilities, etc. In other

words, technological appraisal evaluates technological alternatives and helps in choice of most

appropriate technology. The main objectives of technological appraisal are as follows :

(i) To examine the rationale of proposed technology and provide an insight into future technological

developments.

(ii) To assess the possibility of goal achievement with the preferred technology.

(iti) To avail better available technology in terms of cost effectiveness and efficiency.

(iv) To search a technology which can be adjusted with present level of technical skills by initiating

orientation and training programmes..

(v) To select a better technology which is environmentally viable.

Components of Technological Appraisal: The important ingredients of technological appraisal are

as follows :

(i) the state of existing and available technology ;

(ii) training needs of personnel for the present technology and the new technology ;

(i) availability of technical know how ;

(iv) input base for the technology or its compatibility with the input substitutes ;

(v) future progressive integration of the technology for modifications or refinements ;

(vi) wide product mix and its byproducts ;

(vii) minimisation of waste loss or scrap in the process of its development ;

(viii) factor intensity (labour intensive or capital intensive) ;

(ix) risk of obsolescence ; and

(x) other considerations such as side effects of technology transfer on layoff of labour.

Determinants of Technological Appraisal

The following factors need to be considered for the purpose of technological appraisal.

(i) Type of Technology: It is important that adopted technology should be assessed in terms of

technical information of plant and equipment to be used in the production process.

(ii) Scale of Operations : A minimum scale of operation is required to ensure economic viability of

the unit. Productivity can also be ensured by allowing economic operation at minimum scale. For

example, minimum cane crushing capacity is required for the launch of a sugar project.

(iii) Location: It has an important bearing with regard to the sources of raw materials, availability of

power, fuel, transport, skilled and unskilled labour and in relation to the markets to be served by the

project.
(iv) Layout Plan: Plant layout at the location site should be assessed in terms of the present need

and possible need of future expansion. It should also be examined with reference to the site plan.

(v) Construction Schedule: It requires scrutiny of physical elements of the project from

engineering design to installation and testing of equipment and commercial production. Estimated

project cost is largely affected by the realistic assessment of the construction schedule.

(vi) Supply of Water, Power and Fuel : Plant operation needs adequate supply of water, power

and fuel, etc. Full assurance of these supplies has to be obtained from different government agencies

and other suppliers. Alternative arrangements like diesel generating sets should be examined with

reference to availability of finance, etc.

(vii) Waste, Effluents and Byproducts Disposal : Certain industries like sugar, chemical, etc. are

responsible for release of effluents, waste etc. and they are harmful to human and marine life. In

such cases, effluent may require proper treatment before it can be discharged in a river. Waste and

effluents management is also required from the regulatory point of view.

(viii) Cost Estimates : Cost estimates need careful examination of the assumptions on which they

have been based. It has to be done with regard to plant and machinery, buildings and other fixed

assets. Similarly, provision for escalation in the prices of imported and indigenous machinery made

in the project report need to be examined with regard to current economic situation and market

conditions. Arrangement of components and spare parts should also be examined in the context of

operational requirements.
COMMERCIAL APPRAISAL

The proposed project should be commercially viable. To know the commercial

viability of the project, it is necessary to examine eh demon the availability of the
product in the market, selection of market place, requirement of raw materials,
banking, transportation, insurance facilities, etc. Among all the aspects to be examined,
the demand and availability of the products to be manufactured by the projecr under
consideration are very important. Continuity of the demand should also be examined. It
is because, if the study of demand and availability of products is not on realistic basis,
the whole project might fail in the middle of its life.
Appointment of sole selling agents, regional distributors, dealers and the justifications
for their appointment and the terms on which these agents and dealers will be
appointed are examined in detail. The entrepreneur's own marketing forecasts are also
examined.
MANAGERIAL APPRAISAL
It deals with evaluation of competencies, skills and reliability of management.
This would also involve review of their past track record and competence. Actually,
quality of management affects the success of an industrial project to a large extent.
Generally, it is not expected that an entrepreneur should have experience in a
particular industry, but he is supposed to appoint adequate experienced personnel in
the areas of production, finance, personnel and marketing. Professionals should also be
drawn from technical, administrative and accounting sides. Thus, managerial appraisal
includes not only judging the managerial capability of entrepreneurs or promoters, it
also includes the assessment of the calibre of the key technical and managerial
personnel working on the project, the schedule for training them and the remuneration
structure for rewarding and motivating them.
 To judge the managerial capability of promoters, an appraisal should be made
regarding their resourcefulness, understanding and commitment. The resourcefulness
of promoters is judged in terms of their past experience, the progress achieved in
organising various aspects of the project and the skill with which the project is
presented. The understanding of the promoters is assessed in terms of the credibility of
the project plan and organisation, the estimated costs, the financing pattern, the
assessment of various inputs and the marketing programme and other details furnished
to financial institutions. The commitment of promoters is gauged by the resources
applied to the project and the zeal with which the objectives of the project are pursued.

All human activities, may be economic, social or anything else, are essentially
directed at satisfying, weeds and wants of human beings through the use of
environmental resources. Broadly, there are two types of projects viz., production
oriented projects and service oriented projects. Production oriented projects refer to
those projects that produce physical goods like cement, paper, steel, chemicals,
fertilizers, etc. These projects convert the natural resources endowments into saleable
and exchangeable products and involve a large number of physical changes and
disruptions on environment and, thus, cause environmental and ecological imbalance.
Environmentalists are very much concerned with such projects. The second type of
projects are concerned which producing or rendering different kinds of services such as
health, education, transport, energy, defence, law and order etc. These projects are
non-physical in nature and they do not directly cause any physical changes in the
environment.
Environmental management refers to environmental planning, protection,
monitoring, assessment, research, education, conservation and substantial use of
resources. For effective environment management, a wide network of legislation is also
in force. Now, environmental clearance for all the major projects on the basis of their
Environmental Impact Statement (EIS) has been made legally mandatory.

There are two techniques of environmental appraisal. Environmental Impact

Assessment (EIA) and Environmental Impact Statement (EIS) are said to be the
two important instruments through which the environmental management tries to
accomplish its objectives. The basic objective of EIA and EIS is that no one has any right
to use the precious environmental resources resulting in greater loss than gain to
society.
Environmental Impact Assessment is defined as a process designed to identify,
predict, interpret and communicate information about the impact of an action on
human health and well-being. Thus, an EIA is a study of probable changes in the
various socio-economic and biophysical attributes of environment which may result
from a proposed project.
On the other hand, EIS is a report based on studies, disclosing the likelihood of
certain environmental consequences of a proposed project, thus alerting the decision-
maker, the public and government to environmental risks involved. The findings of EIS
enable better, informed decisions to be made, perhaps to reject or defer the proposed
action or permit it subject to compliance of specific conditions. EIS is normally prepared
by an expert agency on environmental impacts and is used mainly as a tool of decision-
making.