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Jun 98
Project Planning
Project Planning
In the initial stage of project planning, the internal and external factors that influence the
project should be determined and given priority weights. Examples of influences include
the following:
Internal Factors
• Infrastructure
• Project scope
• Labor relations
• Project location
• Project leadership
• Organizational goal
• Management approach
• Technical manpower supply
• Resource and capital availability
External Factors
• Public needs
• Market needs
• National goals
• Industry stability
• State of technology
• Industrial competitors
• Government regulations
Components
Large project planning may include a statement about the feasibility of subcontracting
part of the project work. Subcontracting may be needed for various reasons, including
lower cost, higher efficiency, logistical convenience, or political requirements (e.g.,
Russian content in projects in Russia.)
Feasibility Analysis
The feasibility of a project can be ascertained in terms of technical factors, economic
factors, or both. A feasibility study is documented with a report showing all the
ramifications of the project. In project finance, the pre-financing work (sometimes
referred to as due diligence) is to make sure there is no "dry rot" in the project and to
identify project risks to ensure they can be mitigated and managed in addition to
ascertaining "debt service" capability.
Technical Feasibility. Technical feasibility refers to the ability of the process to take
advantage of the current state of the technology in pursuing further improvement. The
technical capability of the personnel as well as the capability of the available
technology should be considered. Technology transfer between geographical areas and
cultures needs to be analyzed to understand productivity loss (or gain) due to differences
(see Cultural Feasibility).
Economic Feasibility. This involves the feasibility of the proposed project to generate
economic benefits. A benefit-cost analysis and a breakeven analysis are important
aspects of evaluating the economic feasibility of new industrial projects. The tangible
and intangible aspects of a project should be translated into economic terms to facilitate a
consistent basis for evaluation.
Cultural Feasibility. Cultural feasibility deals with the compatibility of the proposed
project with the cultural setup of the project environment. In labor-intensive projects,
planned functions must be integrated with the local cultural practices and beliefs. For
example, religious beliefs may influence what an individual is willing to do or not do.
Social Feasibility. Social feasibility addresses the influences that a proposed project
may have on the social system in the project environment. The ambient social structure
may be such that certain categories of workers may be in short supply or nonexistent.
The effect of the project on the social status of the project participants must be assessed
to ensure compatibility. It should be recognized that workers in certain industries may
have certain status symbols within the society.
Market Feasibility. Another concern is market variability and impact on the project.
This area should not be confused with the Economic Feasibility. The market needs
analysis to view the potential impacts of market demand, competitive activities, etc. and
"divertable" market share available. Price war activities by competitors, whether local,
regional, national or international, must also be analyzed for early contingency funding
and debt service negotiations during the start-up, ramp-up, and commercial start-up
phases of the project.
In general terms, the elements of a feasibility analysis for a project should cover the
following:
Need Analysis. This indicates recognition of a need for the project. The need may
affect the organization itself, another organization, the public, or the government. A
preliminary study is then conducted to confirm and evaluate the need. A proposal of how
the need may be satisfied is then made. Pertinent questions that should be asked include:
Process Work. This is the preliminary analysis done to determine what will be required
to satisfy the need. The work may be performed by a consultant who is an expert in the
project field. The preliminary study often involves system models or prototypes. For
technology-oriented projects, artist's conception and scaled-down models may be used for
illustrating the general characteristics of a process. A simulation of the proposed system
can be carried out to predict the outcome before the actual project starts.
Engineering & Design. This involves a detailed technical study of te proposed project.
Written quotations are obtained from suppliers and subcontractors as needed.
Technology capabilities are evaluated as needed. Product design, if needed, should be
done at this time.
Cost Estimate. This involves estimating project cost to an acceptable level of accuracy.
Levels of around -5% to +15% are common at this level of a project plan. Both the
initial and operating costs are included in the cost estimation. Estimates of capital
investment and of recurring and nonrecurring costs should also be contained in the cost
estimate docuement. Sensitivity analysis can be carried out on the estimated cost values
to see how sensitive the project plan is to the estimated cost values.
Financial Analysis. This involves an analysis of the cash flow profile of the project.
The analysis should consider rates of return, inflation, sources of capital, payback
periods, breakeven point, residual values, and sensitivity. This is a critical analysis since
it determines whether or not and when funds will be available to the project. The project
cash flow profile helps to support the economic and financial feasibility of the project.
Project Impacts. This portion of the feasibility study provides an assessment of the
impact of the proposed project. Environmental, social, cultural, political, and economic
impacts may be some of the factors that will determine how a project is perceived by the
public. The value added potential of the project should also be assessed. A value added
tax may be assessed based on the price of a product and the cost of the raw material used
in making the product. The tax so collected may be viewed as a contributon to
government coffers.
Conclusions and Recommendations. The feasibility study should end with the overall
outcome of the project analysis. This may indicate an endorsement or disapproval of the
project. Recommendations on what should be done should be included in this section of
the feasibility report.
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