CHAPTER THREE

FEASIBILITY ANALYSIS AND APPRAISAL OF

PROJECTS
MARKET AND DEMAND ANALYSIS OF A PROJECT
 Market and Demand Analysis

❑ What is Market and Demand Analysis?

➢In most circumstances, the first step in project analysis is to estimate the potential
size of the market for the product proposed to be manufactured (or service planned to
be offered) and get an idea about the market share that is likely to be captured.
➢ Therefore, Market and Demand Analysis
• enable to understand how much consumer demand exists for a product or
service
• helps management to determine if they can successfully enter a market and
generate enough profits to advance their business operations.

• is conducted to know about the aggregate demand for the product or service
and the market share that proposed project will enjoy.
 Market and Demand Analysis
❑ Step in Market and Demand Analysis

➢ Market and Demand Analysis involves the following key steps or sequence
of activities
1. Situational analysis and specification of objectives
2. Collection of secondary information
3. Conduct market survey to collect primary data
4. Characterization of the Market
5. Demand forecasting
6. Formulation of the Market Plan
 Steps in Market and Demand Analysis

Collection of
Secondary Demand
Information Forecasting

Situational Analysis
Characterizatio
and specification of n of the Market
Objective

Conduct Market
Market Planning
Survey
 Step1:Situational Analysis and Specification of Objectives
❑ Situational analysis enable the analysis to investigate the relationship between the
expected product/service delivered by a project and its market, the project analyst
may informally talk to customers, competitors, middlemen and other in the
industry.
• The situational analysis enable to know
i. The preferences and purchasing power of Customer
ii. Action and strategies of the Competitors
iii. Practices of Middle man
❑ Specification of objectives helps the analyst to move towards a particular direction.
The objectives to be focused on are:
• Potential buyer
• Total demand
• Break up of demand (Demand in different segments of market)
• Type of distribution channel
• Prices and warranties
 Step 2: Collection of Secondary Information

❖Secondary data is gathered in some other context and is already available in

market. It is not conducted by researcher himself.
❖The general sources of secondary information from which a project researcher
collect data are

• Census Survey • Annual survey of industries

• National sample survey • Stock exchange directory
reports • Publications of advertising
• 5 years plans agencies
• Economic survey reports • Industry potential surveys
• Political survey report
 Step 2: Collection of Secondary Information…
❑ Evaluation of secondary information: While secondary information is available
economically and readily. Its reliability, accuracy and relevance for the purpose under
consideration must be carefully examined.
➢ Thus, the market analyst should seek to know:
1. Who gathered the information? What was the objective?
2. When was the information gathered? When was it published?
3. Have the terms in the study been carefully and unambiguously defined?
4. What was the target population? How was the sample chosen? How
representative was the sample?
5. How satisfactory was the process of information gathering?
6.What was the degree of sampling bias and non-response in the information
gathered? What was the degree of misrepresentation by respondents?
 Step 3: Conduct of market survey

❑ Primary Information:
• Secondary information, though useful, often does not provide comprehensive basis for
market and demand analysis. It has to be supplemented with collection of primary data.
• Primary information is gathered through market surveys specially for a particular project.
• Market surveys may be census survey or sample survey, typically it is the letter.
• The information sought in the market survey may relate to one or more of the following:
• Total demand and rate of growth of demand
• Demand in different segments of market: based on income, sex, age,
• Income and price elasticity’s of demand: measure the responsiveness in
quantity demand to unit change in Income and Price, respectively.
• Motives for buying
• Purchasing plans and intentions
• Socioeconomic characteristics of buyers
• Unsatisfied needs and Attitudes toward various products
• Characteristics of buyer
 Step 3: Conduct of market survey
❑ Steps in Sample Survey
➢ Typically, a sample survey involves the following steps

(i) Defining the target population-

(ii) Selecting the Sample scheme and size
(iii) Developing the Questionnaire: Structured or unstructured.
(iv) Recruiting and training the field investigators-
(v) Obtain information as per the questionnaire from the sample of respondent
(vi) Scrutinizing the information gathered- The data may be inconsistent and
the responses may be biased. Therefore, data cleaning is important

(vii) Analyze and interpret the information

 Step 4: Market Characterization
❑ The objective of the Market Characterization analysis is to identify the key decision
elements that will serve the evaluation of a market.
❑ Based on the information collected through market survey and secondary sources, the
market for the product or service offered may be described in terms of the following
factors. These factors are:

i. Effective demand in the past, present and future

ii. Breakdown of demand
iii. Price statistics
iv. Methods of distribution and sales promotion
v. Types of consumer
vi. Listing of supply and competition
vii. Government policies
 Step 4: Market Characterization…

1. Effective demand in the past and present:

• Apparent Consumption is a proxy measure for consumption of a product or
material, defined as production plus imports minus exports and change in stock
level of the product or material.
• To gauge the effective demand in the past and present, the starting point typically is
apparent consumption which is defined as:

App. Con. = Production + Imports - Exports – Changes in Stock Level

• In a competitive market, effective demand and apparent consumption are equal.

 Step 4: Market Characterization…

2. Breakdown of demand:
• To get a deeper insight into the nature of demand, the aggregate (total) market demand
may be broken down into demand for different segments of the market. Market segments
may be defined by
• Nature of product: Tangible /intangible, Separable/inseparable, Variable/Invariable,

Perishable/Imperishable
• Consumer Groups: Gender/Age/Lifestyle/ Income/Level of education/Religion
• Geographical division: Country/Region/City
 Step 4: Market Characterization…

3. Price:
❑ Price statistics must be gathered along with statistics pertaining to physical quantities.
It may be helpful to distinguish the following types of prices:
• Manufacturer’s price quoted as FOB (free on board) price for export or

CIF (cost, insurance, and freight) price for import,

• Landed price for imported goods,
• Average wholesale price, and
• Average retail price.
 Step 4: Market Characterization…

4. Methods of Distribution and Sales Promotion

I) Method of distribution: may vary with the nature of product.:
❑ Capital goods, industrial raw materials or intermediates, and consumer

products tend to have differing distribution channels . Further, for a given

product, distribution methods may vary.

II. Methods used for sales promotion such as advertising, discounts, gift
schemes, etc., likewise, may vary from product to product.
 Step 4: Market Characterization…
5. Types of Consumer:
❑ Consumers may be characterized along two dimension as follows:

Demographic and sociological Attitudinal

• Age • Preferences
• Sex • Intentions
• Income • Habits
• Profession • Attitudes
• Consumer Social background • Responses
 Step 4: Market Characterization…

6. Supply and Competition

• It is necessary to know the existing sources of supply and whether they are foreign or
domestic.
• For domestic sources of supply, information along the following lines may be
gathered:

• Location, • capacity utilization level,

• Present production capacity, • bottlenecks in production, and
• Planned expansion • cost structure.

• Competition from substitutes and near-substitutes should be specified because almost

any product may be replaced by some other product as a result of relative changes in
price, quality, availability, promotional effort, and so on.
 Step 4: Market Characterization

7. Government policy
❖ The role of government in influencing the demand and market for a product
may be significant.
❖Governmental plans, policies, legislations, rules and regulation which have a
bearing effect on the market and demand of the product of a project or business.
These are reflected in:

• Production targets in national • Sales tax,

plans, • industrial licensing,
• Import and export trade controls, • preferential purchases,
• Import duties, • credit controls, financial
• Export incentives, regulations, and
• Excise duties, • subsidies / penalties of various kinds
 Step 5: Formulation of Market Plan
• Market planning is the process of organizing and defining the marketing aim of
a company for a product or service and planning strategies and tactics to achieve
planned goals.
• A market plan may be different for different products. This is because one plan may
not fit and may not be suitable for different types of product or service.
• Marketing plan will help determine
• Who the target market is,
• How best to reach them,
• At what price point the product or service should be sold, and
• How the company will measure its efforts.
 Step 5: Formulation of Market Plan
❖In order to penetrate the market and achieve pre-determined objectives an
appropriate marketing plan must be developed covering all aspects related to
• Product
• Price
• Places and
• Promotion.
❑ Components of a Market Plan
• Marketing plan usually has the following components presented in steps.
1. Analyzing the current market situation
2. Identifying Opportunities and other issues (SWOT-Analysis)
3. Setting up Objectives
4. Deciding the marketing strategy
5. Action Program
6. Market planning
Step 5: Formulation of Market Plan…

Analyzing the current market situation

Identifying opportunities and issues

Setting up of objectives

Deciding the marketing strategy

Action Program
 Step 5: Formulation of Market Plan
1. Analyzing Current marketing situation
• This part of the marketing plan deals with the different dimensions of the current
situation.
• It examines the - market situation,
- competitive situation,
- distribution situation and
- The macro-environment.
• At this stage, it is important to assess the current situation based on the following
points
o Where is your organization now? Who are your customer groups?
o What are their needs and requirements? How large and diverse are they?
o What kinds of products and services do you currently provide?
o How do you reach your customer groupings? Do you have any competition?
o What factor/s in your environment has an effect on your organization?
 Step 5: Formulation of Market Plan…

2. Identifying Opportunity and issue (S.W.O.T. analysis).

• This identifies key issues and opportunities for your organization and it
comprises an analysis of your internal operations
o Strengths
o Weaknesses

• Also those external factors, which effect your organization

o Opportunities

o Threats
 Step 5: Formulation of Market Plan…
3. Setting Objectives.
➢ Having identified the key issues affecting a project/organization/, It is important make
some decisions about future objectives. These guide the development of strategies and
action plans.
o Objectives have to be clear cut, specific and achievable
o Objectives should be clearly stated, measurable and listed in order of
importance
o Objectives should be attainable and consistent with your organization's culture.
o Objectives should meet certain criteria e.g. financial, and marketing which will
be customer focused.
 Step 5: Formulation of Market Plan…
4. Deciding Marketing Strategy.
• Effective marketing starts with a considered, well-informed marketing strategy. A good
marketing strategy helps to define clear, realistic and measurable marketing objectives
for a project.
• Marketing Strategies are designed and implemented to achieve the stated objectives of
marketing plan. Each strategy should be related to a specific goal and should be made
up of numerous actions.
• The marketing strategy covers the following: target segment, positioning, product
line (a group of related products all marketed under a single brand name) , price, distribution,
salesforce, sales promotion and advertising.
 Step 5: Formulation of Market Plan…

• Marketing strategy addresses the following questions:

o Whom are you targeting?
o What do you want your position to be in terms of new product/service
delivery?
o Do you want to change your organization profile and will you need to rebrand
your organization?
o Will you change the way you promote and advertise yourself?
o Will there be any changes in how you reach your customer groups? Any
changes in staff?
o Is there a need for more research?
 Step 5: Formulation of Market Plan…
5. Action Plan/ program
• An Action Plan or Action Program is a detailed plan with specified actions that are needed to achieve a goal.
It can also consist of a series of steps that must be taken to successfully complete a certain strategy.

• A marketing action plan is what businesses use to develop and execute marketing
strategies. The purpose of creating a marketing action plan is to put your goals, strategies
and other plans in writing and can help your business stay on track and measure progress
as it executes marketing campaigns
• This describes: What will be done? , When will it be done?, Who will do it?, How much will it cost?
 Step 5: Formulation of Market Plan…
❖To enable the product to reach a desired level of market penetration, a suitable
marketing plan should be developed. Broadly, it should cover pricing, distribution,
promotion, and service. The details that need to be hammered out are shown below
Pricing Distribution

• Ex-factory price • Packaging

• Taxes and duties Applicable for the • Transportation Arrangements
Domestic price • Channels of Distribution
• Trade margins /Discounted • Role of distributors, Wholesalers, and
• Final price to the Domestic customer retailers
• Export price
Promotion Service
• Branding • Installation
• Advertising • User education
• Personal selling • Warranties
• Promotional efforts • After-sales service
TECHNICAL ANALYSIS OF A PROJECT
 Technical Analysis

• Technical analysis represents study of the project to evaluate technical and

engineering aspects when a project is being examined and formulated.

• Technical Analysis is a continuous process in the project appraisal system which

determines the prerequisites for meaningful commissioning of the project.

• Technical aspects relate to the production or generation of the project output in

the form of goods and services from the projects inputs.
 Technical Analysis
❖Primary Objective technical analysis is to see whether the project idea is feasible or
not from technical point of view.
❖In technical analysis of any project, the following points are carefully considered
• Availability of critical inputs and utilities: availability of land, utilities, skilled
labor, facility of disposal , market (nearness), etc.
• Compatibility of manufacturing process and technology used : The capacity of
the plant and manufacturing process and suitability of the technology employed
• Suitability of plant and machinery for the manufacturing process to be adopted

• The engineering feasibility of the project: including structural, civil and other
relevant engineering aspects necessitated by the project design.
• The technical capabilities of the personnel as well as the capability of the
projected technologies to be used in the project are considered.
 Aspects of Technical Analysis
❑Technical analysis broadly involves a critical study of the following aspects
1. Selection of Process/Technology:
• The choice of technology based on the type of technology, quantity and quality of product proposed
to be manufactured , etc.
• Determinants/influence/ the of choice of technology/process are
• plant capacity,
• Material and principal inputs requirement
• investment outlay and production cost,
• use by other units,
• Flexibility of product mix (depend on market requirement, quality of product
flexibility of production)
• latest development
• Technology obsolescence/ uselessness/ and
• ease of absorption.
 Aspects of Technical Analysis
❑The choice of a suitable technology for a project calls for identifying what is called the
‘appropriate technology’. The term ‘appropriate technology’ refers that technology
that is suitable for the local economic, social and cultural conditions
❑Appropriateness of Technology is a function of whether the technology
➢utilizes the local raw materials?
➢utilize local man power?
➢protects ecological balance?
➢is harmonious with the social and cultural conditions ? and
➢Whether the goods and services produced cater/provide to the basic needs?
 Aspects of Technical Analysis ( Cont…)
2. Scale of operation and Economic scale of production:
• Plant size mainly depends on the market for the output of the project. Scale of operations is
signified by the size of the plant.
• Economics of scale in production (occurs when more units of a good or service can
be produced on a larger scale with (on average) fewer input costs, efficient production,
3. Availability of raw material and inputs at reasonable cost
4. Technical Know-How: is the perquisite knowledge and experience which enable to executing
varies technical activities, to operating, Maintenance & Repairs machines, etc successfully
5. Consistency & soundness of engineering design
6. Environmental aspects : that need to be assessed are: Surface water quality; Air quality;
Seismology; Erosion; Land quality; Forest; Fisheries; Terrestrial wildlife; Noise;
Archaeological/ historical significance; Public health; etc.
 Aspects of technical analysis ( Cont…)
7. Selection and Procurement of Plant and machinery:
• Selection of machinery: The machinery and equipment required for a project depends upon the
production technology proposed to be adopted and the size of the proposed. Capacity of each
machinery is to be decided by making a rough estimate.

8. Location of Projects:
• Choosing the location for a new project is to be done taking many factors into account.
• Some of the factors are
• Critical assessment of Demand
• Size of plant
• Input requirement
• Government policies
• Labor situation
• Proximity to raw materials
• Availability of infrastructure
 Aspects of Technical Analysis (Cont…)
9. Project Work Scheduling:
• Scheduling is the arrangement of activities of the project in the order of time in which they
are to be performed.
• The schedule which broadly indicates the logical sequence of events would be as under:
1. Land acquisition,
2. Sit development,
3. Preparing building plants, estimates, designs, getting necessary approvals and
entrusting the construction work to contractors,
4. Construction of building, machinery foundation and other related civil works and
completion of the same Placing order for machinery,
5. Receipt of machinery at site,
6. Erection of machinery,
7. Commissioning of plant and taking trial runs,
8. Commencement/beginning of regular commercial production.
SOCIAL AND INSTITUTIONAL ANALYSIS
OF A PROJECT
I) Project Social Analysis
 Social Analysis
❑ What is Social Analysis?
• Social analysis involves examining the socio-cultural, institutional, historical and political
context in which a project operate.
• Social analysis is a process that aims to
• Identify the social dimensions of projects,
• Analyze the different stakeholder perspectives and priorities.
• Understand the opportunities and constraints, and the likely social impacts associated
with a project
• Incorporate stakeholders' views, establish participatory processes and inform the design
of strategies for inclusion, cohesion and accountability.
• Understanding the social implications of projects and policies is critical in ensuring that the
proposed project or policy contributes to equitable and sustainable development
 Social Analysis
❑ Social Analysis may include assessments of
(i) the groups who are expected to benefit from and use services that are to be
provided by the project,
(ii) the needs of the groups,
(iii) their demands,
(iv) their absorptive capacity,
(v) gender issues, and
(vi) possible adverse effects on vulnerable groups (and the need for measures to
mitigate or compensate those adversely affected).
 Social Analysis
❑ Core Aspects in Social Analysis
➢ The core aspects which should be examined in a social analysis will include
identification and assessment of
• the customers which will benefit from the project and their socioeconomic
status;
• the needs of the customers/beneficiaries;
• the demands of the beneficiaries;
• their absorptive capacity;
• the gender issues involved; and
• the potential adverse impacts on vulnerable groups
 Social Analysis
❑The goal of Social Analysis are:
• To make projects more sound and sustainable by ensuring projects fit the
individuals and communities served and affected

• To ensure project effectiveness by increasing support and tailoring institutional

arrangements to the local culture

• To Make projects more inclusive by involving not only selected stakeholders but
the larger, more diverse community
 Social Analysis
❑ Reason for Conducting Social Analysis of a project
➢The major reason for conducting the SA is to ensure that the social dimensions are
fully incorporated into the project's final design. Such a design will, among others,
include:
• the need and means for targeting beneficiaries;
• the opportunities for using participatory development strategies;
• the mechanisms for implementing organizations to provide services in
ways which are correspond with the client's absorptive capacity; and
• a framework for monitoring and evaluating the benefits of the project.
 Social Analysis

❑ Importance of Social Analysis

❖ Social analysis help to:

• Identify opportunities to enhance social benefits and minimize or reduce
adverse social consequences
• Identify social issues and social constraints that may affect the acceptability of a
project by the interested and affected publics

• Document the social benefits and costs of each plan for decision makers

• Establish monitoring procedures to ensure acceptability and viability as new

issues emerge during implementation and operation
 Social Analysis

❑ Principle to Follow in Social Analysis

❖ Social analysts follow a basic code of principles:
• Take professional and personal responsibility for the extent and accuracy
of their assessments
• Recognize and respect the knowledge of people and groups potentially
affected by an existing condition or a proposed action and alternatives
• Establish credibility to obtain and keep the trust and confidence of key
informants
• Be highly conscious of psychological and organizational dynamics (both
internal and external)
II) Institutional Analysis
 Institutional Analysis
❑ What is Organization?
❖Important features of organizations :
• Organizations:
• have a structure and functions;
• are designed to achieve specific goals;
• have identifiable boundaries; they work within, or are influenced by, the
institutional context, while usually also attempting to influence the ‘rules of the
game’; and
• use resources, knowledge or technology to perform work-related activities.
• Organizations are thus more closely associated with the ‘association’ and ‘action’
elements of the conceptual framework
 Institutional Analysis

❑What is institution ?
❖Institutions can be understood as settled, widely prevalent and standardized habits and
conventions defining social practices and – more formally – as constitutional and
operational rules governing different kinds of organizations.
❖Institutions are “rules ( the formals, the documented) and norms (the informal, the
non- documented) that constrain human behavior” and organizations as “the players”
.
❖Institutions are the rules of the game in a society, or, more formally, are the humanly
devised constraints that shape human interaction
 Institutional Analysis(IA)
❑ What is IA?
• When undertaking institutional analysis, it is important to distinguish between the terms
institution and organization. While institutions can be described as the long-standing
rules and rights governing social and productive behaviour, organizations are the
'players' and structures, or "groups of individuals bound together by some common
purpose to achieve objectives" (North, 1990). Institutions thus form the 'framework'
upon which organizations are based.
• The Institutional Analysis (IA) can help to assess current concepts, theories, practices,
policies, procedures, and initiatives and serve as an organizing tool to improve
coordination and working relationships and mobilize joint action among intervening
agencies and the communities they serve.
• The IA examines institutional policies and practices and the logic, thinking, and
assumptions that support them.
 Institutional Analysis
❖Institutional Aspect of a project concerned with
• Organization issues of projects: Internal issue
• The Legal aspects: legal and regulatory framework in which a project
operate
❖ The Institutional analysis aims to ensure that
(i) the project is institutionally sound and adequate capacity exists for a
successful implementation; and

(ii) the institutional arrangements ( policies, systems , processes and structure )

facilitate effective and sustainable operations and maintenance of the project
facilities
 Institutional Analysis
❖The Institutional analysis will help the design team to understand
• All the entities/stakeholders/ involved in a project,

• The interplay between them, their roles, powers and authority, and their
capacity and capacity-building requirements.
❖The Institutional analysis should lead to the identification of:
• Key stakeholders/institutions and their potential roles
• Potential lead agency
• Potential implementation agencies and partners.
Thank You