PART II
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his portion examines the various elements of a project proposal. In the previous chapter, the
logical framework explained the logic of the project, its design and components. Once the
project has been carefully identified and designed, one can now proceed to the next stage in the
project cycle which is Project Preparation. Project preparation involves the conduct of a feasibility
study to determine the following: (a) the need for the goods or services to be generated; (b) the
technical aspects; (c) its investment requirement; (d) the stream of benefits it will generate; (e) the
operational requirements; (f) its social acceptability; and (g) its impact on the environment.
1) preparation of a feasibility study that will provide information for a “go or no go” decision; and
2) detailed planning and analysis on the feasibility study to find if the project is worthwhile to
pursue.
Market Aspects - the market study aims to determine the extent to which a product or service to
be generated by a project is needed or demanded, and to design appropriate marketing plans and
strategies for the project output;
Technical Aspects - the technical study aims to identify and analyze alternative ways of carrying
out the project in terms of its size, location, basic technical feature, reserve requirement, phasing of
implementation, impact on environment and social acceptability1. It is also in this study that costs
for alternative schemes are estimated and compared;
Financial Analysis - the financial analysis seeks to determine the financial feasibility
(profitability) and, where relevant, the debt service capacity of the project;
Economic Analysis - the economic analysis aims to determine the project’s net contribution to the
national economic and social welfare; and
Operational Aspect - the operational study aims to determine whether the project can be
implemented and put into operation, considering the political, legal, organizational, managerial,
institutional constraints which may impinge on project implementation and operation.
1
These two elements will be discussed as separate items from the Technical aspects.
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Chapter 1
M
arket study establishes the need for the goods and services of a proposed
project. A market study is carried out for the following reasons:
To design the appropriate marketing strategies and plans that will help ensure
that the project’s outputs will reach and be accepted by the target users.
What is a market?
The term market, in its broadest sense, refers to a geographical area
or a group of people where demand for certain goods or services exist
irrespective of whether or not such goods or services carries a market
selling price.
Before conducting a market study, goods and services to be generated must first be described. The
description, consisting of the technical attributes or specifications, should also define the uses, the
users and the influence area (market coverage).
While some of the aspects of a feasibility study can be undertaken simultaneously after some initial
data gathering, it is prudent to finish the market study before going full blast on the other aspects.
There is no point in undertaking a feasibility study if the market study will consequently show that
there is no need or demand for the good or service.
Market Study
Demand Analysis
Supply Analysis
Demand-Supply Analysis
Marketing Plan
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1. Demand Analysis
Demand analysis involves an estimation of the needs for the particular good or service to be
generated by the project. It includes:
Demand Determinants
Demand determinants are factors that influence the level of demand for a particular good or
service. It is necessary to identify these determinants to derive a reasonable approximation of the
latest demand. The following are some of the more important demand determinants:
The impact of some of the demand determinants such as income and prices, on the demand for
consumer goods can after all be described mathematically, e.g., demand and income are reflected
in terms of the income elasticity of demand, a quantitative measure of the degree of responsiveness
of demand for changes in income level of consumer.
The most commonly applied method for estimating demand are as follows:
a) Planning Standards or Coefficients. These are set planning parameters that form the basis for
planning. While these may not reflect the "best" basis, these are what may be considered
"acceptable" on the basis of the capacity of government to support. Example is in planning for
construction of classrooms, the acceptable student-classroom ratio is 50:1. In the same
manner, in projecting the demand for rice, the per capita consumption of rice per year is used.
b) Chain Ratio Method. An example of the application of this method can be used in estimating
demand for beef. In estimating demand for beef in a certain area, it may be calculated by
estimating the population multiplied by personal discretionary income per capita x average
percentage of discretionary income spent on food x average percentage of food expenses spent
for meat x average percentage of expenses on meat spent for beef.
Where D = demand
P = population
DI = total discretionary income
DIF = discretionary income spent for food
DIM = discretionary income spent for meat
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c) Market Build-up Method. In this method, the aggregate of potential beneficiaries in each
market is used. Since this method is a more development approach to demand estimation, it is
generally preferred.
Projecting Demand
The most commonly used methods in projecting demand are the following:
a) Time Series or Trend Analysis. This is used to determine the pattern or movements of an
economic variable over time that may indicate the direction in which it will proceed in the
future. This method involves finding a line or curve which best fits a given set of observations
of the selected variable taken at specified periods of time.
While this method may include the "crude" graphical approach, free-hand drawing and the
two-point line methods, the more popular ones are the following:
Arithmetic Average Growth (straight line) - this consists of taking the average of the
absolute growth reflected for each period. The derived average increase is then added to
the most recent observation to arrive at the estimated value for each of the next periods.
Geometric and Compound Method - the geometric growth rate approach takes the average
of growth rates registered for each given period. Or the first and the last data observations
can be taken and the compound growth rate technique applied to solve for the average rate.
Step 2: If the good or service is already in the market establish the historical demand (5-
10 years time services using available statistics).
If the good or service is new, go to Step 5.
Step 4: Project future demand by applying the effect of the demand determinants.
Step 5: If good or service is new, a market testing may have to be conducted to determine
probable reaction of market to the new good or service.
2. Supply Analysis
In order to arrive at the output level of a project, an examination of existing supply condition
should also be made. Estimates of past and present levels of supply are necessary to arrive at an
initial forecast of supply conditions during the project’s lifetime.
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3. Demand-Supply Consolidation
The demand-supply gap is derived by comparing projection of demand and supply. It is the
consolidation which determines whether there is market for the good or service to be generated by
the project and to what extent.
4. Marketing Plan
The demand-supply consolidation provides the basis for developing a marketing plan. The
marketing plan comes for basic areas as follows:
Market for goods and services are often made up of individuals who do not share the same
preference and capacities and do not respond similarly to marketing influence. Market
segmentation helps in developing an effective and efficient marketing program and organization.
A marketing plan for a certain good or service will have a greater chance of success if it is
designed to meet the various needs of, and have greater appeal to, the different market segment.
There is no single way of segmenting a market. Some of the segmentation variables are as
follows:
Geography - market may be geographically divided into urban/rural; by major island grouping
(Luzon, Visayas, Mindanao); or by regional grouping (NCR, Regiona I, II, III…);
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Demographic - demographic variables such as age and family size, family income, occupation,
education and religion are important considerations in segmenting the market; and
Psychographic - individual group traits, like user status (nonusers, regular users, potential
users); loyalty (low, medium, high); sensitivity to market factors such as, “local” or
“imported”; quality; price; promotion are also important considerations in segmenting market.
To market targeting, strategies are needed especially when goods or services generated by a
project are well-defined but for which the market targeted is not clearly spelled-out. It will help if
the following marketing strategies can be developed for specific projects:
concentrated marketing - where one or a few submarket is selected and specific marketing
plan is developed.
differentiated marketing - separate products and/or marketing programs are designed for each
segment.
undifferentiated marketing - only one set of marketing program is designed to appeal to the
broad segment of the market.
In most cases, a public project will produce only a single type of good or service (e.g. a power
plant project will only produce electric energy, or an educational project will only provide
elementary education). However, several products can be generated by one project, as in the case
of an irrigation project, which, in addition to the irrigation water, can also be used to produce fish,
potable water, and recreational facilities. Development of other goods or service in a project can
substantially increase revenues and reduce cost.
Marketing mix refers to controllable variables which can influence the behavior of targeted
beneficiaries. These variables can be classified using the 4 “Ps” of marketing as, price, product,
place and promotion.
Pricing
Pricing determines whether or not the good or service will be accepted by the market. Depending
on the objectives of the project, pricing can be based on:
cost-based pricing
demand-based pricing
competition-oriented pricing
Place
A project’s goods or services may reach its intended beneficiaries with or without the use of
intermediaries. An analysis of effective and efficient marketing channel should be undertaken as
part of a marketing plan. The choice of marketing channels are determined by the following
factors:
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characteristics of beneficiaries
characteristics of product
characteristics of competitors
characteristics of intermediaries
characteristics of project management
environmental factors like legal restrictions and economic condition
Promotion
An effective promotion and communication network takes into consideration the following rates
and characteristics of the places:
Audience - the decision as to what should be said, how, when, whose and when rests on who
the audience is.
Channel - can be classified as to personal channels including advocates, experts, social entities,
or non-personal channels including newspaper, radio, television, billboards, etc.
Depending on the complexity of the marketing mix of the project, the organizational needs may
range from one person to a whole division. For example, a small training project will probably put
all marketing-related functions in the hands of the project manager or training-manager, while a
national population-central project may entail a complex hierarchical organization involving the
national, regional and local government offices.
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Chapter 2
to find out when the project can be put to effect practically; and
how the project can practically be put into effect.
The concept of technical aspect goes beyond the narrow engineering dimensions and is meant to cover
a broad range of technical considerations in the various sectors.
Essentially, the technical aspects of a feasibility study will have to cover the following:
1. Preliminary research and testing to ensure applicability of the technology requirement of the
project. This refers to testing the applicability of the technology.
In terms of infrastructure projects, a certain amount of preliminary tests and research needed.
These tests include varied considerations such as simple strength tests of the site for the
construction of buildings; laboratory or pilot plant tests of the possibilities of using certain raw
materials or processes and the condition under which such uses will be possible; experiments with
new crops, etc.
In preparing the technical feasibility of the project, it needs only to contain a clear summary of the
information regarding the description of the tests undertaken for the project. The complete text of
the reports may be attached as appendices.
2. Selection of the production process. The selection of the production process for a particular
project should offer solutions as to the fitness of the identified technical requirement. Means of
production should be elaborated.
3. Specification of equipment to be used. There are two stages in the selection of equipment:
Choice of the type, in order to draw up the specifications for the bids; and
Selection between the various equipment of the type chosen in order to decide between the
bids.
Selection of the type of equipment will be influenced by the nature of the process, the scale of
production and the degree of mechanization, all of which are closely interconnected. It may often
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happen, for instance, that a certain degree of mechanization is only applicable for a certain
production level, and similarly certain processes end themselves better to mechanization than
others. The type of production is thus related to the degree of mechanization and automation.
4. Location, buildings and site layout. The technical feasibility analysis of a project depends
largely on location, as substantial differences usually exist in the availability, quality and costs of
the various requirements in an alternative location. Projects whose technical requirements could
have been well taken care of in one location sometimes fail because they are established in another
place where conditions are less favorable. In other words, a project situated in a location that is
remote from services and supply sources such as experienced labor force, market, raw materials,
utilities and other requirements would be operating with disadvantages.
For instance, an engineering project should include estimates of the size and characteristics of
buildings required for production and site layout. For agricultural projects, this will include post-
harvest facilities, warehouses, and the like; for projects like quarrying, will require buildings for
housing machinery, workshops, etc. The problem acquires special interest in the case of a
manufacturing industry, because the distribution of the industrial buildings has an important
bearing on the handling and flow of raw materials, and finished products.
5. Plant layout. The efficiency of a project such as a manufacturing operation depends to a great
extent on the layout of the plant and equipment, since this can lead to economy in movement and
the flow of material and processes thereby saving time and money. Some other factors which need
attention in plant layout are:
7. Efficiency. Refers to how the project is able to produce the good or service in the most efficient
way.
For instance in a particular post-harvest facility production, once the size of the plant and the
arrangement of equipment and buildings have been decided, it will be possible to calculate the
volume of each type of input required by the project, both for installation and operation. Once the
volume has been determined in physical terms, operating and input costs can be estimated.
Moreover, the volume serves as a useful element of comparison when appraising the estimated
administrative and operating efficiency of the project.
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The volume of input according to the physical processes employed, the quality of available raw
materials and the experience of other plants, can be estimated with the help of preliminary
technical research. In addition to the purely technical factors, these estimates should also take
into account the project’s general administrative and technical organization and the quality of the
available labor.
8. Flexibility of productive capacity. The need for flexibility in productive capacity is at times a
result of seasonal demand. In other instances, it may depend on temporary limitations in the
availability of raw materials or tight financial situations.
9. Work schedules. The schedule of project implementation from project preparation through
project start-up and the identification of potential causes of delay are aspects of a technical study.
There must be realistic schedules which not only include all activities from engineering design
through land purchase/acquisition, construction and procurement, to testing of equipment and
training staff necessary for the successful completion of the project. These schedules should be
arranged in a coherent sequence. The estimates of realistic schedules in terms of timing and costs
are drawn up from experience with comparable projects in the same or similar environment.
10. Size of project. The size of the project usually means its production capacity during a normal
operating period. Owing to the need for capacity and provision for operating flexibility to meet
demand fluctuations, the normal output will seldom be 100 percent of the installed capacity. Size
is sometimes expressed in terms of the number of persons employed, the capital involved, etc.
However, whatever unit of measurement this may be, the optimum size and the best location will
be those which will lead to the most favorable financial result. Some important factors in
considering the size of the project are:
The technical aspects of the project cover both engineering and non-engineering areas. It would be
advisable that a checklist be prepared and would also guide specialist/experts if their services are
required. The checklist would cover basically all those that have been mentioned above. It would
be best if, during the early stages of project design and preparation, technical specialists be
consulted to ensure that project activities are technically feasible and compatible with local
conditions.
The application of technical study provides the important areas to be closely examined which
would establish reliable estimates of project costs, based on detailed design and engineering.
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In general, the scope of technical study includes all peripheral activities required by project
interventions. It contains continuing operations of a project. Thus, a public market project is not only
about construction, but more importantly about the operations of a public market. The Value Chain
Analysis is a tool to ensure that all pertinent concerns of a technical study of a project are covered.
1. All interventions done under the technical study are dependent on a market study.
3. Secondary activities constitute the general management needed to maintain the organization such
as the HRD, administration, finance and accounting, and research and development.
4. Primary activities enable the organization to deal with suppliers to make available needed inputs;
transform these inputs to outputs in terms of services or goods; and make accessible all these
services to the target clients. It consists of the following:
b) Operations - in manufacturing, this involves transforming raw materials into finished product;
d) Marketing and Sales - through IEC, it aims at informing and convincing the people to avail of
the services or goods being offered by the project. This is important as it cannot be assumed
that target groups know how to avail or at least know about the project. Community organizing
or any social preparation activity is a marketing effort; and
e) After sales - these are follow-up activities. Thus, the project does not end with providing
credit, but must also continue with ensuring that there are repayments.
5. To be able to carry out the five functions under the Value Chain Analysis, there are technical
requirements that must be considered, and these are covered under Technical Analysis that touches
on the following:
a) Material Requirements
these are not materials needed for construction, but are consumable materials needed for
continuing operations (e.g., in rainwater impounding projects, material requirements are water,
treatment chemicals, etc.)
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b) Location Analysis
Discusses investment climate, particularly, readiness of the people in terms of monetary and
social costs
Describes how convenient the project location is, although sometimes there is no choice about
the location as the project dictates it.
c) Capacity Requirements
How far of the future should be projected is dependent on financial and economic analysis
Considers two types of capacity: rated capacity-RC (24 hrs./day or 365 days/year) and normal
capacity (70%-80% of RC)
Considers learning curve factors. Although the plan considers normal operation, it is a reality
that during early stage of operation, output is lower than normal until such time when it
reaches a stable/equilibrium condition
d) Technology Selection
It sometimes makes comparison between labor intensive (which is cheaper, but quality of
product cannot be assured as outputs are difficult to standardize) and automation (where
quality of product is better, but it is more expensive)
e) Technology Acquisition - discusses terms that can be extracted from supplier of the
technology, e.g., training, maintenance (warranty service)
g) Environmental Impact (Note: This was intentionally not discussed as there was a separate
session on this.)
The following are examples of Value Chain Analysis undertaken for two projects.
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Training Project
After giving you some conceptual understanding of the technical aspect of a project proposal, the
following discussions will simplify the concepts elaborated above. For purposes of initially
establishing the technical feasibility of the project needed in proposal preparation, we have simplified
the process that otherwise would sound too difficult to understand by those not having technical
expertise to do so. The steps outlined below will facilitate your initial work.
Step 3: Define the project's physical resource requirements in terms of pre-operation and
operational resource requirement. The types of resources are:
Capital
Manpower
Natural
Supplies and materials
Utilities
Step 4: After defining the physical resource requirement, the plan for implementation and
operation. For projects with enginering components, it will have to follow this
process:
1. Conduct of technical test and engineering design.
Technical research, surveys and tests.
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Once you have followed these steps, it would be easier to formulate a technical description of your
proposed project. Bear in mind, that the very technical aspects of the project should be responded to
by experts for particular fields.
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