This article will help in planning the project for the students as well as to the engineers who want to start the new industries and will facilitate in formulating the correct approach to take up the job for project planning.
Before starting any project, its planning is done. Planning a project is a very important task and should be taken up with great care, as the efficiency of the whole project largely depends upon its planning. While planning a project, cash and every detail should be worked out in anticipation considering all the relevant provisions in advance.
Now-a-days more stress in being given to bring the engineers forward to open their own industries, and engineering students after completing their courses are also being encouraged to open their own industries. Hence, the study of project planning has become more important.
Step # 1. Market Survey:
Market survey, in a broad sense is a commercial survey for the suitability of business. It provides necessary statistics helpful for forecasting and planning a project. Before starting a business, market survey is very essential to know about what must be produced, how much be produced, who are the purchasers and where they are located, margin of profit etc.
Thus the main object of market survey is to find out the future of the proposed products. In the initial stage preliminary survey is done by some experienced analyst and if this preliminary survey supplies sufficient information that there is no profitable market for the product to be manufactured then further detailed survey is not required. If preliminary survey provides some hope then only detailed survey is done.
In short we can say that the purpose of market survey is to find the location of markets, scope of sales and the purchasing habits of the customers, availability of raw material and other facilities. After getting the favourable results from this survey, further work of project planning should be taken in hand.
Step # 2. Project Capacity:
After conducting the market survey, capacity of the project must be decided considering the amount of money which can be invested for the particular type of product and how the money can be arranged i.e., by partnership, through banks, financing corporations or shares.
While deciding the capacity of the project, following are the factors which should also be considered:
1. Demand of the product in the market.
2. Whether the demand is regular or fluctuating.
3. Quantity of power, water, land and raw material available.
4. Types of business organisation.
5. Nature of the product.
6. Investment capacity.
Step # 3. Selection of Site:
When it has been decided to start a factory for manufacturing a particular product, it is most important to select a suitable site for it. While selecting the site technical, commercial and financial aspects should thoroughly be considered. Site should be selected in two stages, in first stage general location for factory should be decided and in second stage exact site should be selected in this location.
Following are some of the important factors required to be considered for the selection of site:
(A) General location of the factory:
1. Availability of raw material.
2. Proximity of market.
3. Transport facilities.
4. Availability of cheap & efficient labour.
5. Availability of cheap and sufficient water, power and fuel.
6. Climate and atmospheric conditions.
7. Availability of commercial facilities.
8. Existence of related industries.
(B) Selection of exact site:
1. Availability of cheap and sufficient land.
2. Cheap possibilities for disposal of waste.
3. Easy Access.
4. Cost of material required for construction.
5. Facilities like Post Office, Bank, and Hospital etc.
6. Facilities of housing for the workers.
Step # 4. Plant Layout:
For the construction of building for the factory and its layout, several factors should be considered thoroughly.
Some of the important considerations in this respect are:
1. Whether single storey building will be more useful or a multistorey building.
2. Provisions for future expansion.
3. Material movement is kept to the minimum.
4. Flow of material should be along straight line to minimise the production delays.
5. Flexibility for future changes.
6. Easy to supervise.
7. Proper lighting and ventilation.
Step # 5. Design and Drawing:
Having been decided about the product to be manufactured, it must be designed. The work of design should be done very carefully by the experienced designer considering all the relevant factors.
After designing the product, its detailed drawings are prepared so that no doubt is left for future. Detailed specifications for raw material and finished product should be decided carefully along with the specifications of the machines required for their manufacture.
Step # 6. Material Requirement:
The list of material required for manufacture is prepared from the drawings. This list is known as “Bill of Material” which this passes through the store-keeper, who makes the entries of the material available in the store, but in the starting of the project, it directly passes to the purchase organisation for the procurement of material and hence ‘in-stock’ and ‘out-stock’ columns are avoided.
A form for such Bill of Material is given below:
Step # 7. Operation Planning:
The work of planning department is to select the best method of manufacturing, so that the wastage of material, labour, machine and time can be eliminated, to have more production with least fatigue. This work is done in two phases, namely Method Study and Time Study.
(a) Method Study:
Method Study is conducted to eliminate the wastage due to ill-directed and inefficient motions. In this study work is divided into fundamental elements and then these elements are studied separately and in relation to one another, and then develop a method of least wastage.
Method study is performed in following steps:
Break up all the operations of the job, including material handling, machine work and hand work into small elements.
Following questions should then be asked himself by the motion study engineer about the each element:
(a) What is the purpose of this operation? Does this fulfill the requirement?
(b) Why this operation is necessary? Can this be eliminated?
(c) Which is the best place to do this operation?
(d) When is the best time to do this operation?
(e) Who can do it in a better way?
(f) How this operation can be performed i.e. which machines and tools are to be used?
After considering the above questions, a best method is developed. This method is then standardised and will be followed by all the workers.
(b) Time Study:
Exact estimation of time is very essential for correct pricing. Hence time study is required to be performed to find out the correct manufacturing time for the product. Time study is also helpful for production scheduling, machine loading, budgeting and cost control. Time study is performed on average workers and on average machines for the method finalised on the basis of Method Study.
Step # 8. Machine Loading:
Number of machines to be installed in a plant should be decided very carefully, as excess machines will lead to machine idleness, and shortage of machine means difficulty in achieving the target of production. While planning, proper care should be taken to find out the machine time for each operation as correct as possible, so that arrangement for full utilisation of machines can be made and machine loading programme is prepared accordingly.
Step # 9. Sub-Contract Consideration:
In the past (few decades ago), each and every component of the product was manufactured in the factory. But with the development of technology and specialisation, it is difficult to manufacture all the components in the same factory, because specialised machines, plants and skilled workers for each component cannot be afforded by a single-concern e.g., a concern manufacturing lathe machine will prefer to purchase the items like, electric motor, gears, coolant pumps etc.
The decision about a particular item, whether to purchase or to manufacture, is taken by planning department after making a thorough study of the relative merits and demerits. The system of subcontract leads to the growth of ancillary industries around the main concern.
Following are some of the important factors which should be considered to arrive at such decision:
1. Utilisation of factory resources.
2. Use of available technical know-how in the factory.
3. Competitive price.
4. Delivery schedules.
Step # 10. Equipment Requirement:
Results obtained from the “Time and Method Study” and the “Machine Loading” helps in calculating the equipment requirement. Specifications of equipment should be laid down by considering the drawings. Drawings will help in deciding the necessary requirement of the tools and accessories. After knowing the number of equipment’s, their accessories and tools required, cost data can be collected to give an idea of capital requirement.
Step # 11. Organisational Layout and Staff Requirement:
Now with all the available information’s it is decided that what type of organisational layout will be suitable and what should be the duties of each person in layout. Layout of organisation is decided by considering the nature of work, type of industry, size of industry etc.
Organisational set up should be able to provide the co-ordination among men, material and machine in such a way so as to have the maximum output easily and efficiently under minimum total cost.
Duties and responsibilities of each officer should be clearly defined and his qualifications and experience should be accordingly decided. His pay and status should be fixed looking to his qualifications, experience and responsibilities.
Total number of persons required to be employed in the organisation and their wages are calculated, which will help in deciding the cost of production.
Step # 12. Material Handling:
The material handling problem must be studied before the erection of the factory building and plant layout. Material handling is a prime consideration in designing the new plant building.
This problem becomes more important in large scale industries. By proper layout, material handling cost can be reduced to a great extent, as proper handling reduces the idle machine and man time, while improper handling may cause delays and reduces the efficiency.
Material handling devices should be selected, considering the following factors:
1. Type of product,
2. Size and shape of product,
3. Method of manufacture,
4. Production rate of the plant,
5. Availability of space,
6. Distances to be covered, and
7. Power availability.
Step # 13. Budgeting:
Budgeting is a forecasting and preplanning for a particular future period using past experience and market trends. Planning department prepares the budget i.e., a programme for future operation and expected results about working capital, material, labour, production etc.
Classification of Budget:
Budget can be broadly classified as:
(i) Master Budget:
For large organisation complete detailed budget is very big, therefore, a separate summary is prepared giving the summaries of all the plants, policies and their effect over the business. This summarised budget of the entire concern is known as the “Master Budget”.
(ii) Sales Budget:
This budget gives income from the products likely to be sold and the sale expenditure. Sales forecast is done on the basis of the reports of the salesmen about the approximate quantity of products likely to be sold in their area. Sales expenditure budget is prepared by estimating the expenses on advertising, market survey, salaries of salesmen and other expense of the sales department.
(iii) Production Budget:
This budget is prepared to show the quantity of the various products likely to be manufactured in each month. This budget is prepared after considering the sales budget, customers demand in hand and the capacity of plant.
(iv) Financial Budget:
This budget gives the summary about the money to be received and to be spent during the budget period. It forecasts the profit or losses and the financial position of the concern at the end of the budget period. This budget helps the financing body to maintain an adequate amount of working capital in hand.
As short of capital will lead to a loss to the organisation due to fall in production or non-availability of raw material or lack of finance, and excess capital in hand will again mean a loss of income which he might get by investing this money. Hence, this budget helps the management for long term planning.
(v) Materials Budget:
This budget is prepared on the basis of material requirement of production department. It gives the idea that how much material will be needed.
On the basis of the material budget, arrangement can be made for the procurement of material in right quantity at right time.
Step # 14. Cost Calculation:
Total cost of a product can be calculated by adding the following expenses incurred during a particular period on a product:
1. Material Expenses,
2. Labour Expenses,
3. Factory Expenses,
4. Administrative Expenses,
5. Selling Expenses, and
6. Distribution Expenses.
After calculating the total cost of a product next step is to decide the profit to be taken on each product, which when added to the total cost gives the selling price of a product. Total cost for a product is fixed, as this is the expenditure actually made on the manufacture of a product, hence only profit is a variable factor which affects the selling price of a product.
While deciding the profit following factors should be kept in mind:
1. Whether the business has monopoly or is in competition.
2. Whether to determine on the cost of production or to charge what the customers can pay.
3. Whether the substitutes are available in the market.
4. What is the price of competitive product in the market?
Step # 15. Arrangement of Finance:
For large industries main problem is the arrangement of finance. Generally large industries manage their block capital arranged through partners and shareholders. While the working capital arranged through shares, debentures, loans and banks.
(A) Financing of Large Scale Industries:
(i) Industrial Financial Corporation of India:
It (I.F.C.I.) was established in 1948, to provide direct financial assistance in different forms to all eligible medium and large size industrial projects set up or proposed to be setup. It also provides assistance for the expansion, diversification, renovation or modernisation of existing ones.
(ii) Life Insurance Corporation of India:
Generally it provides loans for the industries engaged in the work of mining, general engineering, steel, cement, sugar, textiles, paper etc.
(iii) Unit Trust of India:
It (U.T.I.) was estd. in 1964 as a public sector investment institution for mobilising the savings of the community and channeling them into productive corporate investments so as to provide for the growth and diversification of the economy.
(iv) Industrial Development Bank of India:
(I.D.B.I) It was set up in 1964, and was delinked from the Reserve Bank of India and made an autonomous Corporation owned by the Govt. of India from 1976. It can finance all types of industries, irrespective of the form of organisation or size of the unit.
The I.D.B.I has been assigned a special role for planning, promoting and developing industries to fill vital gaps in the industrial structure, providing technical and administrative assistance for promotion, management and expansion of industry, undertaking market and investment research and surveys, and conduct techno economic studies in connection with development of industry.
The I.D.B.I is operating various schemes of assistance, e.g., project finance scheme for setting up new units as well for expansion, diversification and modernisation of existing units.
(v) Industrial Credit and Investment Corporation of India (I.C.I.C.I.):
It was set up in 1955, for providing financial assistance to the industries.
(vi) Industrial Reconstruction Corporation of India (I.R.C.):
It was set up in 1971 and is concerned with the revival and rehabilitation of industrial units which have closed down or are facing closure but show promise of viability by reconstruction of share capital, strengthening of management, provision of finance on soft terms, improvement in technology, and labour relations.
(vii) National Industrial Development Corporation (N.I.D.C.):
It was set up in 1954 for promotion and development of industries in the country. Its function is to associate with and appraise the projects being set up with foreign collaboration and to advance loans to textile, machine tools and jute industries. But the activity of giving loans to industries was discontinued from 1963. Thus the N.I .D.C. is now rendering the consultancy services in a variety of fields to the industrial projects.
(B) Financing of Medium and Small Industries:
Our country is giving more importance to the medium and small scale industries. These industries are of much help in removing the unemployment problem but main difficulty in the way to start an industry is the finance and every-body who is having good technical background may not have good financial position. Hence, Government has taken several steps to provide the financial help.
Some of the sources for providing financial assistance are being given here:
(i) State Governments:
State governments are granting loans on long and medium terms to the individuals, industrial undertakings and industrial co-operatives on the recommendation of the District Industries Officer through Director of Small Scale Industries. The rate of interest is normally 10%. This loan is required to be repaid along with interest in easy equal annual installments.
(ii) State Financial Corporation:
Financial corporations are working in most of the states, which grant loans to small scale industries. Those corporations charge the interest with the rates same as charged by the states government as given above.
State Bank of India and other nationalised banks provide financial assistance to the small scale industries for fixed liberalised scheme. The loans are granted to these industries for fixed as well as for working capital requirements at the interest rates varying between 11% and 13% per annum.
State Bank of India has a special scheme to assist engineers, craftsman and other qualified persons who are in need of money for starting an industry. Such loans are limited upto rupees one lakh.
(iv) State Industrial Cooperative Bank:
Most of the states have set up the Industrial Cooperative Banks to provide financial assistance to industrial cooperative societies and other industrial undertakings at lower rates of interest and on easy installments for repayment.
Step # 16. Critical Report on Feasibility:
In the end a critical report is prepared on the basis of the cost information’s available from the above mentioned facts. Generally rate of return on the invested capital is taken as the criteria for analysing the feasibility of the project. If the rate of return is too less than some other alternative project may be taken up which may give the highest rates of return on the investment.