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PROJECT FORMULATION

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PROJECT FORMULATION

Uploaded by

sabithazb
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PROJECT

FORMULATION
• Project formulation is the systematic developments of
project ideas for eventual objective of arriving at an
investment decision.
•  Project formulation involves step by step investigation
and development of project idea.
•  It helps in taking decisions of accepting or rejecting an
idea.
• Project formulation process involves involves experts from
various fields
•  Industrial economist
•  Market analyst
•  Technologist/Engineer
•  Mechanical & Industrial Engineer
•  Civil Engineer
•  Management accounting expert
• Well formulated project is passport for obtaining
required assistance from financial institution.
•  A well formulated project is the best way of selling a
project idea.
•  It is also a great assistance for obtaining necessary
government clearance and sanctions without difficulties
• Selection of appropriate technology
• – Modern technology in developed country may not be
suitable for adopting in developing country. Due to limited
market for the products and limited availability of capital
and skilled labour.
•  Hence the entrepreneur has to examine the project idea
thoroughly in regard design, production & marketing
• Influence of external Economics
• - No project can function independently in economy.
•  It depend on other industries for raw material, power
tools, spare parts, technical, financial and managerial
service, communication &Transport facility.
•  Dearth of technical qualified personnel- lack of skilled
personnel for coping with modern technology.
• Resource mobilization-The capital required is difficult
to generate.
•  Knowledge about government regulations- an
entrepreneur has to undergo numerous government
regulations.
•  The ‘Guidelines for Industries’ published by ministry of
industrial development provides information about
industrial policy, licencing procedure, import –export
control orders.
•  Gives information about the future prospects of industry
Feasibility Analysis
• Techno-economic Analysis
• Project design and network analysis
• Input Analysis
• Financial Analysis
• Social Cost-Benefit Analysis
• Project Appraisal
Feasibility Analysis

• It is the process of evaluating the future of a project idea within the


limitations.
•  It determines the desirability of investing in future development of
project idea.
•  possibility are:
•  Feasible(Positive)- proceed to invest resource
•  Not feasible- no investment is made
•  Data not adequate for arriving decision then additional information
must be collected to take decision
• Project are analysed from angles of technical, marketing,
financial etc.
•  There are 3 stages in feasibility study namely
•  Prefeasibility study
•  Feasibility study
•  Project report
• The objective of prefeasibility study are
•  The investment decision can be taken on information on
prefeasibility study.
•  Futher detailed analysis can be done or not.
•  Need for in-depth study on critical aspects of projects.
•  The information collected at this stage include market &
plant capacity, material input, location, technology,
manpower, financial analysis
• It is the detailed analysis on different aspects relating
project like economic, technical, managerial,
organizational, commercial and financial.
•  The feasibility study is an iterative process covering
alternative solution for production, location, technology
etc.
•  If there is any non-viable project the parameters should
be adjusted to make it viable.
• It is concerned with identification of project demand
potential and selection of technology for the project.
•  There are 2 parts namely
•  Determination of project demand potential
•  Selection of optimal project strategy.
• Estimation of the demand potential of the project is done by demand forecasting.
•  This is done in 3 stages viz.
• 1.Situation analysis
• 2.Data collection & compilation,
• 3. interpretation & presentation.
•  Situation analysis involves identifying the dimension of demand forecasting.
•  Future trend is projected by collecting & compiling past, present & future market
data.
•  The data collected is compiled and presented in a table and interpretation is done
to estimate the future demand.
• There are infinite series of strategy to achieve the
project objectives.  One single optimal strategy which
attains the objective with minimum cost & time is selected
from the list of strategy.
•  The techno economic report contains the details of the
selected strategy with which the further project
development is done
•  It is the heart of the project.
• It defines the individual activity comprising a project and
interrelationship between these activities.
•  The activity & its relationship is shown in network
diagram.  It shows the detailed work plan & time profile
•  The network analysis is done to identify the optimal
course of action to execute it within the minimum time
within the resources.
•  Input Analysis is mainly concerned with identification,
quantification and evaluation of project inputs.
•  This include identify the nature of resource, estimate the
magnitude of the required resource, evaluate the
possibility of uninterrupted supply.
•  Resource are needed in 3 stages
•  Preinvestment stage, Construction stage &
normalisation stage
• Pre investment stage- resource for investigation of
various aspects of project idea. Less resource is needed.
•  Construction stage- non-recurring resource to develop
the project structure. Maximum resources is needed
•  Normalization stage- raw material & other consumables
on recurring basis
•  Input requirements includes the cost estimate of the
resource
• Financial analysis is done to know the financial
feasibility of the project.
•  It involves estimation of the project cost & revenue and
funds required for project.
•  It analyse if the project generates the revenue.
•  The information obtained is to do commercial
profitability analysis, break even analysis & ratio analysis.
•  Cost benefit analysis estimates the social cost and
social benefits . It analyze the social profitability of the
project.
•  It evaluates the impact of the project of the society.
• The details gathered from feasibility studies are
presented in tables reports and statements are
consolidated into one master report called project report
or feasibility report.
•  It contains background information of industry to which
project belong and the company.
•  It provides information for project evaluation appraisal
before the funding agencies finance
• Project formulation is investigation process before
investment decision.
•  It helps to accept or reject project.
•  Detailed project report is a post investment decision.
•  It is the detailed specifications of design, engineering
drawings, site, process design and time schedule for
implementation.
• It is the work plan for project
• The project profile consist of  Economic size  Status of
industry or scope  Raw material availability  Cost of
production  Capital cost  Utility requirements 
Infrastructure facility  Profitability  Government policy
• The criteria of project selection includes
•  Investment size  Location  Technology  Equipment 
Marketing

 Power &Water  Others Performance  Working capital


requirements  Labour component  Economic viability

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