Project Formulation

Project Formulation Project Formulation • What is Project Formulation? • Stages of Project Formulation • Project Report What is Project Formulation? • Taking a first look carefully and critically at the project idea • Carefully weighing its various components • Analysing with the assistance of specialists or consultants • Assessment of the various aspects of an investment proposition • It is an important stage in the pre-investment phase Stages of Project Formulation 1. Feasibility Analysis 2. Techno-Economic Analysis 3. Project Design and Network Analysis 4. Input Analysis 5. Financial Analysis 6. Cost-Benefit Analysis 7. Pre-Investment Analysis 1. Feasibility Analysis: • First stage in project formulation. • Examination to see whether to go in for a detailed investment proposal or not. • Screening for internal and external constraints. Conclusion could be:• The project idea seems to be feasible • The project idea is not a feasible one • Unable to arrive at a conclusion for want of adequate data 2. Techno-Economic Analysis: • Screens the idea to-Estimate of potential of the demand for goods/services. • Choice of optimal technology. • This analysis gives the project a platform for preparation of detailed project design. 3. Project Design and Network Analysis: • It is the heart of the project entity. • It defines the sequence of events of the project. • Time is allocated for each activity. • It is presented in a form of a network drawing. • It helps to identify project inputs, finance needed and cost-benefit profile of the project. 4. Input Analysis: • Its assesses the input requirements during the construction and operation of the project. • It defines the inputs required for each activity. • Inputs include materials, human resources. • It evaluates the feasibility of the project from the point of view of the availability of necessary resources. • This aids in assessing the project cost. 5. Financial Analysis: • It involves estimating the project costs, operating cost and fund requirements. • It helps in comparing various project proposals on a common scale. • Analytical tools used are discounted cash flow, cost-volume-profit relationship and ratio analysis. • Investment decisions involve commitment of resources in future, with a long time horizon. • It needs caution and foresight in developing financial forecasts. 6. Cost- Benefit Analysis: • The overall worth of a project is considered. • The project design forms the basis of evaluation. • It considers costs that all entities have to bear and the benefit connected to it. 7. Pre-investment Analysis: • The results obtained in previous stages are consolidated to arrive at clear conclusions. • Helps the project-sponsoring body, the project-implementing body and the external consulting agencies to accept/reject the proposal. Project Report • It is a concise copy of detailed analysis done for the project. • An entrepreneur/expert prepares the report before the investment in project is done. • The report assesses the demand for proposed product/service, works out cost of investment and profitability on this investment. • It acts as an instrument to convince investors to invest in the project. A project report gives information on the following: • Economic aspects – present market, scope for growth, justification for investment. • Technical aspects – technology, machinery, equipment needed. • Financial aspects – Total investment needed, entrepreneur’s ontri ution, ost of apital and return on capital. • Production aspects – Product details, justification for the choice of product, export worthiness. • Managerial aspects – Qualifications, experience of people needed for managerial posts. Contents of a project report • Objectives and scope of the report. ) • Product characteristics (product design, specifications, quality standards, uses and applications). • Market position and trends (current capacity for production, potential demand, export prospects, trends in import-export, price structure etc). • Raw materials (types, quality, sources, price). • Manufacturing (process, production schedule, technique used. • Plant and machinery (types, infrastructure support, cost). • Land and building (Requirement, building construction schedule, choice of location, cost). • Financial implications (Capital structure, fixed and working capital investment, project cost, profitability). • Marketing channels (Trade practices, marketing and advertising strategy). • Personnel (Requirement of staff, skilled-unskilled labour, salary and wage payment, qualifications, experience) • The project report is submitted to financial institutions for grant of land and other financial concessions. • Organisations like Small Industries Service Institute (SISI)and Small Industries Development Organisation (SIDO) help entrepreneurs to prepare project report. • The financial institutions ascertain from the report, whether the project can generate enough funds to repay the borrowings in stipulated time frame