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Project Management: Identification & Formulation

The document discusses project identification and formulation. It begins by explaining the importance of proper project formulation and issues that can arise from inadequate formulation. It then describes the key steps in project formulation including opportunity studies, pre-feasibility studies, feasibility studies, and developing a detailed project report. Support studies are also discussed as an important part of assessing feasibility. The goal of project formulation is to present a project idea in a way that allows for comparative appraisal to determine priority.

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18 views2 pages

Project Management: Identification & Formulation

The document discusses project identification and formulation. It begins by explaining the importance of proper project formulation and issues that can arise from inadequate formulation. It then describes the key steps in project formulation including opportunity studies, pre-feasibility studies, feasibility studies, and developing a detailed project report. Support studies are also discussed as an important part of assessing feasibility. The goal of project formulation is to present a project idea in a way that allows for comparative appraisal to determine priority.

Uploaded by

jelyn bermudez
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

College of Accountancy and Business Administration Second Semester, A.Y.

2020-2021

APC1 Project Management

Project Identification and Formulation


A project in the economic sense directly or indirectly adds to the economy of the Nation. However, an introspection of
the project performance clearly indicates that the situation is far from satisfactory. Most of the major and critical
projects in public sector that too in crucial sectors like irrigation, agriculture, and infrastructure are plagued by
tremendous time and cost overruns. Even in the private sector the performance is not all that satisfactory as is evident
from the growing sickness in industry and rapid increase in non-performing assets (NPAS) of Banks and Financial
Institutions. The reasons for time and cost over runs are several and they can be broadly classified under-technical,
financial, procedural, and managerial. Most of these problems mainly stem from inadequate project formulation and
haphazard implementation.

Project Identification
Project identification is an important step in project formulation. These are conceived with the objective of meeting
the market demand, exploiting natural resources or creating wealth. The project ideas for developmental projects
come mainly from the national planning process, whereas industrial projects usually stem from identification of
commercial prospects and profit potential.
As projects are a means to achieving certain objectives, there may be several alternative projects that will meet these
objectives. It is important to indicate all the other alternatives considered with justification in favor of the specific
project proposed for consideration.
Sectoral studies, opportunity studies, support studies, project identification essentially focuses on screening the
number of project ideas that come up based on information and data available and based on expert opinions and to
come up with a limited number of project options which are promising.

Project Formulation Project Formulation Concept


“Project Formulation” is the processes of presenting a project idea in a form in which it can be subjected to
comparative appraisals for the purpose of determining in definitive terms the priority that should be attached to a
project 9 under sever resource constraints. Project Formulation involves the following steps:
PROJECT FORMULATION
↓
OPPORTUNITY STUDIES/Support Studies
↓
IDENTIFICATION OF PRODUCT/SERVICE
↓
PREFEASIBILITY STUDY
↓
FEASIBILITY STUDY (TECHNO ECONOMIC FEASIBILITY)
↓
PROJECT APPRAISAL
↓
DETAILED PROJECT REPORT

Project Formulation –Schematic view


Opportunity Studies

An opportunity study identifies investment opportunities and is normally undertaken at macro level by agencies
involved in economic planning and development. In general opportunity studies there are three types of study – Area
Study, sectoral and Sub-sectoral Studies and Resource Based Studies. Opportunity Studies and Support studies
provide sound basis for project identification.

Pre-feasibility Studies / Opportunity Studies

A pre-feasibility study should be viewed as an intermediate stage between a project opportunity study and a detailed
feasibility study, the difference being primarily the extent of details of the information obtained. It is the process of
gathering facts and opinions pertaining to the project. This information is then vetted for the purpose of tentatively
determining whether the project idea is worth pursuing furthering. Pre-feasibility study lays stress on assessing market
potential, magnitude of investment, , technical feasibility, financial analysis, risk analysis etc. The breadth and depth
of pre-feasibility depend upon the time available and the confidence of the decision maker. Pre-feasibility studies help
in preparing a project profile for presentation to various stakeholders including funding agencies to solicit their
support to the project. It also throws light on aspects of the project that are critical in nature and necessitate further
investigation through functional support studies.

Support studies are carried out before commissioning pre-feasibility or a feasibility study of projects requiring large-
scale investments. These studies also form an integral part of the feasibility studies. They cover one or more critical
aspects of project in detail. The contents of the Support Study vary depending on the nature of the study and the
project contemplated. Since it relates to a vital aspect of the project the conclusions should be clear enough to give a
direction to the subsequent stage of project preparation.

Feasibility Study

Feasibility Study forms the backbone of Project Formulation and presents a balanced picture incorporating all aspects
of possible concern. The study investigates practicalities, ways of achieving objectives, strategy options,
methodology, and predict likely outcome, risk and the consequences of each course of action. It becomes the
foundation on which project definition and rationale will be based so that the quality is reflected in subsequent project
activity. A well conducted study provides a sound base for decisions, clarifications of objectives, logical planning,
minimal risk, and a successful cost-effective project. Assessing feasibility of a proposal requires understanding of the
STEEP factors. These are as under Social, Technological, Ecological, Economic, and Political.

A feasibility study is not an end in itself but only a means to arrive at an investment decision. The preparation of a
feasibility study report is often made difficulty by the number of alternatives (regarding the choice of technology,
plant capacity, location, financing etc.) and assumptions on which the decisions are made. The project feasibility
studies focus on:
- Economic and Market Analysis
- Technical Analysis
- Market Analysis
- Financial Analysis
- Economic Benefits
- Project Risk and Uncertainty
- Management Aspects

Common questions

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Pre-feasibility studies serve as an intermediate stage between opportunity and detailed feasibility studies, emphasizing the assessment of market potential, investment magnitude, technical feasibility, and financial and risk analysis . They gather critical facts and opinions to determine whether further pursuit of a project idea is warranted . These studies prepare a project profile for stakeholder presentation and highlight crucial project aspects that might require further detailed investigation .

Project identification is crucial in project formulation because it focuses on screening various project ideas based on market demand, exploiting resources, or creating wealth . It involves evaluating different alternatives to achieve project objectives and justifying the selection of specific projects . This step is essential as it narrows down potential projects to a manageable number with promising outcomes, forming the foundation for further detailed analyses and conceptual designs .

Support studies contribute to the project formulation process by providing in-depth analysis of critical project aspects before commencing pre-feasibility or feasibility studies, especially important for large-scale investments . These studies address vital issues which influence subsequent project preparation stages, ensuring clarity and informed decisions . They form the basis for justifying project decisions and help in minimizing project risks through comprehensive investigation .

Feasibility studies are crucial in project formulation as they evaluate various aspects of a project to determine its viability and practicality, providing a balanced picture of concerns and defining project rationale . They assess factors such as Social, Technological, Ecological, Economic, and Political (STEEP) aspects, as well as economic and market analysis, technical analysis, financial analysis, and project risk . A well-conducted feasibility study guides investment decisions and provides clarity for planning and risk minimization .

Project formulation is crucial for effective project management because it systematically translates a project idea into a concrete plan that can be evaluated and prioritized under resource constraints . The steps involved include opportunity studies, identification of product or service, pre-feasibility study, feasibility study (techno-economic feasibility), project appraisal, and detailed project report preparation . This structured approach helps in meticulous planning, minimizes risks, and maximizes project success probability .

Feasibility studies include critical analyses such as economic and market analysis, technical analysis, financial analysis, assessment of economic benefits, project risks and uncertainties, and management aspects . These analyses support project formulation by providing a comprehensive evaluation of the project's potential, ensuring that decisions on objectives, planning, and cost-efficiency are well-founded . They form the backbone of project definition, rationale, and support strategic investment decisions .

Time and cost overruns in public sector projects, especially in crucial sectors like irrigation, agriculture, and infrastructure, are often due to technical, financial, procedural, and managerial issues . These problems typically arise from inadequate project formulation and haphazard implementation . In the private sector, similar issues are reflected in the increasing non-performing assets of banks and financial institutions, indicating sickness in the industry .

STEEP factors, which include Social, Technological, Ecological, Economic, and Political considerations, are significant in assessing project feasibility as they provide a holistic view of project viability . Each factor influences project decisions by addressing potential impacts and implications in these domains, guiding strategic choices and risk assessments . These factors ensure that all possible external and internal influences are considered in decision-making, thereby enhancing project success likelihood .

The preparation of a feasibility study report becomes challenging due to the multitude of alternatives available, such as technological options, plant capacities, locations, and financing methods . It requires careful assumptions and predictions to guide investment decisions . Crucial elements in its formulation include a comprehensive analysis of economic benefits, risk assessment, and management aspects, ensuring the report serves as a viable foundation for the entire project .

Opportunity studies aid in project identification and formulation by identifying macro-level investment opportunities, typically undertaken by economic planning agencies . These studies include area, sectoral, sub-sectoral, and resource-based studies, providing essential data for identifying and justifying potential projects . They help refine project ideas into a feasible concept and lay the groundwork for pre-feasibility and feasibility studies, forming an integral part of project formulation .

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