Planning Commission’s Guidelines for formulating a project report:

The project formulation stage involves the identification of investment options by the
enterprise and in consultation with the Administrative Ministry, the Planning
Commission and other concerned authorities.

1. General Information:
The Feasibility report should include an analysis of the industry to which the project
belongs. It should deal with the past performance of the industry. The description of
the type of industry should also be given, i.e the priority of the industry, increase in
production, role of the public sector, allocation of investment of funds, choice of
technique, etc. This should also contain information about the enterprise submitting
the feasibility report.
2. Preliminary analysis of alternatives:
This should contain present data on the gap between demand and supply for the
outputs which are to be produced, data on the capacity that would be available from
the projects that are in production or under implementation at the time the report is
prepared, a complete list of all existing plants, giving their capacity and level of
production actually attained, a list of all projects for which letters of intents/licenses
have been issued and a list of proposed projects. All options that are technically
feasible should be considered at this preliminary stage.
3. Project Description:
The feasibility should provide a brief description of the technology/ process chosen
for the project. Information relevant to determining optimality of the locations chosen
should also be included. To assist in the assessment of the environmental effects of
a project, every feasibility report must present the information on specific points, i.e
population, water, air, land effects arising out of project’s pollution, other
environmental discretions etc. The report should contain a list of the operational
requirements of the plant, water and power, personnel, organizational structure
envisaged, transport costs, activity-wise phasing of construction and factors affecting
it.
4. Marketing Plan:
It should contain the following items:
• Data on the marketing Plan
• Demand and prospective supply in each of the areas to be served.
• The method and data used for main estimates of domestic supply and selection of
the market areas should be presented. Estimates of the degree of price sensitivity
should be presented.
• It should contain an analysis of past trends in prices.
5. Capital Requirements and costs:
The estimates should be reasonably complete and properly estimated. Information
on all items of costs should be carefully collected and presented.
6. Operating Requirements and costs:
Operating costs are essentially those costs which are incurred after the
commencement of commercial production. Information about all items of operating
cost should be collected; operating costs relate to the cost of raw materials and
intermediates, fuel, utilities, labour, repair and maintenance, selling expenses and
other expenses.
7. Financial Analysis:
The purpose of this analysis is to present some measures to assess the financial
possibility of the project. A proforma Balance Sheet for the project data should be
presented.
Foreign exchange requirements should be cleared by the Department of Economic
Affairs. The feasibility report should take into account income-tax rebates for priority
industries, incentives for backward areas, accelerated depreciation, etc. The
sensitivity analysis should be presented. The report must analyse the sensitivity of
the rate of return of change in the level and pattern of product prices.
8. Economic Analysis
Social profitability analysis needs some adjustment in the data relating to the costs
and returns to the enterprise. One important type of investment involves a correction
in input and costs, to reflect the true value of foreign exchange, labour and capital.
The enterprise should try to assess the impact of its operations on foreign trade.
Indirect costs and benefits should be included in the report. If they cannot be
quantified, they should be analysed and their importance emphasized.
9. Miscellaneous Aspects:
The preceding areas are deemed appropriate to almost every new small enterprise.
Nowwithstanding, depending upon the size of the operation and peculiarities of a
particular project, other items may be considered important to be applied out in the
project report. To mention, probable use of minicomputers or other electronic data
processing services, cash flow statements, method of accounting etc. may be of
great use in some small enterprises.

CONTENTS OF PROJECT REPORT

It contains relevant information in detailed and systematic manner as below:
1) INTRODUCTION: General information regarding the company and production
description.
2) BACKGROUND OF THE PROMOTER: - Name, address, age, family background,
educational qualification, work experience, investment potential etc.
3) PRODUCT: - Details of products to be produced, details of application of the
product, proposed product mix, product standard etc.
4) MARKET AND MARKETING:- Market potential analysis, major buyers, area to be
covered, trade practices, sales promotion devices, trade practice and trade channels
adopted by the competitors, demand analysis, proposed market research etc.
5) LOCATION:- Locational advantages, criteria for selecting the location, exact
location of the project, other choices.
6) PRODUCTION PROCESS: - Details of technology, process flow chart,
manufacturing process, production programme etc.
7) RAW MATERIAL: - List of raw material required in terms of quality and
quantity,sources of requirement, cost of raw material etc.
8) UTILITIES: -Water, power, steam-sources and costs, effluent disposal etc.
9) TRANSPORT AND COMMUNICATION: - Method, possibility of getting and costs
of transport.
10) MANPOWER REQUIREMENT: -Requirement of skilled, semi-skilled personnel,
technical and non-technical personnel, cost of procurement, capacity, and suppliers
cost, alternatives available, cost of miscellaneous assets.
11) LAND AND BUILDING: - Land area, construction area, cost of construction,
detailed plan, plant lay out along with cost.
12) PLANT AND MACHINERY: - Details of machinery and equipment required.
13) COST OF PROJECT AND SOURCES OF FINANCE: - Working capital required,
preliminary and pre-operative expenses, contingencies and arrangements for the
meeting the cost of project.
14) FINANCIAL VIABILITY OF THE PROJECT: -Cost of production and profitability
for the first years, break even analysis, and analysis of cash flow and fund flow
statements.

PROBLEMS FACED IN THE PREPARATION OF PROJECT REPORT

An entrepreneur may face the following problems in the preparation of a project
report:
1) Strict condition of promoter’s contribution may dampen the enthusiasm of
entrepreneurs.
2) All lending institutions demand a lot of documents before credit is granted.
3) Problems regarding working capital assessment due to unrealistic
assumptions.
4) Time overrun will lead to cost overrun.
5) Lending institutions expect strict specifications with regard to size of the land,
buildings, sources of machinery, their costs etc.
6) A number of clearances have to be obtained from the government
departments. This causes strain and wastage among entrepreneurs.

Project identification typically refers to the initial phase of project management where
the project is conceptualized, defined, and its feasibility assessed. Here are the key
aspects involved in project identification:

1. Problem or Opportunity: Clearly identifying the problem that the project aims
to solve or the opportunity it aims to capitalize on. This sets the foundation for
understanding the project's purpose and goals.
2. Feasibility Study: Conducting a feasibility study to assess whether the project
is technically, economically, socially, and environmentally viable. This involves
evaluating resources, risks, and benefits.
3. Stakeholder Analysis: Identifying and analyzing stakeholders who will be
affected by or have an interest in the project. Understanding their needs and
expectations is crucial for project success.
4. Project Scope: Defining the scope of the project, which includes its objectives,
deliverables, constraints, and assumptions. This helps in setting boundaries
and managing expectations.
5. Initial Planning: Developing an initial project plan that outlines the approach,
timeline, milestones, and resources required for the project. This serves as a
roadmap for execution.
6. Risk Assessment: Identifying potential risks and uncertainties associated with
the project and devising strategies to mitigate them. This ensures proactive
risk management throughout the project lifecycle.
7. Legal and Regulatory Considerations: Understanding and complying with
relevant legal and regulatory requirements that may impact the project's
execution.
8. Budgeting and Financing: Estimating the financial resources required for the
project and identifying potential sources of funding or financing.
 9. Project Charter: Creating a project charter that formally authorizes the project
and provides a clear mandate, objectives, and initial constraints.
10. Approval and Authorization: Seeking approval and authorization from relevant
stakeholders or authorities to proceed with the project based on the identified
feasibility and initial planning.

Project selection involves the process of choosing which projects to pursue out of
several potential options. It's a crucial decision-making step that organizations
undertake to align projects with strategic objectives and maximize resource
utilization. Here are the key steps and considerations involved in project selection:

1. Strategic Alignment: Ensure that the project aligns with the organization's
overall strategy, goals, and objectives. Projects should contribute to achieving
strategic outcomes and advancing the organization's mission.
2. Needs Assessment: Identify and prioritize organizational needs or problems
that the project aims to address. Projects that directly address critical needs
or solve significant problems are typically given higher priority.
3. Cost-Benefit Analysis: Evaluate the expected costs versus the anticipated
benefits of each project. This analysis helps in assessing the financial viability
and potential return on investment (ROI) of the project.
4. Risk Assessment: Assess the risks associated with each project option.
Consider factors such as technical feasibility, market risks, regulatory risks,
and project complexity. Projects with manageable risks or higher potential
rewards may be favored.
5. Resource Availability: Evaluate the availability of resources including budget,
personnel, time, and materials required for each project. Ensure that the
organization can commit the necessary resources without compromising other
critical activities.
6. Feasibility: Conduct a feasibility study to determine the technical, operational,
economic, and environmental feasibility of each project. This helps in
identifying potential challenges and ensuring realistic project outcomes.
7. Impact Assessment: Assess the potential impact of each project on
stakeholders, customers, employees, and the community. Projects that deliver
significant positive impact or strategic value are prioritized.
8. Project Interdependencies: Consider how each project aligns with existing
projects or initiatives within the organization. Evaluate potential synergies or
conflicts with ongoing activities to optimize resource allocation and minimize
duplication.
9. Scoring and Prioritization: Develop a systematic scoring or prioritization
framework to objectively compare and rank project options. Criteria may
include strategic fit, financial metrics, risk levels, and alignment with
organizational priorities.
10. Decision Making: Make a final decision based on the analysis and evaluation
of project options. This may involve consultation with key stakeholders,
project sponsors, and senior management to ensure alignment with
organizational goals and priorities

PROJECT FORMULATION
It is the process of examining technical, economic, financial and commercial aspects
of a project. It is the process and steps through which an opportunity becomes a
project in which the entrepreneur is willing to invest his time, money and other
resources. This study is undertaken to find out whether the proposed project would
be feasible or not.

NEED FOR PROJECT FORMULATION

The following are the major problems:
1)Knowledge About Government Regulations: The entrepreneur must have a
thorough knowledge about Government regulations, policies, licensing procedures
etc.,
2) Absence of External Economies: A project has to depend upon other
industries for the supply of raw material, power, spares etc,
3) Non-Availability of Technically Qualified Personnel.
4) Resource Mobilization.
5) Selection of Appropriate Technology: Modern technologies developed in the
advanced countries may not be suitable for adopting in the developing countries.

ELEMENTS OF PROJECT FORMULATION

It involves a number of elements, they are summarized as below:

Feasibility Analysis: It involves an examination of the project idea in the light of

internal and external constraints. Internal constraints arise because of limitations of
the project sponsoring body and external constraints arise due to the characteristic
of the environment. If on feasibility analysis, the project is found feasible, the same is
put to further analysis.

Techno-Economic Analysis: It is mainly concerned with the identification of the

project demand potential and selection of the optimal technology suitable for
achieving the project objectives. This study includes:

a)Estimation Of Demand Or Market Potential: The entrepreneur has to estimate the

expected share of the sale in the market, intensity of
competition, mobility of products to other places etc., The data collected
from various sources are first complied, tested and tabulated in a form
suitable for interpretation.
b)Selection Of Technology: It refers to that combination of controlled
variables which will ensure the achievement of the project objectives with minimum
expenditure of resources.

Project Design and Network Analysis: A project comprises certain sequential

activities which are interrelated. These activities can be shown in the form of a
diagram, which is called network diagram. Project design is concerned with the
development of a detailed work plan of the project and its time estimates. When a
network is designed, its analysis is carried out to identify the optimal course of action
so as to complete the project with the minimum of time and cost, subject to the
available resources. Important network analysis techniques are PERT (Programme
Evaluation Review Technique) and
CPM (Critical Path Method).

Input Analysis: Input analysis is primarily concerned with the identification,

qualification and evaluation of project inputs. The objective of input analysis is to
identify nature of resources needed to estimate the quality of the required resources
and to ensure that there is continuous and adequate supply of inputs. Input analysis
is the basis for financial analysis and cost benefit analysis.

Financial Analysis: It involves estimates about the project costs and revenues and
the funds required for the project. It seeks to find out whether the project will
generate income to realize the ultimate objective for which it is undertaken.

Social Cost Benefit Analysis: Under cost benefit analysis the investment projects are
evaluated from the point of view of the society as a whole. The cost benefit analysis
aims at analyzing the real contribution of an investment project towards welfare of
the country as a whole. It implies the enumeration and evaluation of all the relevant
costs and benefits. It can be applied to both private and public investments.

Pre-Investment Appraisal: The proposal gets the final and formal shape. The
purpose of pre-investment appraisal is to enable the concerned authorities to take an
investment decision about the project i.e. to accept or reject.

CONCEPT OF PROJECT FORMULATION:

Project formulation is the systematic development of a project idea for
the eventual objective
of arriving at an investment decision.
1. It involves step by step investigation and development of project idea.
2. It provides control for restricting expenditure on project development.
3. In case of set backs, calling of the exercise possible
4. Team of experts needed to such as economists, market analysts,
technologists of
engineers ( both civil & mechanical) and accounting experts.
Significance of Project formulation:
1. Helps in getting financial assistance from institutions.
2. Helps in resource planning and allocation.
3. Helps to get Govt. clearances.
4. It is a proof of bona-fide work of the entrepreneur with officials