Chapter 2 Project Appraisal & Project Formulation

Chapter 2.1 Project Appraisal

 The project appraisal means a pre investment analysis of a project to

determine weather the project should be implemented or not.
 Appraisal is the analysis of a proposed project to determine its merit
and acceptability in accordance with established criteria. This is the
final step before a project is agreed for financing. It checks that the
project is feasible against the situation on the ground, that the
objectives set remain appropriate and that costs are reasonable.
 The primary function of a project appraisal is to evaluate a project’s
ability to achieve it’s objectives.
Concept
 Appraisal is the evaluation of the overall ability of the
feasible project to succeed.
 Project appraisal is a process of detailed examination of
several aspects of a given project before resources are
committed
 Project appraisal document generally consists project
introduction, objectives, and scope , techniques of
implementation , organization description, output and
benefits of project, project monitoring and evaluation etc.
The project appraisal answers the following questions

 Will the project as designed meet the objectives and needs

of country and society?
 How does the project compete and compares with other
feasible projects in terms of funds and other resources?
Objective of Project Appraisal

 To evaluate a project’s ability to achieve it’s objectives

 To ensure the economical uses of resources.
 To assess the sources and magnitude of risk
 To determine if component of project’s are consistent (reliable)
 The objective of appraisal is to ensure that the project is viable from the following
angles:
 Market Appraisal, Technical Appraisal, Financial Appraisal, Socio Economic Appraisal,
Ecological Appraisal, Environmental, Management etc.
Project appraisal report should contain
 Title Page/Table of Content/Abbreviations
 Executive summary
 Overview of the project / description of objective
 Comparison of the project with ongoing projects
 Technical feasibility assessment
 Marketing feasibility assessment
 Management feasibility assessment
 Environmental feasibility assessment
 Financial feasibility assessment etc.
 Integration of pros and cons of feasibility findings
 Recommendation- choice and reason of choice
 Appendix
Source:[Link]
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[Link]
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2.2 Project Proposal (Technical & Financial)
 What is a project proposal?
 Why do you need a project proposal?
 What are the advantages of a clear project proposal?
 What a Project Proposal is NOT
 How to Write a Project Proposal
What is a Project Proposal?
 A project proposal is the document that facilitates a professional relationship between an
organization and outside contributors. Typically, a project proposal is the initial framework for
establishing the concept of the project and includes what you want to accomplish, an
explanation of objectives, and plans for achieving them. It is common for a project proposal to
include a list of activities or tasks that will be associated with the project, illustrate the
significance of this specific project idea, and explain the origins of this project.
 A project proposal is also the marketing document and it is a relationship between an
organization and outside project stakeholders. Creating a proposal allows an organization to
establish a formal, logical presentation to an outside worker or project donor. Proposals are
generally drafted during one of the early phases of your project (before detailed plans are made
and resources are allocated). Therefore, time and budget estimates are often rough, at best.
 If an engineering or even a construction firm wants to respond to a Request
for Proposal (RFP), one of the components of its bidding documents is a project
proposal. A project proposal is a type of document that is used to request funding
to implement a project
 Project proposals are documents designed which present plan of action, outline
the reasons why the action is required and convince the donor (client) to approve
the plan.
Why do you need a Project Proposal?

 Decision making process for new task

 Same goal and objectives of organization team
 It is a pre phase of Project planning (Accept/Reject)
 Select the best one that fits need
What are the advantages of a clear Project Proposal?

 Project Viability
 Clear Expectations and Project roadmap.
 Creates Structure
 Estimation of Budget
 Business Growth
 Ensures Future Success
 Establishes How to Plan for Success.
What a Project Proposal is NOT
 A project proposal is not a contract. It’s easy to confuse it with a
Business Proposal (a document in which legal terms are outlined).
Clients or sponsors merely sign the project proposal to approve its
contents. After signing and approving the project proposal, a business
starts drafting a contract in addition to items such as a project charter
and a project plan.
 Project Report Focus on
 Define your Client/Donor
 Determine the problem being solved by your proposal.
 Conduct research on the current state of the issue and potential
solutions.
 Establish a timeline and determine the type and amount of resources
required.
 Begin to outline your proposal document.
How to Write a Project Proposal
(Not Specific in all situation)

 Title Page
 Title of project in initial capital letters
 The sponsoring company and contact person’s name & information
 Team Name and individual member names
 Date
 Logo of product or team

 Executive Summary
 Table of Contents
 Statement of problem
 Background (Information to educate the reader)
 Brief description of company and their business
 Importance of problem
 Previous related work by others
 Literature review
 Detailed problem descriptions
 Objectives
 Technical approach
 Deliverables
 Financial approach
 Project risk Management
 Conclusion- choice and reason of choice
 Appendix
Content on Technical and Financial Project Proposal

Technical (How?) Financial (Investment/Profit ?)

Statement of problem Statement of work

Special requirements if any Cost of basic materials

Test and inspection if requires Supporting scheduled

List of equipment , facilities , skills etc Cost breakdown and WBS Cost estimates
techniques
CV of key persons with detail Cost summary

Capability statement of org. Profit statement

Executive Summary (Project Summary)

 The goal of this section is to present the reasons for doing this project as well as stating
all of the objectives. In this section in particular, it is very important to write concisely
and clearly.
 Why are you doing this project?
 What will you be doing?
 How will you be doing it?
 Who will be doing it?
 Where will it be done?
 How long will it take?
 How much will it cost?
2.3 Procedure for Developing Project Proposal

 1. Proposal Brief
 2. Pre/feasibility study
 3. Preliminary Detail design
 4. Proposal Development
 1. Project Brief
 The client develops the project idea and prepares the statement of work which
describes the need and requirements. The content includes
 Need of project
 Scope of the project
 Objectives and output of project
 Specification and acceptance criteria
 Estimated budget for the project
 Estimated time tables
The project brief serves as a starting point of the development of project proposal. It
indicates the need and requirements of the customer
2. Pre/Feasibility Study
 This study is performed to check the implement ability of the project. If detail
feasibility study is required, then feasibility study is done before it. The area for which
information is collected and analyses is
 Technical
 Economical
 Financial
 Market
 Management
 Environment
3. Preliminary/Detail Design

 It is the elaboration of project idea and is based on the requirement of pre/feasibility

study. It prepares the conceptual design and architectural drawing for implementation. It
includes:
 Technical aspects consisting of preliminary surveys and engineering design
 Preliminary project schedule and implementation
 Estimated project cost
4. Proposal Development

 After collecting the all required information , the final step is developing the project
proposal. It should contain following information
 Problem Statement
 Objectives and outputs
 Activities
 Project Implementation
 Project Schedule
 Project budget
 Project monitoring and Evaluation
2.4 Techniques of Project Formulation
 Project Formulation is a concise , exact statement of a project to set the boundaries or limits of work to be
performed by the project. It is formal document that gives a distinctive identity of the project and precise
meaning to the project work to prevent conflict, confusion, overlap. Project formulation aims to
 Carefully identify and weight various components of project work
 Analyze project feasibility and cost effectiveness
 Identify the stakeholders and their involvement and contribution
 Define benefits and expectations
 Estimate resources needed
 Perform a preliminary analysis of risks
 Make outline of project schedule
 The techniques of project formulation are
 Feasibility Analysis
 Cost Benefit Analysis
 Input Analysis
 Environmental Analysis
2.4.1 Feasibility Analysis
 It is used to determine the viability of the idea. The objective of such analysis is to
ensure a project is legally and technically feasible and economically justifiable. It tells
us whether a project is worth the investment.
Areas of project Feasibility
1. Technical Feasibility
2. Economic Feasibility
3. Financial Feasibility
4. Market Feasibility
5. Managerial Feasibility
6. Legal Feasibility
1. Technical Feasibility
 Assessment is Centered to the technical resources available to the project.
 Whether technical resources and team is capable of converting the ideas in to working
systems.

2. Economic Feasibility
 Assesses the viability, cost and benefits associated with the projects before financial
resources are allocated.
 Helps decision makers determine the positive economic benefits to the organisation that
the proposed system will provide and help to quantify them

[Link] Feasibility
 Whether the project is viable after the considerations its total cost and probable
revenues.
 If the revenue covers the cost of the project then project is viable
4. Market Feasibility
 Study and analyze the economic, demographic and competitive factors that impact the
development project.
 Determines what type of project would be appropriate for specific location.

5. Managerial feasibility
 Studies the rationally uncover the strengths and weakness of an existing business ,
opportunities threats which are present in the environment.
 Management support, employee involvement and commitment are the key element
required to gauge managerial feasibility

6. Legal Feasibility
 Investigates if proposed system conflicts with legal requirements
2.4.2 Cost Benefit Analysis ( CBA )
 It estimates and totals up the equivalent money value of the benefits and cost to the project to
establish whether they are worthwhile
 It evaluates the project from social point of view
 Also known as Social cost benefit analysis
 Comprises not only financial effects but also social effects like pollution safety market etc.
Advantages of CBA
 The ability to identify the project that maximize the welfare of the country
 The ability to objectively assess and quantify the purpose projects in relation to community
needs
 Exposure of the basis for decision making for projects and opportunity for public criticism
 Ability to rank and prioritize limited resources so that maximum benefit is realized
Disadvantages of CBA
 Difficulty in measuring social cost and benefits and converting them into monitory form
 Complexity
 Conflict between social welfare and financial justification.
2.4.3 Input Analysis

Project requires various input. It includes 5 M

 Manpower
 Materials
 Money
 Minute
 Machines
2.4.4 Environment Analysis
 It is the process of estimating and evaluating significant short term and long term
effects of project on quality of locations environment.
 Identifies ways to minimize , mitigate and eliminate these effects and/or compensate
these impact
It includes
 Environment suitability
It is necessary to check whether the project is suitable for existing environment or not
 Environment Impact
It is also necessary to identify the possible adverse effects caused by the development,
industrial, or infrastructural project or release of substance in the environment. The
environmental can be analyzed in two ways.
i) Initial Environmental Examination (IEE)
ii) Environmental Impact assessment (EIA)
i ) Initial Environment Examination
 First review of reasonably foreseeable effects
 Describes the environment condition of project, including potential impact ,
formulation of mitigation measures and preparation of institutional requirements and
environmental monitoring.
 It is done in small project (As per Govt. Guidelines)
ii) Environment Impact Assessment
 Process of assessing the likely environment impacts and identifying options to
minimize the environmental damage
 Adverse impacts can be addressed before final approval of projects
 Carried out for large projects
(IEE is an initial environmental examination, and it is a preliminary small study to
see if a project harms the environment while the EIA is a full assessment of the
effects of the project on the environment)