Module - 4
PROJECT FORMULATION AND
REPORT
PROJECT FORMULATION
• Systematic arrangement and development of a
project idea with an objective of arriving at an
investment decision.
• Step by step investigation and development of
project idea
• Definition : “the technique by which a project
idea is converted from an intuitional base to a
rational base for allround benefit”
• It is a process involving joint efforts of a group of
experts who should be familiar with the strategy,
objectives, and other ingredients of the project.
SIGNIFICANCE OF PROJECT FORMULATION
• Enables the entrepreneurs to take the most
effective project decision
• A well formulated project is highly useful for
obtaining the necessary assistance from financial
institutions
• In case of scarcity of resources, it helps the
entrepreneur to allocate the available resources
among various projects based on their
importance and viability.
• It will be of great assistance in obtaining
necessary government clearances and meeting
the hurdles of procedural formalities.
• It clearly points out the matters for which
government sanctions have to be obtained.
• Also provides independent assessment of the
feasibility of obtaining these sanctions based
on the existing government policies
• A well formulated project report helps the
entrepreneur to obtain the due government
sanction without much difficulty.
STAGES IN PROJECT FORMULATION
• Feasibility analysis
• Techno – economic analysis
• Project design and Network analysis
• Input analysis’
• Financial analysis
• Social cost benefit analysis
• Project appraisal
FEASIBILITY ANALYSIS
• Process of evaluating the project idea within
the limitations and constraints of the
entrepreneur.
• Determine whether a particular project is
worth going ahead with
• To evaluate the desirability of further
investment in a project for development.
• Report is prepared on the basis of feasibility
analysis, it is taken on the basis of sanctioning
financial assistance by banks and other
financial institutions.
• Three Alternatives:
1. Project may appear to be positive and in such
a case the project assessing body can
proceed to invest further resources in pre
investment studies and design development.
2. If project turns out to be not feasible, further
investment in project idea can be ruled out.
3. If the data is not adequate for arriving at a
decision, further information shall be
collected and suitable decisions be taken on
the basis of information's collected.
TECHNO ECONOMIC ANALYSIS
• Identification of demand potential of a project
and the selection of optimal technology for
achieving project objectives.
• Analysis produces information for the project
design and also points out whether the
economy is in a position to absorb the output
of the project.
• Size and technology of the project mainly
depends on the demand potential.
PROJECT DESIGN AND NETWORK ANALYSIS
• Primary concern of project design and network
design is the development of a detailed work
plan of the project and its time profile.
• Presented in the form of a network diagram.
• Network analysis is carried out to identify the
optimal course of action so as to execute the
project within the time and resource
constraints.
• It helps the entrepreneurs for identification
and quantification of the project inputs.
INPUT ANALYSIS
• If a project completes all the analysis
completely, it will go through the input
analysis.
• Determines the resource requirements of a
project. It is concern with the identification,
quantification and evaluation of the project
inputs.
• Objectives:-
Nature of resources required by the project
Quantity of resources required
Possibility of uninterrupted supply of inputs.
FINANCIAL ANALYSIS
• Objective of financial analysis is to assess the
financial viability of the project.
• Purpose – to identify these characteristics and to
determine the financial feasibility of a project.
• Aspects :-
Assessment of financial requirements of the
proposed project
Break even analysis
Determining the requirement and availability of
cash and funds
Ascertainment of profitability of the concern
Measuring the efficiency of capital.
• Project Appraisal
Project Appraisal
• Assessment of a project in terms of economic,
financial and social viability including the cost
benefit analysis of different aspects of a
proposed project with an objective to adjudge
its viability
Objectives
• Extract relevant information
• Apply standards
• Determine expected cost benefit
• Arrive at a specific conclusions regarding the
project
Steps
1. Economic Aspects
[Link] Aspects
3. Commercial Aspects-Markets
4. Organisational Aspects
5. Technical Aspects
6. Managerial Aspects
• Project Report
Project Report
• Statement which contains a plan of action
which is to be materiliased in future by an
entrepreneur.
• Project report provides all necessory
information of the unit proposed to be set up.
Importance
• Entrepreneurs Side
• Banks and financial Institution
Scope of the Report
• [Link] Aspect
• [Link] Aspects
• [Link] Aspects
• [Link] Aspects
• [Link] Aspects
• 6. Marketing Aspects
Contents/Requirements
1. General Information
2. Project Description
3. Market Potential
4. Capital Cost and Sources of Finance
5. Assessment of Working Capital Requirements
6. Other Financial Aspects
7. Economic and Social variables
8. Project Implementation
9. Simplicity
General Information
• a. Bio data
• b. Industry Profile
• c. Constitution and Organisation
• d. Product details
Project Description
• Site
• Physical Infrastructure
• Utilities
• Communication System
• Transport Facilities
• Machinery and Equipment
• Other Common Facilities
Market Potential
• A. Demand and Supply position
• Expected Price
• Marketing Strategy
• Marketing Strategy
• After sales service
• Seasonality factor
Capital Cost and Other Sources
• Components
• Land, machinery, plant
• Installation cost
• Preliminary Expanses
Assessment of Working Capital Finance
• Source
• Prescribed formats of banks if any
• Supply
Economic and Social Variable
• Social Responsibility
• Employment Generation
• Import Situation
• Exports
• Resource Utilisation
• Development of the Area
Other Financial Aspects
• Profitability
• Sales Revenue
• Cost of Production
• Projected Balance Sheet
Project Implementation
• Implementation Scheme-Time table
• Ex- Acq. of land, registration, loans,
construction, Recruitment, Training,
Simplicity
• All essentials
• Supporting Documents
• Quantify