PROJECT PREPARATION

STEPS IN PROJECT PREPARATION

1. Feasibility analysis
2. Techno – economic analysis
3. Project design and network analysis
4. Input analysis
5. Financial analysis
6. Social cost benefit analysis
7. Project appraisal
Feasibility analysis
It is the first stage in developing a project. Here through examination of pre-investment possibilities are made. It is
important to design the future course of the project. Internal and external constraints should be studied in this stage.
Techno – economic analysis
Here demand potential and right technology is identified. Optimum size of the project, methodology, market share,
researches and alternative technology are to be identified.
Project design and network analysis
In this stage evaluation of time and resources should be done. It studies the interrelationship of the activities it is
the basis for development of financial and cost benefit analysis of the project.
Input analysis
Quantity and quality of input analysis during the construction phase and subsequent phases are analyzed.
Financial analysis
It involves project cost, estimation of the project operating cost and estimation of project fund requirement.
Comparison of other investment alternative was done. Uncertainties should be accounted. Success depends on
reliable data used in the project.
Social cost benefit analysis
It is very important in view of what is the benefit to the society / country in terms of employment, health and
education.
Project is considered if

1. Technical configuration is fully defined.

Internal
1. Managerial skill of individual
2. Advanced country‟s project may differ for developing countries.
3. Physical inventories and infrastructures like land.
External
1. Men, material and situation outside the project
2. Government regulation, law etc.
3. Non availability of technical persons
4. Resource mobilization
 ASPECTS OF PROJECT FORMULATION/ PREPARATION
1. Technical Aspects
2. Institutional/ Managerial and Administrative Aspects
3. Organizational Aspects
4. Social and Commercial Aspects
5. Financial Aspects
6. Economic Aspects
1. Technical Aspects:
The technical appraisal of proposed project should be done by the competent
technical staff and it should not be done in hurry.
For instance the technical appraisal of proposed minor irrigation project should
contain aspects such as the rate of recharge of underground water, the number
of wells to be sunk in the area including existing wells, spacing/location of new
wells, depth up to which wells are to be sunk, deep/shallow wells required,
suitability of underground water for irrigation purpose, the cropping pattern,
season-wise discharge of water from the well, etc.
The technical analysis may also determine the potential yield in the project
area, the coefficient of production, etc along with the marketing and storage
facilities required for the successful operation of the project and the processing
system needed.
2. Institutional/ Managerial and Administrative:
• To avoid opposition, the local institutions may also be duly involved right from
planning to implementation levels.
• All concerned agencies/institutions should have an opportunity to comment upon
the proposed project and their views may be fully incorporated.
• Progress of project, special monitoring staff and training arrangements needed may
also be looked into.
• The managerial ability of existing staff may be assessed before making huge
investments.
3. Organizational Aspects:
Organizations refers to the process of putting the priorities in an orderly form.
Prepare the organizational hierarchy of the implementing agency.
The availability of staff at various cadres, demarcation of authority and linking of
authority and responsibility, etc, are expected to be dealt with, under this aspect.
4. Social and Commercial Aspects:
• A proposed rural development project, besides employment and income generation also considers the
provisions made for improved rural health services, better domestic water supplies, increased educational
opportunities especially for rural women and children, etc.
• Moreover the project sites may be chosen in such a way that it should have notable scenic value and/or
preserving the unique wildlife habitats.
• The backward and forward linkages of proposed project such as the supply and demand relationships
pertaining to output, the credit requirements for marketing input and output,
• Timely as well as quality supplies of modern inputs to adopt new technology/cropping patterns, an efficient
marketing channel for supply of inputs and the procurements of equipment and supplies should also be
examined.
5. Financial Aspects:
• The financial aspects deal primarily with sources of raising financial assistance and terms and
conditions of obtaining finance from the credit agencies.
• The implementing agency should be in a position to estimate financial requirements and anticipated
returns through farm planning and budgeting.
• Once the incremental income is arrived at, the repayment capacity duly giving considerations/margins
for risk and uncertainty can be worked out.
6. Economic Aspects:
• The economic analysis is directed towards determining whether the project is likely to contribute
significantly to the development of economy as a whole.
• The point of merit is to whom the project is going to benefit i.e. to one section of society or the entire
area of the project.
• The indirect effect like, the income distribution, needs to be assessed.
• Under income distribution, the purpose is to know whether income inequalities are going to be
narrowed down or widening up as a result of proposed projects.
• Overall it is expected from the project to bring largest contribution to the national economy.
 Distinction between Economic and Financial Analysis
Economic Analysis Financial Analysis

1 Economic analysis is complimentary to financial analysis. Financial analysis is complimentary to economic

2 Economic aspects/analysis deals with society. The financial aspect/analysis deals with individuals
owners/participants of projects.
3 Interest on capital is not deducted from the gross return Interest paid to external supplier of money is deducted
analysis because it is a part of the total return to the capital to derive the benefits streams available to the owners
available to society as a whole. of the projects.
4 In economic analysis taxes and subsidies are treated transfer Such adjustments are not necessary in the financial
payments. In fact, the income generated by a project includes analysis.
taxes which project bear in the production and also sales
taxes which buyer pay while purchasing the products or
outputs.

5 In economic analysis taxes and subsidies are adjusted to In financial analysis, taxes are usually treated as a cost
reflect more accurately the social and economic values. and subsidies as a return.
These adjusted prices are called “shadow prices” or In this analysis, market prices are normally used which
accounting prices. takes into account taxes and subsidies
 Criteria for Selection of Agricultural Projects
1. Work Selection Criterion: According to this criterion we are to examine the immediate needs of the
project area. Efforts be made to directly or indirectly increasing prospects of agricultural production,
income and employment
2. Priority criterion: According to this criterion it is examined that the project implemented falls under
priority area or not
3. Social criterion: This criterion considers the direct employment prospects, ecological balances,
externalities, pollution, etc.
4. Financial criterion: According to this criterion it is determined whether the required amount of
capital is supplied or not for the implementation of the project. In case the execution is delayed,
additional capital requirements are to be assessed.
5. Supply criterion: This is concerned with available resources, physical inputs, labor availability and
other resources. Supply of skilled labourers and unskilled labourers and technical personnel are to be
evaluated for the completion of the project on time.
6. Implementation criterion: According to this criterion the organizational capabilities and managerial
abilities of technical personnel are judged.
7. Project benefits criterion: As per this, both tangible and intangible benefits must be correctly
assessed and evaluated. In this process the benefits accrued / earned due to forward linkages and
backward linkage need to be given specific weightage.