Project formulation (1)

Project formulation for Entrepreneurs

1. Project formulation Revathy Rajasekaran Co- ordinator , EDC V.V.Vanniaperumal College for Women Virudhunagar

2. Project Formulation Project formulation is the systematic developments of project ideas for eventual objective of arriving at an investment decision. Project formulation involves step by step investigation and development of project idea. It helps in taking decisions of accepting or rejecting an idea.

3. Project Formulation Project formulation process involves involves experts from various fields Industrial economist Market analyst Technologist/Engineer Mechanical & Industrial Engineer Civil Engineer Management accounting expert

4. Significance of Project Formulation Well formulated project is passport for obtaining required assistance from financial institution. A well formulated project is the best way of selling a project idea. It is also a great assistance for obtaining necessary government clearance and sanctions without difficulties

5. Need for Project Formulation Selection of appropriate technology – Modern technology in developed country may not be suitable for adopting in developing country. Due to limited market for the products and limited availability of capital and skilled labour . Hence the entrepreneur has to examine the project idea thoroughly in regard design, production & marketing

6. Need for Project Formulation Influence of external Economics - No project can function independently in economy. It depend on other industries for raw material, power tools, spare parts, technical, financial and managerial service, communication & Transport facility. Dearth of technical qualified personnel - lack of skilled personnel for coping with modern technology.

7. Need for Project Formulation Resource mobilization - The capital required is difficult to generate. Knowledge about government regulations - an entrepreneur has to undergo numerous government regulations. The ‘Guidelines for Industries’ published by ministry of industrial development provides information about industrial policy, licencing procedure, import –export control orders. Gives information about the future prospects of industry

8. Elements of project formulation Feasibility Analysis Techno-economic Analysis Project design and network analysis Input Analysis Financial Analysis Social Cost-Benefit Analysis Project Appraisal

9. 1. Feasibility Analysis It is the process of evaluating the future of a project idea within the limitations. It determines the desirability of investing in future development of project idea. 3 possibility are: Feasible(Positive)- proceed to invest resource Not feasible- no investment is made Data not adequate for arriving decision then additional information must be collected to take decision

10. 1.Feasibility Analysis Project are analysed from angles of technical, marketing, financial etc. There are 3 stages in feasibility study namely Prefeasibility study Feasibility study Project report

11. Prefeasibility study The objective of prefeasibility study are The investment decision can be taken on information on prefeasibility study. Futher detailed analysis can be done or not. Need for in-depth study on critical aspects of projects. The information collected at this stage include market & plant capacity, material input, location, technology, manpower, financial analysis

12. Feasibility Study It is the detailed analysis on different aspects relating project like economic, technical, managerial, organizational, commercial and financial. The feasibility study is an iterative process covering alternative solution for production, location, technology etc. If there is any non-viable project the parameters should be adjusted to make it viable.

13. 2. Techno Economic Analysis It is concerned with identification of project demand potential and selection of technology for the project. There are 2 parts namely Determination of project demand potential Selection of optimal project strategy.

14. Determination of project demand potential Estimation of the demand potential of the project is done by demand forecasting. This is done in 3 stages viz. 1.Situation analysis 2.Data collection & compilation,3. interpretation & presentation. Situation analysis involves identifying the dimension of demand forecasting. Future trend is projected by collecting & compiling past, present & future market data. The data collected is compiled and presented in a table and interpretation is done to estimate the future demand.

15. Selection of optimal project strategy There are infinite series of strategy to achieve the project objectives. One single optimal strategy which attains the objective with minimum cost & time is selected from the list of strategy. The techno economic report contains the details of the selected strategy with which the further project development is done

16. 3. Project design & Network Analysis It is the heart of the project. It defines the individual activity comprising a project and interrelationship between these activities. The activity & its relationship is shown in network diagram. It shows the detailed work plan & time profile The network analysis is done to identify the optimal course of action to execute it within the minimum time within the resources.

17. 4.Input Analysis Input Analysis is mainly concerned with identification, quantification and evaluation of project inputs. This include identify the nature of resource, estimate the magnitude of the required resource, evaluate the possibility of uninterrupted supply. Resource are needed in 3 stages Preinvestment stage, Construction stage & normalisation stage

18. 4.Input Analysis Pre investment stage- resource for investigation of various aspects of project idea. Less resource is needed. Construction stage- non-recurring resource to develop the project structure. Maximum resources is needed Normalization stage- raw material & other consumables on recurring basis Input requirements includes the cost estimate of the resource

19. 5. Financial Analysis Financial analysis is done to know the financial feasibility of the project. It involves estimation of the project cost & revenue and funds required for project. It analyse if the project generates the revenue. The information obtained is to do commercial profitability analysis, break even analysis & ratio analysis.

20. 6.Cost Benefit Analysis Cost benefit analysis estimates the social cost and social benefits . It analyze the social profitability of the project. It evaluates the impact of the project of the society.

21. Feasibility Report The details gathered from feasibility studies are presented in tables reports and statements are consolidated into one master report called project report or feasibility report. It contains background information of industry to which project belong and the company. It provides information for project evaluation appraisal before the funding agencies finance

22. Project formulation Vs Detailed project Report Project formulation is investigation process before investment decision. It helps to accept or reject project. Detailed project report is a post investment decision. It is the detailed specifications of design, engineering drawings, site, process design and time schedule for implementation. It is the work plan for project

23. Project Selection The project profile consist of Economic size Status of industry or scope Raw material availability Cost of production Capital cost Utility requirements Infrastructure facility Profitability Government policy

24. Project Selection The criteria of project selection includes Investment size Location Technology Equipment Marketing

25. Project Selection Power & Water Others Performance Working capital requirements Labour component Economic viability