PROJECT FORMULATION

A PROCESS TO MAKE AN OBJECTIVE INDEPENDENT

ASSESSMENT OF THE VARIOUS ASPECTS OF AN INVESTMENT
PROPOSOTION OF A PROJECT IDEA FOR DETERMINING ITS TOTAL
IMPACT AND ALSO ITS LIABILITY

•FORMING STRATEGY IN THE PRE-INVESTMENT STAGE

- FROM THE CONCEPTION OF A PROJECT IDEA UNTIL
THE FINAL ANALYSIS TO DECIDE ABOUT THE FUTURE
OF THE PROJECT

•TO ACHIEVE THE PROJECT OBJECTIVES WITH THE

MINIMUM EXPENDITURE AND ADEQUATE RESOURCES
i.e. TO DERIVE MAXIMUM BENEFITS FROM MINIMUM
EXPENDITURE
STAGES

* CONCEPTION OF AN IDEA
* ANALYSIS OF RELATED ASPECTS
* FORMULATION OF A PROJECT
* DESIGN OF A PROJECT

STAGES OF A PROJECT FORMULATION

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. PRE-INVESTMENT ANALYSIS
FEASIBILITY ANALYSIS

TO EXAMINE THE IDEA IN THE CONTEXT OF INTERNAL AND EXTERNAL

CONSTRAINTS.

CONSIDERATIONS
- SEEMS TO BE FEASIBLE
- NOT FEASIBLE
- UNABLE TO ARRIVE AT CONCLUSION FOR WANT OF DATA

IT IS A CONTINUOUS PROCESS TILL FINAL DECISION IS ARRIVED AT

TECHNO-ECONOMIC ANALYSIS

- RELATES TO (1) CHOICE OF PROPER AND APPROPRIATE TECHNOLOGY AND

(2) ESTIMATION OF DEMAND POTENTIAL

- THIS ANALYSIS GIVES THE PROJECT A UNIQUE INDIVIDUALITY AND SETS THE
STAGE FOR DETAILED DESIGN DEVELOPMENT
PROJECT DESIGN AND NETWORK ANALYSIS

- DEFINES INDIVIDUAL ACTIVITIES WHICH CONSTITUTES THE PROJECT AND

INTER-RELATIONSHIP WITH EACH OTHER
- PRESENTATION OF SEQUENCE OF EVENTS
- PREPARATION OF TIME CHART WITH TIME ALLOCATION OF EACH ACTIVITY
(PERT/CPM)
- LEADS TO PROJECT DESIGN FOR DETAILED IDENTIFICATION OF INPUTS

INPUT ANALYSIS

- ASSESSMENT OF INPUT NEEDS DURING CONSTRUCTION AND OPERATION OF

THE PROJECT
- SUMMATION OF TOTAL INPUTS REQUIREMENTS ON QUALITATIVE AND
QUANTITATIVE TERMS
- INPUTS INCLUDES MATERIALS, MANPOWER, RECURRING AND NON-RECURRING
RESOURCE AND EVALUATE THE FEASIBILITY
- HELP IN ASSESSING PROJECT COST WHICH IS NECESSARY TO MAKE COST-
BENEFIT ANALYSIS
FINANCIAL ANALYSIS
ESTIMATION OF
- PROJECT COST
- OPERATING COST
- FUND REQUIREMENTS
COMPARISON OF VARIOUS PROPOSALS ON A
COMMON SCALE TO HELP IN DECISION
MAKING
- ANALYTICAL TOOLS ARE
* DISCOUNTED CASH FLOW
* PAYBACK PERIOD
* COST-VOLUME-PROFIT RELATIONSHIP
* RATIO ANALYSIS

- LEADS TO FINANCIAL FORECASTS WITH CARE AND

FORESIGHT
COST-BENEFIT ANALYSIS

- OVERALL WORTH OF PROJECT

- CONSIDERATION OF NATIONAL VISIBILITY
- BENEFITS TO PROMOTERS AND ALL OTHER ENTITIES
CONNECTED WITH THE PROJECT
- STRATEGY IS A RECOGNISED SYSTEM INTERNATIONALLY
FOR PROJECT FORMULATION

- SOCIAL BENEFITS
* JOB OPPORTUNITIES
* REVENUE TO GOVT
* DEVELOMENT OF REGION
* OVERALL INDUSTRIAL DEVELOPMENT
PRE-INVESTMENT ANALYSIS

* CONSOLIDATION OF ALL PREVIOUS STEPS

* FORMAL AND FINAL SHAPE TO THE PROJECT PROPOSAL
* PRESENTATION TO PROJECT SPONSORING AGENCIES,
PROJECT IMPLEMENTING BODY AND EXTERNAL
CONSULTANCY AGENCIES FOR ACCEPTANCE
* ENABLE FINANCIAL CORPORATION AND BANK TO TAKE
CREDIT DECISION
PROJECT IMPLEMENTATION

- RELATES TO NETWORK DESIGN

- IMPLEMENTATION TECHNIQUES INCLUDE- PROGRAMME
EVALUATION AND REVIEW (PERT) AND CRITICAL PATH
METHOD (CPM)
- INDENTIFICATION OF PROJECT ACTIVITIES AND
DETERMINING GEOGRAPHICAL REPRESENTATION OF THE
ACTIVITIES IN LOGICAL SEQUENCE
- DECIDING WORK PLAN INDICATING TIME AND RESOURCE
REQUIREMENT
- DEVELOPING MONITORING AND CONTROL INSTRUMENT
- ENSURES COMPLETION OF PROJECT IN TIME
SOCIAL COST- BENEFIT EVALUATION

- PRIMARY : BENEFITS TO PROJECT IMPLEMENTING BODIES

-SECONDARY : CONTRIBUTES TO NATIONAL EXCHEQUER BY
WAY OF DIRECT/INDIRECT TAXES
-TERITARY : NON QUANTIFIABLE SPILL OVER AND MULTIFIER
EFFECTS

ORGANISATIONAL ASPECTS

-IMPLEMENTATION OF PROJECT NEEDS SUFFICIENT

TECHNICAL, SKILLED AND UNSKILLED MANPOWER
- PERSONNEL SHOULD BE AVAILABLE AT THE TIME OF NEED
-RETAINING THE PERSONNEL FOR DAILY OPERATION AND
MAINTENANCE ACTIVITY
COMMERCIAL ASPECTS

-EXAMINATION OF ARRANGEMENTS FOR BUYING OR ACQUIRING

INPUTS FOR PROJECT SUCH AS RAW MATERIALS, LABOUR, POWER,
WATER ETC. AT REASONABLE COST
- ADEQUACY AND TIMELINESS OF THE AVAILABILITY INFLUENCE TIME
AND COST OVER RUN
-ENSURING EXISTENCE OF SUITABLE FACILITIES FOR THE MARKETING
OF THE PRODUCT, MARKET OUTLETS AND ADEQUATE DEMAND

LEGAL ASPECTS

- SECURITY FOR DIFFERENT TYPES OF LOANS

- LEGAL PROBLEMS RELATE TO TITLE DEEDS, LAND LEGISLATION,
MORTGAGE OR HYPOTHECATION OF ASSETS TO BE LOOKED INTO
BEFORE THE SCHEME IS FINANCED
- POSSIBLE ALTERNATIVES OF MEETING LACUNAE OR GAPS
RISK AND UNCERTAINITY

-FEASIBILITY DEPENDS ON
1. SIZE OF INVESTMENT
2. OPERATING COSTS
3. SALES REVENUE
- ANY CHANGE IN QUANTITY AND PRICE MAY DIVERT THE ACTUAL FROM
THE ESTIMATED RESULT
- UNCERTAINTIES ARISE AS A RESULT OF PROJECT ITSELF AND THE
ENVIRONMENT IN WHICH IT OPERATES

- IMPORTANT VARIABLES OF RISK AND UNCERTAINITY

I) CHANGES IN THE PRICE OF INPUTS AND/OR OUTPUTS
II) CHANGES IN TECHNOLOGY
III) UNREALIASTIC ESTIMATION OF ITS RATED CAPACITY
IV) LENGTH OF CONSTRUCTION AND RUNNING-IN PERIODS
V) CHANGES IN TASTES AND PREFERENCES OR INTRODUCTION OF NEW
SUBSTITUTES
DIFFERENCE BETWEEN PROJECT FORMULATION AND PROJECT REPORT

A B

* PREPARATION OF THE PRE- * POST INVESTMENT DECISION

INVESTMENT PLAN
* STRATEGY IS AN INVESTIGATION
PROCESS
* PROJECT IDEA IS EXAMINED FROM
THE OVERALL VIEW OF SPONSOR-
ING BODY BASED ON TECHNO-
ECONOMIC-FINANCIAL AND
SOCIAL COST BENEFIT
EXERCISE
* PREPARATION OF DETAILED
DESIGN AND SPECIFICATION,
ENGINEERING DRAWINGS
* SITE INVESTIGATION AND
FOUNDATION DESIGN
* PROCESS DESIGN
* COST AND PROFIT ASPECTS
* SCREENING OF ALL RELATED
ASPECTS
PROJECT PROFITABILITY PROJECTIONS

OBJECTIVES OF COST OF PRODUCTION AND PROFITABILITY ARE:

TO ASSESS
* CAPACITY OF THE UNIT TO AMORTISE AND SERVICE THE BORROWED FUNDS
* EARNING CAPACITY OF PROJECT
* CAPABILITY TO SERVICE THE SHARE CAPITAL AND
* SURPLUS AVAILABLE FOR FUTURE GROWTH

- INSTALLED CAPACITY IS DECIDED FROM DETAILED PROCESS FLOW CHART

AND RATED CAPACITY OF EACH PROCESS/MACHINE
- IT IS NOT STATIC, CHANGES AS PER PRODUCT-MIX AND CHANGES IN
DIRECT INPUTS

- CAPACITY UTILISATION
FACTORS RESTRICTING UTLISATION
* TEETHING PROBLEMS - P/M
* TIME TAKEN FOR DEVELOPING PRODUCT
* UPGRADING SKILLS
* TECHNOLOGICAL CONSTRAINTS
* BUILDING THE MARKET
FACTORS FOR LOW UTILISATION

* TECHNICAL CONSTRAINTS
* MARKET PROBLEMS
* CHANGES IN PRODUCT-MIX
* INHERENT CHARACTERISTICS OF THE INDUSTRY

PRODUCT-MIX

- DEPENDS ON DEMAND PROJECTIONS

- PROFITABILITY IS KEY
- CONTRIBUTION OF EACH PRODUCT
- ADEQUACY OF THE PLANT

SELLING PRICE

- COST IS CONTROLLED IN-HOUSE; PRICE IS CONTROLLED BY MARKET FORCES

- DEPENDS ON PRICE TRENDS IN PAST
- TEST PRODUCT WHEN VARIATION IN CURRENT SELLING PRICE
EFFLUENT DISPOSAL

- TREATMENT OF EFFLUENT DEPENDS ON ANALYSIS OF EFFLUENTS

GENERATED DURING MANUFACTURING PROCESS AND REGULATIONS
LAID DOWN BY GOVT.
- EVERY INDUSTRIAL UNDERTAKING IS REQUIRED TO TAKE ADEQUATE
STEPS TO PREVENT AIR, WATER AND SOIL POLUTION
- NO OBJECTION CERTIFICATE IS TO BE OBTAINED FROM STATE POLUTION
CONTROL BOARD BEFORE STARTING EVALUATION OF PROJECT

ENERGY CONSERVATION/AUDIT

- ENERGY CONSERVATION THROUGH BETTER ENERGY MANAGEMENT

- STEPS PROPOSED FOR METERING IN MAIN AND SUB-CIRCUITS, BOTH
ELECTRICAL AND STEAM GENERATION
- STEPS FOR IMPROVING POWER FACTOR
- PARTICULARS FOR MONITORING EQUIPMENT ENVISAGED FOR DETECTION
AND MEASURING ENERGY LOSSES; PROVISION FOR ENERGY AUDIT
- PROJECTED ENERGY INPUT COST PER UNIT OF OUTPUT AND ITS
COMPARISON WITH SIMILAR UNITS
- SCOPE FOR SOLAR/OTHER RENEWABLE SOURCES OF ENERGY
UTILISATION OF BYPRODUCTS

-CERTAIN INDUSTRIES, PROPER AND EFFICIENT

UTILISATION/RECOVERY OF BY-PRODUCTS IS
A MAJOR FACTOR FOR THEIR ECONOMIC VIABILITY
AND SELECTION OF PROCESS KNOW-HOW
-ENSURING PROCESS ADOPTION FOR THE OPTIMAL
UTILISATION/ RECOVERY OF BY-PRODUCTS
CHOICE OF TECHNICAL PROCESS

- TECHNOLOGY SHOULD BE ALREADY ESTABLISHED ONE

- IF NOT ESTABLISHED, THE DEGREE OF SUCCESS TO BE ASSESSED AND
RISKS CALCULATED
- TECHNOLOGY SHOULD BE BASED ON INDIGENOUS RAW MATERIALS
AND RESOURCE
- WORKABLE IN LOCAL CONDITIONS, E.G. TEMPERATURE, HUMIDITY,
QUALITY AND AVAILABILITY OF RAW MATERIALS, SKILLED LABOUR,
TRANSPORTATION, POWER, ETC.
- SHOULD BE BASED ON NATIONAL GOALS - EMPLOYMENT GENERATION,
ANCILLARISATION, IMPORT SUBSTITUTION, EXPORT PROMOTION,
MAINTENANCE OF ECOLOGY BALANCE ETC.
- SIZE OF PROJECT IS A KEY FOR ADOPTING A PARTICULAR PROCESS/
TECHNOLOGY
-FOR NEW TECHNOLOGY, FOLLOWING POINTS TO BE
KEPT IN MIND
* WHETHER TECHNOLOGY/PROCESS IS PATENTED OR NOT
* DEGREE OF RELIABILITY
*SCALE OF DEVELOPMENT i.e. LABORATORY, PILOT,
COMMERCIAL
*FLEXIBILITY - PROCESS CAN BE USED FOR ALTERNATIVE
PRODUCTS