BPLN-0613

Introduction to Detail Project Report

Lecture – 1: Project Identification

By

Gaurav Vaidya
Asst. Professor,
Dptt. of Planning, SPA Bhopal
Project Identification

Standard Framework for project identification:

 Initiation
 Feasibility
 Analysis
 Identification close out

Criteria for project identification

 Significant size require a significant amount of time to complete.
 Must be tightly coordinated with other active projects.
 Will use new or emerging technology.
 Will require a new work process.
 Should be intended for a new customer or unproven market.
Project Identification

Factors responsible for project identification

 Vision of Development Plan
 Existing issues and deficiencies
 Future requirements
 Expansion/ modification of running project
 New or Green field project
 Short term solution (with low cost & time investment)
 Long-term solution (with high cost & time investment)
 Subsidiary part of any bigger project
 Resource availability and mobilization
 Purpose and expected outcome
 Population served and design period
 Financial arrangements
Project Description

 A well written description of any project makes it possible for the

indented audience (e.g. the sponsor, the executive) to understand
the concept and context of the proposed project and to
realize whether to approve and finance the project or not.
 Project Description is “a formally written declaration of
the project and its idea and context to explain the goals and objectives
to be reached, the business need and problem to be addressed,
potentials pitfalls and challenges, approaches and execution methods,
resource estimates, people and organizations involved and other
relevant information that explains the need for project startup and
aims to describe the amount of work planned for implementation”.
 Project Description has two faces: 1) Objective and 2) Impressionistic
Project Description

Criteria for writing a Project Description (4C Rules)

 Clear

 Concise

 Complete

 Credible

Project Description Structure:

 Section 1. Project Title and Overview

 Section 2. Purpose and Need

 Section 3. Business Divers and Significance

 Section 4. Benefits and Costs

 Section 5. Implementation Method

 Section 6. Timeline

 Section 7. Requirements
 Section 8. Expected Outcomes
Project Scope

Following steps can help you to effectively define the scope of a project:
 Identify the project needs
 Confirm the objectives and goals of the Project
 Specific, Measureable, Achievable, Realistic, Time Frame
 Project Scope description
 Expectations and acceptance
 Identify constraints
 Identify necessary changes

 An agreement on the acceptable quality level of the output of the project.

As an example, if the project is to send a person to the moon, the quality
requirements would be dramatically high.
 A budget for the costs that would be incurred to deliver the project.
 An accepted time period during which the project should be completed.
Project Cost

Broad Categories of Project Cost

 Cost of land acquisition
 Cost of surveys and site development
 Cost of statutory compliances
 Cost of R&R and utilities shifting, and
 Cost of construction
Project Cost

 The term "project cost" in Project Management Guidelines means all costs and
expenses required for a construction project, which shall consist of
construction cost, compensation cost, and incidental expenses for facilities.
Types of Project Cost
 Direct cost (expenses billed exclusively to a specific project, i.e., team wages,
the costs of resources to produce physical products, fuel for equipment, and
money spent to address any project-specific risks)
 Indirect cost (management, general administration, rental and utility costs)
 Fixed cost (rental lease payments, salaries, insurance, property taxes,
interest expenses, depreciation)
 Variable cost (direct labor costs, cost of raw materials used in production,
and utility costs)
 Some other cost categories are: Operating costs, Opportunity costs,
Sunk costs, and Controllable costs.
Land Acquisition

 Land acquisition is the power of the union or a state government in India

to acquire private land for the purpose of industrialisation, development
of infrastructural facilities or urbanisation of the private land, and to
compensate the affected land owners for their rehabilitation and
resettlement.
 The Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013 (also, Land Acquisition Act,
2013) is an Act of Indian Parliament that regulates land acquisition and lays
down the procedure and rules for granting compensation, rehabilitation and
resettlement to the affected people.
 The Collector determines the market value of the land to be acquired shall
under Section 27 and calculate the total amount of compensation to be
paid to the land owner whose land has been acquired by including all assets
attached to the land.
Site Development

 Site Development is the implementation of the improvements that

are needed to prepare a construction site or underly a structure
or development before construction can begin. Site development
covers a range of activities that are defined by the design of a project.
Site Development Stages:
 Property Lines (project land area demarcation)

 Distance Between Buildings and Property Lines

 Clarifying Existing and Proposed Conditions (Area assessment)

 Easements to construct the elements of design (Leveling)

 Construction Limits and Lay Down Areas

 Circulation spaces/ Driveways

 Surrounding Streets and Ground Sign Locations

 Landscaped Areas

 Fire hydrants planning

 Parking
Statutory Compliances

 Project permitted to develop under the purview of - Act and Statute

 Land Ownership clarity
 Land acquisition if required
 Landuse diversion (Non- agriculture permission)
 Environment Impact Assessment
 Heritage Impact Assessment
 NOC from Forest, Railway, Airport etc.
 Provisions of CRZ, RRZ, Water Commission of India
 Other legal obligations
Rehabilitation and Resettlement

 The provisions of the National Rehabilitation and Resettlement

Policy, 2007 (NRRP-2007) provide for the basic minimum requirements,
and all projects leading to involuntary displacement of people must address
the rehabilitation and resettlement issues.

 Resettlement refer to the process of settling again in a new area,

and Rehabilitation means restoration to the former state comprehensively.

 The objectives of the National Rehabilitation and Resettlement

Policy are: to minimize displacement and to promote,' as far as possible,
non-displacing or least-displacing alternatives; to ensure adequate
rehabilitation package and expeditious' implementation of the rehabilitation
process with the active participation
Detail Project Report (DPR)

 A Detail Project Report is a final appraisal report on the project and a blue
print for its execution and eventual operation.
 DPR is a very detailed and elaborate plan for a indicating overall
programme, different roles and responsibilities, activities and resources
required for the project and possible risk with recommended measure to
counter them.
Broad Content of DPR
 Project Need
 Project Description
 Project Material Specification
 Project Design and drawing
 Project Estimation & Costing
 Project Outcome
DPR Content: Sewerage Project

1. Sewerage System, Bhopal

• Need & Background
• Existing Scenario
• Emerging Issues
2. Aim, objectives and Methodology
3. Literature review
• Case studies and its takeaways
• Cost benefit elements of a Sewerage Project
4. Project Selection
5. Project 1: Incorporation of unserved area to Kotra STP catchment
6. Project 2: Kotra STP – technology upgradation
7. Operation and Maintenance cost and recovery
8. Project Feasibility (Resource availability, execution and finances)
9. Project Appraisal
10. Implementation plan
1. Resource Mobilization
2. Phasing and Timeline
3. Institutional framework
Project Financing

 Project finance refers to the funding of long-term projects, such

as public infrastructure or services, industrial projects, and
others through a specific financial structure.

 Project finance is the long-term financing based upon the projected cash
flows of the project rather than the balance sheets of its sponsors. The cash
flows from the project enable servicing of the debt and repayment of debt
and equity.

 There are several ways to secure project finance, such as investor, loans,
private finance, equity, funds, grants, etc. The repayment is managed from
the cash-flow generated off the project. It is a secured form of lending,
accepting the project's rights, assets, and interests as collateral.
Project Financing

Project financing is usually chosen by project developers in order to inter alia :

 To circumvent any restrictions or binding the sponsors under their respective
financial obligations
 To avoid any negative impact of a project on the credit standing of the
sponsors
 To obtain better financial conditions when the credit risk of the project is
better than the credit standing of the sponsors
 To allow the lenders to appraise the project on a segregated and stand-alone
basis
 To obtain a better tax treatment for the benefit of the project, the sponsors or
both
 To reduce political risks affecting a project
 To eliminate or reduce the lender’s recourse to the sponsors
 To permit an off-balance sheet treatment of the debt financing
 To maximize the leverage of a project
Project Cash Flow

Project cash flow refers to “how cash flows in and out of an organization in
regard to a specific existing or potential project”. OR
Project cash flow is the net cash flow associated with the project for that
year, which includes revenue and costs for such a project.
A project cash flow model can be split into two main elements being:
 Project inflows (revenues) and outflows (expenses and capital expenditure)
 Funding inflows (debt and equity draw-downs) and outflows (debt
repayments and distributions).
Advantages of a Cash Flow Statement
 Verifying Profitability and Liquidity Positions.
 Verifying Capital Cash Balance.
 Cash Management.
 Planning and Coordination.
 Superiority over Accrual Basis of Accounting.
Net Present Value (NPV)

 Net Present Value (NPV)

= (Present Value of all Cash Inflows) - (Present Value of all Cash Outflows)
OR
 NPV = (PV of Benefits) – (PV of Costs)

 Present Value (PV) = [ FV/ {1 + (r/100)}n]

FV = Future Value, r= Discount Rate, n= Number of years

 Future cash flows are discounted at the discount rate, and the higher the
discount rate, the lower the present value of the future cash flows
 All costs and benefits reduced by the same discounted rate (interest or
internal rate of return)
Internal Rate of Return (IRR)

 Definition:
• That discount rate where NPV = 0
• PV Inflows = PV Outflows
 Economics Definition: The return on investment (ROI) of investing
in the company
Internal Rate of Return (IRR)

 IRR is the value of the internal use of capital and Higher is better
 Rationale: If my IRR is 18% and I can earn 25% by purchasing stock in
another company; why would I invest in my company?
Project Payback Period

 The payback period refers to the amount of time it takes to recover the
cost of an investment. (Means Benefits equal costs)
 Payback period in capital budgeting refers to the time required to
reach the break-even point, where investment is recouped.
 The desirability of an investment is directly related to its payback
period. Shorter paybacks mean more attractive investments.
 For example, a $1000 investment made at the start of year 1 which
returned $500 at the end of year 1 and year 2 respectively would have
a two-year payback period.
Methods to calculate the payback period
 Averaging method. Divide the annualized expected cash inflows into
the expected initial expenditure for the asset.
 Subtraction method. Subtract each individual annual cash inflow
from the initial cash outflow, until the payback period has been
achieved.
Benefit Cost Ratio (BCR)

 Benefit-Cost Ratio = PV Benefits / PV Costs

• Higher is better
• Benefit-Cost Ratio of 1 indicates PV Benefits = PV Costs
 OR, BCR = Benefits (or Payback or Revenue) / Costs
 Project selection criterion: Select project with a higher BCR
 BCR > 1 means that benefits (i.e. expected revenue) is greater than the
cost. Hence it is beneficial to undertake the project.

Accounting Rate of Return

 Accounting Rate of Return (ARR) is the percentage rate of return that is

expected from an investment or asset compared to the initial cost of
investment. Typically, ARR is used to make capital budgeting decisions.

 Accounting rate of return, also known as the Average rate of return, or ARR
is a financial ratio used in capital budgeting. The ratio does not take into
account the concept of time value of money. ARR calculates the return,
generated from net income of the proposed capital investment. The ARR is a
percentage return.

 ARR = Avg. Net Profit / Avg. Investment

Thank You