1.

Stages of project formulation

1. Feasibility analysis
2. Techno-economic analysis
3. Project design
4. Input analysis
5. Financial analysis
6. Cost benefit analysis
7. Pre-investment analysis
8. Environmental analysis
 1. Feasibility Analysis
❑ First stage in project formulation
❑Examination to see whether to go in for a detailed
investment proposal or not
❑Screening for internal and external constraints
❑Conclusion could be:
❑The project idea seems to be feasible
❑The project idea is not a feasible one
❑Unable to arrive at a conclusion for want of
adequate data
 2. Techno-Economic Analysis
❑ Screens the idea to estimate the potential of
the demand
❑ Choices of optimal technology
❑ This analysis gives the project a platform for
preparation of detailed project design/report
 3. Project Design
❑It is the heart of the project entity
❑It defines the sequence of events of the
project
❑Time is allocated for each activity
❑It is presented in a form of network drawing
❑It helps to identify project inputs, finance
needed and cost-benefit profile of the project
 4. Input Analysis
❑It assesses the input requirements during the
construction and operation of the project
❑It defines the inputs required for each activity
❑Inputs include materials, human resources
❑It evaluates the feasibility of the project from
the point of view of the availability of
necessary resources
❑This aids in assessing the project cost
 5. Financial Analysis
❑It involves estimating the project costs, operating
cost and fund requirements
❑It helps in comparing various project proposals on
a common scale
❑Analytical tools used are discounted cash flow,
and ratio analysis
❑Investment decisions involve commitment of
resources in future with a long time horizon
❑It needs caution and foresight in developing
financial forecasts
 6. Cost-Benefit Analysis
❑The overall worth of a project is considered
❑The project design forms the basis of
evaluation
❑It considers costs that all entities have to bear
and the benefit connected to it
 7. Pre-investment Analysis
❑ The results obtained in previous stages are
consolidated to arrive at clear conclusions
❑Helps the project-sponsoring body, the
project-implementing body and the external
consulting agencies to accept/reject the
proposal
 8. Environmental Analysis
❑ EIA document itself is a technical tool that identifies,
predicts, and analyses impacts on the physical
environment, as well as social, cultural, and health impacts.
❑ If the EIA process is successful, it identifies alternatives and
mitigation measures to reduce environmental impact of a
proposed project
❑ It is essential that predicted impacts are evaluated in order
to protect the environment and the quality of life for
humans and organisms
❑ The EIA explores both positive and negative impacts
❑ EIA plays a significantly important role in project and its
related environmental management
 Project Stakeholders
❑Are individuals and organizations that are actively
involved in the project, or whose interests may be
affected as a result of project execution or project
completion
❑Key stakeholders: those who can significantly
influence or are important to the success of an
activity
❑Primary stakeholders: those who are ultimately
affected by an activity
❑Secondary stakeholders: all other stakeholders
that primary stakeholders
Importance of Stakeholder Analysis
❑To know:
❑Those around a project, who may affect or be
affected by a project
❑Opportunities and relationships to build upon in
implementing a project to help make it a success
❑Who should be encouraged to participate in a
project-potential conflicts and risks that could
jeopardize a project etc
 Project Management
❑It is the application of knowledge, skills, tools and
techniques to project activities to meet project
requirements
❑Identifying requirements
❑Establishing clear and achievable objectives
❑Balancing the competing demands for quality, scope,
time and cost
❑Adapting the specifications, plans, and approach to
the different concerns and expectations of the various
stakeholders
 Cont…
❑Key areas to consider when looking at project
management are management of time,
people, and others resources
❑In general terms, these activities can be
described as follows:
Cont…
 Project Management Activities
❑ Planning the work or objectives
❑ Analysis and design of objectives
and events
❑ Assessing and controlling risk
❑ Estimating resources
❑ Allocation of resources
❑ Organizing the work
❑ Acquiring human and material
resources
❑ Assigning tasks
❑ Directing activities
❑ Controlling project execution
❑ Tracking and reporting progress
❑ Analyzing the results based on
the facts achieved
❑ Forecasting future trends in the
project
❑ Quality management
❑ Issues management
❑ Issue solving
❑ Defect prevention
❑ Identifying, managing and
controlling changes
❑ Project closure
❑ Communicating to stakeholders
Project Life Cycle
 Cont…
❑ Project Execution: this stage is where the meat of the project happens.
❑ Deliverables are built to make sure the project is meeting requirements. This is
where most of the time, money, and people are pulled into the project
❑ Introduction: who’s who?
❑ Project background: why are you doing this project? What are the goals?
❑ Project scope: what exactly will you be doing? What kind of work is involved?
❑ Project plan: how are we going to do this? What does the roadmap look like?
❑ Roles: who will be responsible for which elements of the project?
❑ Communication: what kind of communication channels will be used? What kind of
meetings or status reports should your team expect?
❑ Tools: what tools will be used to complete the project, and how will they be used?
❑ Next steps: what are the immediate action items that need to be completed?
❑ Q&A: open the floor for any questions
 Project Monitoring and Control
❑Monitoring and control are sometimes combined
with execution because they often occur at the
same time. As teams execute their project plan,
they must constantly monitor their own progress
❑To guaranteed delivery of what was promised,
teams must monitor tasks to present scope
creep, calculate key performance indicators and
track variations from allotted cost and time. This
constant vigilance keep the project moving ahead
smoothly.
 Project Closure
❑ Teams close a project when they deliver the finished
project to the customer, communicating completion to
stakeholders and resealing resources to other projects.
❑ This vital step in the project lifecycle allows the team to
evaluate and document the project and more on the next
one, using previous project mistakes and successes to build
stronger processes and more successful teams
❑ Although project management may seem overwhelming at
times, breaking it down into these five distinct cycles can
help your team manage even the most complex projects
and use time and resources more wisely
Project Report
Content of Project Report
Investment Criteria
 Rate of Return (RoR)
❑ A rate of return (RoR) is
the net gain or loss on an
investment over a
specified time period,
expressed as a
percentage of the
investment’s initial cost.
❑ Gains on investments are
defined as income
received plus any capital
gains realized on the sale
of the investment.
Cont…
What is the Payback Period?
❑ The payback period
shows how long it takes
for a business to recoup
its investment.
❑ This type of analysis
allows firms to compare
alternative investment
opportunities and decide
on a project that returns
its investment in the
shortest time, if that
criteria is important to
them.
Net Present Value
Formula for NPV
 Cont…
❑After discounting the cash flows over different
periods, the initial investment is deducted
from it
✓If the result is a positive NPV, then the project
is accepted
✓If the NPV is negative, the project is rejected
✓And if NPV is zero, then the organization will
stay indifferent
 Internal Rate of Return (IRR)
❑ The internal rate of return (IRR) is a metric
used in capital budgeting to estimate the
profitability of potential investments.
❑It is a discount rate that makes the net present
value of all cash flows from a particular
project equal to zero.
❑Its calculation rely on the same formula as
NPV does
Cont…
 What does IRR tell you?
❑ You can think of the internal rate of return as the rate of growth a
project is expected to generate
❑ While the actual rate of return that a given project ends up
generating will often differ from its estimated IRR, a project with a
substantially higher IRR value than other available options would
still provide a much better chance of strong growth.
❑ One popular use of IRR is comparing the probability of establishing
new operations with that of expanding existing ones
❑ For example, an energy company may use IRR in deciding whether
to open a new power plant or to renovate and expand a previously
existing one.
❑ While both projects are likely to add value to the company it is likely
that one will be the more logical decision as prescribed by IRR
 Key Take Away
❑ IRR is the rate of growth a project is expected to generate
❑ IRR is calculated by the condition that the discount rate is
set such that the NPV = 0 for a project
❑ IRR is used in capital budgeting to decide which projects or
investments to undertake and which to go
❑ Compute present values of each net cash flow
❑ Multiply the net cash flow for each period by its discount
factor to obtain its present value.
❑ Sum the present values of each cash flow to calculate the
NPV.
❑ Find the IRR, the discount rate that makes the NPV zero
 Cont…
Assume XYZ Ltd wants to do a project and so it is
willing to invest $10,000,000. The investment
is said to bring an inflow of $10,000 in first
year, 250,000 in the second year, 350,000 in
the third year, 265,000 in the fourth year and
415,000 in the fifth year. Let the discount rate
to be 9%. Then calculate the NPV?
 Reading Assignment
• Read about Cost Benefits Analysis (CBA)?
 Assignments
❑ Consider the following investment project.
The initial cost is $600 million. It has been
decided that the project should be accepted if
the payback period is 3 years or less. Using the
payback rule, should this project be
undertaken?
Year Cash Flow($) Accumulated Cash
Flow($)

1 200 200
2 220 420
3 225 645>600
4 210 855