Elements of Project Formulation

BBA, Semester- IV
(2021 - 24)
BM209.3 Entrepreneurship Development & Innovation Management
Indukaka Ipcowala Institute of Management(IIIM)
Faculty of Management Studies(FMS)
Charotar University of Science & Technology (CHARUSAT)
 Table of Contents
• Introduction to Project Formulation
• Elements of Project Formulation:
1. Feasibility Analysis
2. Techno-Economic Analysis
3. Project Design & Network Analysis
4. Input Analysis
5. Financial Analysis
6. Social Cost Benefit Analysis
7. Project Appraisal
 Project Formulation
• Project formulation can be defined as the systematic, step-by-step development of
a project idea for the eventual objective of arriving at an investment decision.
• In fact it is a careful and scientific mechanism which enables the entrepreneur to
achieve the project objective with the minimum expenditure and adequate
resources.
• Project formulation is a process involving the joint efforts of a team of experts.
Each member of the team should be familiar with the broad strategy, objectives &
other ingredients of the project.
 Project Formulation
• Project formulation helps not only in fighting with the internal problems of
project idea but a well formulated project is the best way of getting
financial assistance from various financial institutions.
• Project formulation will also be of great assistance for obtaining necessary
government clearances and in meeting the hurdles of
procedural formalities.
• The goal of project formulation is to establish a framework for the project
that enables its successful implementation.
 Elements of Project Formulation
 Project formulation is by itself an analytical management aid. It enables the entrepreneur to arrive
at the most effective project decision. The Elements of Project Formulation are as follows-
1. Feasibility Analysis
2. Techno-Economic Analysis
3. Project Design & Network Analysis
4. Input Analysis
5. Financial Analysis
6. Social Cost Benefit Analysis
7. Project Appraisal
1. Feasibility Analysis:
• Feasibility analysis is a process undertaken to determine whether the project idea
is worth proceeding with or not. It evaluates the future of the project idea within
the limitations imposed by the environment upon it and also the constraints of
the implementing body.
• Generally, the outcome of the study can give a positive result under which the
decision to proceed with the project is taken otherwise the project can be
abandoned.
• Sometimes, the data is not sufficient to arrive at any decision and in that case
further information is collected till a decision can be reached.
• The feasibility analysis consists of three stages. These are pre-feasibility study,
feasibility study and Project report.
2. Techno-Economic Analysis:
• Techno-Economic Analysis is concerned with finding out the demand potential of the
project and the right technology required attaining the objective of the project.
• It is important to analyse whether the economy will absorb the output. The technology
would mean the project design, the methodology and the process required.
• This analysis consists of two important segments. The first segment is related with
ascertainment of maximum project output whereas the purpose of second segment is the
selection of optimal strategy to achieve the output.
3. Project Design & Network Analysis:
• Project Design and Network Analysis is related with the flow of various individual
activities and their inter-relationship in order to complete the project.
• It identifies activities which can be started and also the activities which can be taken up
simultaneously. It is generally depicted in the form of a network diagram.
4. Input Analysis:
• After all the analysis the next step is input analysis to find out all the resources that are required to
complete the project. These resources form the inputs of the project. It also identifies all the different
phases where the resources are required.
5. Financial Analysis:
• The estimates about the financial costs of the project and the revenue generated by it so as to determine
whether it will be profitable to undertake the project or not is termed as financial analysis. The
following norms are adopted by Financial Institutions in the examination of financial feasibility of
project:
i. Cost estimates of the project are to be examined whether such costs are realistic and escalation is
taken into account.
ii. Time and cost over-runs should be considered.
iii. Financial viability i.e. profitability, sensitivity analysis, cash flow are to be examined thoroughly.
iv. Interest coverage ratio should be calculated.
v. The level at which the project is likely to break-even is also examined.
6. Social Cost Benefit Analysis:
• Social Cost benefit Analysis is a systematic evaluation technique for long-term decision making in
capital projects appraisal.
• It is an analytical tool in decision making which enables a systematic comparison to be made
between the social costs and related social benefits with due emphasis on technical and other
feasibility studies but focusing more on social impact.
7. Project Appraisal:
• The term project appraisal refers to the process of assessing whether to proceed with the project or
not in a systematic manner. It is related with calculating the feasibility and viability of the project.
• While appraising a project economic, technical, marketing and financial feasibility is generally
checked. A feasibility report is then prepared based on which the decision is taken whether to
proceed with the project or not.
• The types of appraisal can be: Technical Appraisal, Commercial Appraisal, Financial Appraisal,
Economic Appraisal and Management Appraisal.
Thank You!!