ASSIGNMENT ON PROJECT FORMULATION AND APPRAISAL PGPM 21 (COURSE PGPPM)

PROJECT FORMULATION AND APPRAISAL

Assignment Any company that has to survive in a competitive environment cannot remain complacent with the present. It has to continuously bring about change in order to adapt to the altered environment. Investment opportunities in India are today perhaps at a peak. Supported by Indias natural strengths, the country offers investment opportunities in excess of $500 billion in diverse sectors over the next five years. Projects that are endeavors to create unique products and services are basically the instruments leading to organizational growth. Projects have a long term impact on the character of the organization. Projects create wealth not only for the organization but also for the nation. Projects, therefore, form a very important part of the organizations strategy for survival & growth and therefore are the main concern of the corporate management. Realizing the tremendous opportunities, the most of the pragmatic organizations are planning to invest in new projects. Every project starts with the perception of an opportunity. The better this is characterized, the easier it will be to judge the levels of expenditure and risk that are justified. Identifying the pattern by which technology creates new products & services and exploiting them early gives the company a significant competitive advantage. In the light of your studies prepare an assignment on project formulation, evaluation and appraisal of a hypothetical project by covering the following:

Market Analysis Technical Analysis Financial Analysis

INTRODUCTION The project evaluation process involves more than just determining a project's expected revenues and profitability; it also involves a study of the key factors that affect a project and their financial impact on the project. In addition, a project evaluation includes strategic evaluation, economic evaluation and social impact evaluation (Refer Exhibit I).

ASPECTS OF PROJECT APPRAISAL While the financial evaluation of a project aims at ascertaining the most efficient strategy for delivering the desired output, the strategic evaluation ensures that the project is consistent with the output objectives of the firm.

Facets of project analysis Presentation Transcript

1. Facets of Project Analysis Market Analysis Technical Analysis Financial Analysis Economic Analysis Ecological Analysis

2. Market and Demand Analysis Collection of Demand data forecasting Situational Analysis & CharacterizationSpecification of the marketof objectives Conduct Market Market planning survey A process that studies3. Situation analysis and objectivesspecification customer preferences and their purchasing capacity and strategies of competing Adequate informations are generated through informalfirms and intermediaries talks and feels adequate present and future demands can be generated, then a Before going toformal study can be done. Otherwise the idea can be dropped formal study the project manager needs to define the objectives of the study.

Data are of two types Primary data Secondary data4. Collection of data Primary data is the data collected for a specific purpose and for the first Internal Primary data can be obtained from both internal and externaltime primary data-past and current sales of the firm, observations of employees etc External primary data is obtained from the opinions of the dealers, feedback of Secondary data is the data that isthe sales personnel and sales trends etc already available but might have been collected for some other purpose or by Secondary data is considered to be more useful insome other institutions Some of themarket analysis as it is easy to obtain and is also economical secondary data sources are-Census of India, National Sample Survey Reports, Plan reports, Statistical Abstract of the Indian Union, India Year Book, Statistical Evaluation of secondary data is an important task to know itsYear Book etc reliability, accuracy and relevance for the purpose under consideration

Secondary information, though useful, often does5. Conduct Market Survey There is anot provide a comprehensive basis for market and demand analysis Aneed to be supplemented with the primary information through market survey market survey is useful in determining the total market demand, demand growth rate in different segments of the market, understanding the inner motives of the customer and measuring the unsatisfied needs of the customers

Selecting Defining the target market6. Steps involved in market survey Recruit and train the field Developing the questionnairethe sample Scrutinize the information Recording the informationinvestigators/surveyors Analyze and interpret the informationgathered Heterogeneity of the country7. Some problems-market survey in India Design of questionnaireMultiplicity of Languages

Based on the information obtained from8. Characterization of market secondary data and market survey, the project manager describes the marketability of the project idea in terms of Effective demand Breakdown of demand Price Consumers interest Methods of distribution and sales promotion Supply and competition Government policy

Using information obtained from secondary data,9. Demand Forecasting Forecasting methods canmarket survey and market characterization/description be divided into 3 categories-Qualitative methods, Time series projection method, and Causal methods

Rely essentially on the judgment of experts to10. Qualitative Methods Important qualitativequalitative information into quantitative estimates methods are Jury of executive opinion method, Delphi method etc

Generates forecasts on the basis of an11. Time series projection methods The important methods are-Trend projectionanalysis of the historical data method, Exponential smoothing method, moving average method

Seek to More analytical than the preceding method12. Causal method develop forecasts on the basis of cause-effect relationships specified in an Important methods are-Chain ratio method,explicit, quantitative manner Consumption level method, End use method, Leading indication method, Econometric method

Data about past and present market13. Uncertainties in demand forecasting Environmental changeMethods of forecasting Refers to planning and designing the four Ps of14. Market planning Product-product variety,marketing namely, Product, Price, Place, and Promotion quality, design, features, brand name, packaging, sizes, services, warranties, Price-list price, discounts, allowances, payment period, credit termsreturns Place-channels, coverage, assortments, locations, inventory, transport Promotion-sales promotion, advertising, sales force, public relations, direct marketing

15. Economic Analysis andEcological Analysis Also referred to as social-cost- benefit analysis16. Economic Analysis SCBA is a process which is concerned with evaluation of investment projects from Recently economicthe point of view of the society (or economy) as a whole analysis has gained significance

Environment has gained a lot of17. Ecological Analysis Ecological analysis should be donesignificance-rightly it also deserves particularly for those projects which have significant ecological implications like power plants and irrigation schemes and environmental-polluting industries Major 2 questions arises-1. what is the likely damage caused? 2. what is the cost of restoration measures required?

Methodology For Formulation And Appraisal of a Project Presentation Transcript

1. METHODOLOGY FOR PROJECT FORMULATION AND APPRAISAL PRESENTED BY:ROHAN GUPTA, PRIYA BANSAL, SHARAD JAIN

2. WHAT IS A PROJECT? A PROJECT IS A SCHEME FOR INVESTING RESOURCES WHICH CAN BE ANALYZED AND APPRAISED REASONABLY INDEPENDENTLY.

3. FORMULATION OF A PROJECT ! MUST BE FROM A PLAN FORMULATED AT THE APEX LEVEL. MUST ADOPT A BALANCED APPROACH COMBINING ACCELERATED GROWTH WITH DIRECT ATTACK ON POVERTY. CONSISTS OF COMPREHENSIVE PROGRAMS AIMED AT GROWTH, PROVISION OF BASIC SERVICES AND IMPROVEMENT OF INCOME DISTRIBUTION.

4. WHAT DO YOU MEAN BY PROJECT CYCLE? VARIOUS STAGES OF INFORMATION GATHERING AND DECISION MAKING BETWEEN PROJECTS INCEPTION AND COMPLETION. THESE ARE: IDENTIFICATION PREPARATION OF PROJECT BRIEF APPRAISAL TECHNICAL INSTITUTIONAL ECONOMICS FINANCIAL IMPLEMENTATION AND MONITORING EVALUATION

5. STEP 1 : IDENTIFICATION OF A PROJECT SHOULD BE AN INTEGRAL FUNCTION OF THE PLANNING PROCESS. PROJECT MUST MEET A PRIMA FACIE TEST OF FEASIBILITY THAT TECHNICAL AND INSTITUTIONAL SOLUTIONS ARE LIKELY TO BE FOUND AT COSTS COMMENSURATE WITH EXPECTED BENEFITS

6. STEP 2 : PREPARATION OF PROJECT BRIEF DESCRIBING ITS OBJECTIVES IDENTIFYING PRINCIPAL ISSUES ESTABLISHING TIME TABLE STUDY OF FULL RANGE OF TECHNICAL, INSTITUTIONAL, ECONOMIC AND FINANCIAL CONDITIONS, COMPARING COSTS AND BENEFITS OF THE ALTERNATIVES IDENTIFIED

7. STEP 3 : APPRAISAL CULMINATION OF THE PREPARATORY WORK, PROVIDES A COMPREHENSIVE REVIEW OF THE ALL ASPECTS OF THE PROJECT AND LAYS THE FOUNDATION FOR IMPLEMENTING THE PROJECT AND EVALUATING IT WHEN COMPLETED. THE FACTORS FOR WHICH APPRAISAL NEEDS TO BE CARRIED OUT ARE: TECHNICAL INSTITUTIONAL ECONOMICS FINANCIAL

8. STEP 4 : IMPLEMENTATION AND MONITORING IMPLEMENTATION ORGANIZATIONAL STUDIES, TRAINING OF STAFF MONITORING IDENTIFYING AND DEALING WITH PROBLEMS THAT ARISE DURING IMPLEMENTATION GATHERING THE

ACCUMULATED EXPERIENCE TO FEED BACK INTO DESIGN AND PREPARATION OF FUTURE PROJECTS AND INTO THE IMPROVEMENT OF POLICIES AND PROCEDURES.

9. STEP 5 : EVALUATION HELPS IN ASSESSING THE ACHIEVEMENT OF THE OBJECTIVES OF THE PROJECT. EFFECT ON THE IMPLEMENTATION OF PROJECTS ON THE COMMUNITY ASSIST THE PROCESS OF DECISION MAKING LEAD TO THE GENERATION OF SUPERIOR ALTERNATIVES.

10. PREPARATION OF PROJECT AND APPRAISAL - 1 Five Stages 1 Feasibility Studies Whether the objectives of the project will be met or not? Whether the project will be successful or not before committing substantial funds to it? 2 Detailed Studies Parameters for which and within which, the Project will be designed. Research and Investigations required to understand the problems and opportunities involved, both existing and projected.

11. PREPARATION OF PROJECT AND APPRAISAL - 2 3 Options for Development Advantages and Disadvantages of the Options identified are assessed and preferred group of options selected The needs and resources of the people who will live in the project area should form the basic criteria against which the options should be measured. Feasible alternatives can be presented for political discussion. 4 Detailed Development Proposals Should be planned in phases Detailed designs for later phases should be left until they are about to be implemented. Will enable to incorporate any changes in demand and build on the experience from the first phase of development. Development of physical design, financial and administrative aspects in detail.

12. PREPARATION OF PROJECT AND APPRAISAL - 3 5 Implementation First Phase to be implemented before detailed design is carried out for all stages of a project.

13. EXAMPLE - PROJECT FORMULATION AND APPRAISAL FOR A GROUP HOUSING STAGE 1: FEASIBILITY STUDIES a) Identify the target population and its housing needs Identify economic characteristics Identifying household characteristics Identifying household demand b) Outline assessment and selection of project site Assessing the site availability Initial evaluation of site location Identifying site area and shape Identifying existing land tenure Identifying site boundaries Initial assessment of site topography and landscape Initial assessment of ground conditions Identifying pollution problems

14. STAGE 1: FEASIBILITY STUDIES c) Assessing initial site development options Initial assessment of housing layout Initial assessment of plot development Initial assessment of commerce and industry Initial assessment of requirements for public facilities and recreation Identifying other land uses Initial assessment of circulation and transportation Initial assessment of requirements for utilities d) Institutional and Financial Framework Assess the capacity of the institutional framework Identifying the financial framework

15. STAGE 2: DETAILED STUDIES a) Survey of the Target Population and its Housing Needs Economic characteristics of households Household characteristics Household attitudes to their locality Household attitudes plot characteristics Relationship between households and their dwellings

Potential for community involvement Nature of housing demand b) Detailed analysis of project site Site location Site area and shape Land tenure Site boundaries Site topography and vegetation Ground conditions Local climate

16. STAGE 2: DETAILED STUDIES c) Survey and analysis of existing site development Existing housing layouts and densities Existing plot sizes and shapes Existing buildings Public facilities and recreation provision Commerce and industry Other existing land uses Circulation and transportation Existing utilities d) Institutional and Financial Framework Institutional framework Financial framework Assessing the ability to pay

17. STAGE 3: DEVELOPING PROJECT OPTIONS a)Formulating site development options Housing layout and density Plot sizes and shapes Building Commerce and Industry Public facilities and recreation Incorporation and transportation Utilities b) Institutional and Financial Framework Selecting the institutional framework Land tenure Developing financial options

18. STAGE 4: DETAILED SITE DEVELOPMENT a)Designing site development Housing layouts Housing: building Commerce and Industry Public facilities and recreatioin Road Layouts Utilities b) Institutional and Financial Framework Institutional framework Establishment of a new implimenting agency land tenure conditions Qualifications of applicants Compensation Exemptions from regulations

19. STAGE 4: DETAILED SITE DEVELOPMENT Financial Framework Refinement of earlier work done Cash flow predictions Phasing To be based on effective demand Availability of capital and technical factors outside the site STAGE 5: IMPLEMENTATION Monitoring Evaluation