UNIT-I

FORMULATION AND PLANNING OF PROJECT

Concept:
The activities that we do in our daily life are also a project because we always plan for these
activities. In this sense, ‘Project is a scientifically evolved work plan desired to achieve a specific
objectives within a specific period of time’. In other words, a project is ‘a unique set of co-
ordinated activities, with definite starting and finishing points, undertaken by an individual or
organisation to meet specific performance objectives within defined schedule, cost and performance
parameters’. (Project Management, Harvey Maylor (2007), Pearson Education, P-4). Project can be
studied from different point of view such as:

1. From investment point of view- ‘A project can be considered as the proposal involving
capital investment for the purpose of developing facilities to provide goods and services’.

2. From budget point of view- ‘Project is an organised programme of activity carried out to
reach a defined goal within the allotted budget and time’.

3. From return point of view- ‘Project is a specific activity in which money is spent in the
expectation of certain returns’.

4. From beginning and ending point of view- ‘Project is an economic activity with well
defined objectives and having a specific beginning and end’.

Therefore, in general term ‘project is any human activity with huge cost that is undertaken to
achieve certain objectives within a specified period of time’.

Project planning:
Project planning refers to the formulation of plans of an undertaking to build up new
production capacities or to diversify its business activities or to extend its existing capacities. It
is in fact the first and foremost stage in the execution of a project. The success in
implementation of a project largely depends on proper planning of the project. Project planning
involves following stages:
 1. Identification, evaluation and determination of desired project.
2. Determination of the size and cost of the project.
3. Determination of time frame for the execution of the project.
4. Determination of proposed means of financing or capital structure
5. Preparing the project report.
In fact, the first four steps involves in project planning are the prerequisites for the
preparation of a Project report or project formulation.

Phases of a project:
Project is scientifically evolved work plan and it needs systematic preparation and
execution. There are basically six phases or stages of a project namely:

1. Project identification.
2. Project formulation/Report.
3. Project appraisal.
4. Project selection.
5. Project implementation.
6. Project management.
Brief descriptions of the above phases are given in the following pages.

1. PROJECT IDENTIFICATION:
Selection of a project after careful scanning of the environment of investment opportunity
and its likely returns is called identification of a project. Project identification is concerned with the
collection, compilation and analysis of the economic data for the eventual purpose of locating
possible opportunities for investment and with the development of such opportunities.

Project identification originates from the project idea which comes from success story of
friends, relatives, demand, experience, motivation, background and skill of the entrepreneurs. Most
of the project ideas originate from the existing fields of technology or offering variants of present
product or services.

The project ideas can be generated by a person with specialised technical knowledge or
marketing expertise or some other competence. Such person feels that he can offer a product or
service which can cater to the present unmet need or serve a market where demand is more than
supply or can compete with the similar type of product in the market. Such ideas are endorsed by
his associates and encouraged by them to collaborate with him on the proposal. Finally, he receives
support from investors like financial institutions or venture capitalist that approve his project and
show readiness to finance.

The business firm basically, use SWOT analysis to identify various opportunities that can be
profitably exploited by the firm. Periodic SWOT analysis facilitates the generation of new ideas.

2. PROJECT FORMULATION/ REPORT:

After the project idea is generated and identified the next step is to convert this idea into
black and white. In other words, the project idea which is in abstract form is to be converted into
concrete and written form.
Therefore, project formulation is the process of presentation of the project idea in such a
form that can be subjected to comparative appraisal.
It is defined as a process of looking carefully and critically at a project idea to build up an
all-round benefit of the project after carefully weighing its various components. It is generally
formulated by the entrepreneurs with the help of specialist or consultation.
Hence, project formulation is a process whereby the entrepreneur makes an objective and
independent assessment of the various aspects of an investment proposition or a project idea to
determine its total impact and also liabilities.
In other words, project formulation is the preparation of detail project report of the proposed
investment proposition or activity citing all pros and cons and to and fro impact, etc. In order to
prepare sound project, the following analysis must be given due importance during the formulation
or preparation of a project report.

1. Feasibility Analysis:
Feasibility analysis is the examination of project idea in the context of internal and external
conditions of the business enterprises. It is the analysis of the viability of an idea concerning
product or services. The main objective of the feasibility study or analysis is to decide whether the
organisation or an individual entrepreneur should proceed with the project idea or not. A feasibility
analysis is only one step in the business idea assessment and business development process. It has
been estimated that only one idea out of fifty is commercially viable. The result of the feasibility
analysis may be threefold;
a. Project is commercially feasible.
b. Project is not feasible.
c. The data is inadequate.
 As per the result, the next step will follow. If it is feasible next, analysis shall follow and if it is
not feasible, another alternative project or project idea will be analysed. There is also a possibility
of inadequate data for proper analysis. In such cases, proper pre-feasibility study is to be conducted
and necessary information is to be collected.

2. Techno-economic analysis:
The economic conditions and technological advancement of the country or region is
properly studied or analysed in view of the proposed project. The economic analysis is made taking
into consideration of the present demand and potential demand for the good or services, income and
consumption level of the people and their taste and preferences.
On the other hand, technological analysis is made for the choice of optimum technology for
the production process. It will give emphasis on the labour intensive or capital intensive production
process and the machineries to be used according to the choice of technology.

3. Input Analysis:
Under this analysis the assessment is made for the availability and requirement of the
various inputs like raw materials, human resources, basic utilities (water, power, etc) to the
proposed project or investment proposition during the construction and operation period. The
resources and inputs required for the project must be reasonably assured.

4. Financial Analysis:
Financial analysis is made for the estimation of the project cost-fixed as well as operating
cost. The estimation is made for the cost of the project and fund required for commencement and
daily operation of business. It also deals with the estimation of the revenue generation and
profitability of the project in future.

5. Project design and network analysis:

A detail work plan of the proposed project is prepared and defined all the activities which
will constitute the project and their inter-relationship. Such project design is analysed from the point
of view of socio-economic and topographical condition of the proposed area where the project is
supposed to be established. The project design and its way of execution are different from region to
region or country to country. Under this analysis, the blue print of all related activities of the
proposed project is prepared and examined for its feasibility.
 6. Cost-Benefit Analysis:
While financial analysis justify the proposed project from the economic or profitability
point of view, the cost-benefit analysis consider the project from the point of view of social or
national viability. Under this analysis the social cost and benefit accrued from the proposed project
is measured. Social cost is the general cost or sacrifice that is incurred in terms of loss of
environment, land, forest, etc while executing or running the proposed project.
On the other hand, social benefit are the various advantages due from the proposed project
in terms of road, communication, school, urbanisation, development of the area, etc that are equally
enjoyed by the community or the people of the area where project is established.
In every project there is the implication of cost and benefit and the project with maximum
benefits are to be selected.

7. Pre-investment analysis:
The project proposal gets a formal and final shape at this stage. All the results obtained in
the above stages are consolidated and various conclusions arrived at to present a clear picture of the
proposed project. Every aspect of the project is evaluated and the decision for acceptance or
rejection of the project is taken at this stage.

3. PROJECT APPRAISAL:
Project Appraisal is a process whereby a lending financial institution or a funding agency
makes an independent and objective assessment of the various aspects of an investment proposition
to arrive at the financing decision. Appraisal is basically aimed at determining the viability of a
project and also to reshape the project so as to upgrade its viability.
The person who carries out the appraisal of a project is usually an official from financial
institution or a team of experts appointed for the purpose.
The factors considered by the project appraiser include- technical aspect, financial,
commercial, economic, ecological, social and managerial aspects. Therefore, the exercise of project
appraisal simply means the assessment of the project proposal in terms of its economic,
commercial, social and financial viability.
The project appraisal also considered many aspects which are known as stages of project
appraisal. They are:

a. Economic appraisal:
Under this stage the economic viability of the proposed project is appraised considering the
various economic aspects of the project like-
 -the contribution for economic development of a region, state or a country,
-the increase output in terms of goods and service,
-income and employment generation,
-government revenue, profit to capital owner and
-contribution for overall standard of living, etc.

b. Technical appraisal:
Under this, the emphasis is given on location, site and size of plant or scale of operation of the
proposed project. Appraisal of location is made in terms of –
-Availability of raw materials,
-Proximity to market,
-Transportation facility,
-Power and fuel supply,
-Water resources,
-Natural and climatic factors,
-Strategic consideration,
-Taxes and fees,
-Incentives measures, etc.
Site is the particular plot of land or area where the proposed project is to be established.
Following aspects are considered under this appraisal-
-Soil capacity,
-Earthquake prone,
-Coastal area,
-Accessibility, etc.
Size of plant or scale of operation is the production capacity that the proposed project is
plan to carry out in future. It includes-
-Large scale for large demand and vice-versa.
-According to the market demand.

c. Organisational appraisal:
The organisational appraisal deals with the study of the tract record of the organisation’s
efficiency and capacity to handle such project or the trustworthiness, sincerity, etc of its
management. Under this following aspects are given importance:
-Organisation’s efficiency.
-Organisation understands of its responsibility.
 - Ability to handle or run such project, etc.

d. Financial appraisal:
The funding institutions appraised the proposed project from the point of view of financial
viability. Financial viability is measured in terms of cost and profitability of the project. Of course,
the appraisal under this category depends upon the type of project like revenue producing project-
industry, agriculture, utilities, etc and social benefit project like education, highway, etc. For the
revenue generating project or business project the emphasis is given on cost and profitability
whereas for the social benefit project the overall benefit to the society at large is given importance.
However, in general term financial appraisal of a project includes-
-Cost analysis,
-pricing,
-source of finance,
-Income, etc.

e. Managerial appraisal:
It deals with the competent and incompetence of the management of an organisation who is
going to implement the project. The sound project also sometimes fails due to the incompetence of
the management. The appraiser will assess the presence of –
-qualified director,
-qualifies managers,
-qualified employees,
-Overall management efficiency, etc.

f. Market or operational or commercial appraisal:

The marketability or commercial potentialities of the product and services of the proposed
project are evaluated in this appraisal. Emphasis is given on the following point under this
appraisal:
-Estimation of future demand,
-Market analysis,
-Marketing strategy and plan,
-Distribution policy, etc.’
 h. Political and labour appraisal:
The government policy on various business issues like taxation, incentives, restriction and the
availability of labour force and their association, rules, etc are assess in this appraisal. The
government rule and regulation for the establishment of industry and appointment of labour force
are properly also evaluated.

i. Technical collaboration appraisal:

The possibility of technical collaboration with other company or a country is evaluated in this
appraisal. The technical collaboration depends on the use of technology in the production process
during the operation of the project.

j. Ecological appraisal:
The future environmental impact will be assessed in this appraisal. There is a possibility of
environment degradation and ecological imbalance due to the establishment of the proposed project.
Hence, ecological appraisal is very important for undertaking any project.

4. PROJECT SELECTION:
After gathering large number of project profile or the relevant information about the
proposed project, the entrepreneurs or investing institution consider the following criteria for
selecting a particular project:
-Investment size or the cost of the project,
-Location,
-Technology,
-Equipment,
-Marketing, etc.

5. PROJECT IMPLEMENTATION:
The execution of a project with a definite planning, scheduling and controlling through a
project design is known as project implementation. It means that the proposed project is practically
started its function or operation as a business establishment. There is a need for systematic and
chronological initiation of the various activities of a project.
 The implementation of a project is made by the management through network techniques
namely-
-GANTT Chart by H.L. Gantt,
-PERT-Programme Evaluation and Review Technique
-CPM-Critical Path Method.

6. PROJECT MANAGEMENT:
Project management is the application of the knowledge, tools and techniques of the
management to the project activities in order to achieve a specific objectives or goals. The project
needs proper management and supervisor after its implementation for successful operation. For the
smooth management or functioning of the project, the whole activities are structurally defined into
33 processes which is spread over nine (9) knowledge areas;
1. Project integration management.
2. Project scope management.
3. Project time management.
4. Project cost management.
5. Project quality management.
6. Project human resource management.
7. Project communication management.
8. Project risk management.
9. Project procurement management.

CHARACTERISTICS OF A SOUND PROJECT

There are certain characters or conditions which is important for a sound project. Every
project does not guarantee its success. There need certain conditions which makes the project
successful. Following are the characteristics of a sound project-
1. Proper planning.
2. Special authority for formulation and implementation.
3. Clear objectives.
4. Specific term or a period.
5. Team work.
6. Customer specific.
7. Properly defined measures to face risk and uncertainty.
8. Clear investment pattern.
 9. Proper location and site.
10. Adequate fund or resources.

ASSESSING THE VALUE OF A SOUND INDUSTRIAL PROJECT TO THE

ECONOMY OR SOCEITY
The project whether industrial project or infrastructural project is the important part of the
economy or society. They use the resources of the economy or society and thereby they also
make great contribution for the development of the economy. The value of the sound project or
for that matter any project can be measured in terms of the following points:
1. Proper utilisation of the resources.
2. Employment generation.
3. Capital formation.
4. Development of infrastructure.
5. Urbanisation.
6. Increase of national income and per capita income.
7. Economic growth and development.
8. High standard of living.
9. Avoid wastages.
10. Increase productivity.

PROJECT PROPOSAL IN DETAIL

There is two type of project proposal- the project proposal for the establishment of industrial
concern and the academic project for undertaking research work on specific social problem.
However, in both cases, the activities that is to be undertaken during the construction or research
work, along with its objectives, mission and benefits or outcome, etc are specified in detail.

The proposal for industrial project is more or less made along with the following structures:
1. Introduction or background.
2. Objectives or mission.
3. Methodology or project design.
4. Relevancy of the project.
5. Project appraisal.
6. Estimation of capital for investment or6 fund.
7. Tenure or duration of the project.
 8. Impact analysis.
9. Appropriate measures for any eventualities or displacement, etc.

On the other hand, the proposal for academic project is basically made on the following line:

1. Introduction.
2. Review of literature.
3. Objectives.
4. Methodology.
5. Significance of the study.
6. Hypotheses.
7. Universe of the study.
8. Tentative chapterisation.

The project proposal is basically prepared for its selection by the entrepreneurs or sponsoring or
funding institutions. Therefore, in some cases, the funding agency provides the format or structure
of the proposal.

Reference

1. Vashant Desai (year), Project Management, Himalayan Publishing House, New

Delhi

2. Prasanna Chandra (2007), Project: planning, analysis, selection, implementation and

review, Tata McGraw- Hill publishing house limited, New Delhi.