what is project formulation and appraisal

1. 1
PROJECT FORMULATION
AND APPRAISAL

2. Generation & screening of projectide
INTRODUCTION
A project is accomplished by performing asset ofactivities
The project ideas as a process of identification of process begins with an
analytical survey of the economy.
The surveys & studies will give us ideas.
2

3. Generation & screening of projectideas
GENERATION OFIDEAS
The project selection starts with generation of projectideas.
The ideas are based on existing field of technology to offer variouspresent
product of syllabus
To stimulate the flow ideas the following are helpful
1) SWOT analysis
Strengths Weakness Opportunities & Threats
2) Clear Articulation of objectives
3) Fostering a conducive climate
3

4. Generation & screening of projecti
4
MONITORING THE ENVIRONMENT
Competitive abilities of a firm depends on its environment
The firm must systematically monitor the environment and assess its
competitive abilities
For purpose monitoring divided into six sectors
Economic sector
Governmental sector
Technological sector
Socio-demographic sector
Competition sector
Supplier sector.

5. FORMULATION OF A PROJECT
 It generally culminates in the preparation of a Project
Report.
 A Project Report is a document setting out in detail the
nature of the activity proposed and the justification for
Selection and Commitment of resources (men,
materials, money) to the activity.

6. WHAT ARE THE CONTENTS OF A
PROJECT REPORT ?
 Technology and Technical Arrangements.
 Location and Land & Buildings.
 Plant and Machinery and Raw Materials.
 Utilities like power, Water Supply, Transportation, etc.
 Labor
 Schedule of Implementation
 Cost of the Project.
 Means of Financing.
 Marketing and Selling Arrangements.
 Profitability and Cash Flow and other Economic Considerations.
 Government Consent.
 Declaration of the Promoter.

7. TECHNICAL FEASIBILITY
 These are aimed at ensuring that all the physical
facilities required for successful implementation of the
project are available and the best of the alternative
facilities are selected for the Project.
For this importance is given to:
 Proper location of the enterprise,
 Selection of appropriate Technology, Plant & Machinery,
 Availability of Raw Materials, Resources and other Inputs

8. MARKETING FEASIBILITY
 Marketing is the corner stone for the success of any business activity.
 Marketing Feasibility studies attempt to determine the size of the
market for any product service and its value in terms of revenue-
generation.
 The following aspects form part of Marketing Feasibiity Studies.
 Definition of the Target Market
 Marketing Segmentation
 Determination of Market Share
 This can be done by :
 Estimating the total demand for the product service.
 Estimating the market share of the organization

9. FINANCIAL FEASIBILITY
This studies aim to ensure the entrepreneur that:
 The Project can meet the burden of servicing the debt
i.e., the project can ensure sufficient revenues to pay
the interest cost of borrowed funds and meet the
schedules for repayment of loans.
 The Project can earn sufficient revenues to satisfy the
expectation of the owners of the promoting
organization.

10. It covers the following important aspects:
 Project Cost Determination
 Sources of Finance
 Profitability Estimates
 Cash Flow Estimates
 Projected Financial Position and Flows

11. PROJECT COST DETERMINATION
 A proper determination of the cost of project is
essential for determining the viability and profitability
of the project.
Following are the essential elements of Project Cost :
 Land and Site Development
 Buildings and Civil Works :
 Plant and Machinery
 Technical Know-how Fees
 Miscellaneous Fixed Asset

12. SOURCES OF FINANCE
The cost of Project indicates the quantum of long-term finances needed by
the organization to implement the project. The need for such funds is met
out of
 Equity Capital
 Preference Capital
 Borrowed Funds
 Public deposits
 Term loans
 Lease finance
 capital subsidies

13. OTHERS:
 Profitability estimates
 Cash flow estimates
 Economic feasibility

14. WHAT IS APPRAISAL ?
 It consists process of reviewing a given project and
evaluating its content to approve or reject any project,
through analysing the problem or need to be addressed
by the project, solution generation options for solving
the problem, selecting most feasible option .

15.  Generally, promoters of a project approach Term Lending
institutions for financing the Cost of the Project.
 Commercial banks approaches for financing working
capital needs.
 However, Commercial Banks in India also finance project
cost subject to certain monetary limits.
 Such financial institutions appraise the Project Report
submitted by the promoters for taking a decision on
financing the project.
 Appraisal Studies include:
 Technical Appraisal,
 Marketing Appraisal,
 Financial Appraisal,
 Economic Appraisal, and
 Management Appraisal.

16. Generation & screening of projec
5
CORPORATEAPPRAISEL
Realistic appraisal of corporate strengths & weakness is essentialfor
identifying investment opportunities
Marketing & distribution
Production & operations
R &D
Corporate resource and personnel
Finance and accounting

17. Generation & screening of proje
6
TOOLS FOR IDENTIFYING INVESTMENT OPPORTUNITY
•Several useful tools that are helpful in identifyingpromising
investment opportunities.
a) Life cycle approach
b) Porter model
c) Experience Curve
a) Life cycle approach
Pioneering stage
Rapid growth stage
Maturity and stabilisation stage
Decline stage

18. Generation & screening of projec
7
b) Porter Model
Profit potential of an industry depends on the combined strength of the
following five basic competitive forces:
Threat of new entrants
Rivalry among existing frm
Pressure from substitute products
Bargaining power of buyers
Bargaining power of sellers

19. Generation & screening of projectide
c) The Experience Curve
19
Cost
per
unit
(present
value)
Accumulated volume of production
Experience curve is used to find long term investments aimed at
reducing costs
It shows how the cost per unit behaves w.r.t the accumulated volume
of production

20. Generation & screening of proje
SCOUTING OF PROJECT IDEAS
20
Analyse the performance of existing industries
Examine the inputs and outputs of variousindustries
Review imports and exports
Study plan outlays and governmental guidelines

21. Generation & screening of projectide
PRELIMINARY SCREENING
21
By using the suggestions in the preceding section ,it is possible to
develop a long list of project ideas
Compatibility with the promoter
Consistency with government priorities
Availability of inputs
Adequacy of market
Reasonableness of cost
Acceptability of risk level

22. Generation & screening of projec
11
PROJECT RATING INDEX
 Preliminary evaluation may be translated into a Project rating index
 STEPS
1. Identify factors relevant for project rating
2. Assign weights to these factors
3. Rate the project proposal on various factors
4. For each factor multiply the factor
rating with the factor weight to get the
factor score
5. Add all the factor scores to get the overall project
rating

23. Generation & screening of projectide
12
SOURCES OF POSITIVE NET PRESENT VALUE(NPV)
There are six main entry barriers that result in positive NPVprojects
Economies of scale
Product differentiation
Cost advantage
Marketing reach
Technology edge
Government policy

24. Generation & screening of projectid
BEINGAN ENTREPRENEUR
24
Qualities and traits of a successful entrpreneur
Willingness to make sacrifices
Leadership
Decisiveness
Confidence in the project
Marketing orientation
Strong ego

25. Generation & screening of projectide
CONCLUSION
Thus the main objective of the generation and screening of project
ideas is to identify investment opportunities which are feasible and
promising and which merit further examination and appraisal
25

26. Query
26

27. 27