PROJECT FORMULATION

INTRODUCTION
Project formulation is an investigating process which precedes investment decision.
The purpose is to present relevant facts before the decision-makers to enable them to
decide as to whether to go ahead signal should be given for the project or not.
Formulation of projects involves scientific procedure. The task of any formidable
project is too many. It has to present several information subjective and objective in
nature. It explains the objectives, goals and justification for the acceptance of the
project. The major task of the project is to assess the financial, technical and
managerial involvement and its justification considering the resource constraint. The
project formulation stage involves the identification of investment options by the
enterprise.
Project formulation is designed to bring the project sponsoring authority and the
agencies from whom it has to gent concurrence, support etc., on one wavelength.
Project formulation by providing a scientifically developed procedure for developing
the contend as well as the format of the investment proportions, seek to streamline the
process of appraisal of project at government and the aiding agencies level. So, the
project formulation is a process involving
the joint effort of a team of experts including the economists, the financial analysis
and specialists in various fields. A well formulated project provides a medium which
out across scientific, social and positional prejudices and provides a common meeting
ground for all those who have a contribution to make successful implementation of a
project.

STAGES IN PROJECT FORMULATION

The different stages in the project formulation process are briefly describes as follows;
A. Feasibility analysis
B. Techno-economic analysis
C. Project design and network analysis
D. Input analysis
E. Financial analysis
F. Social cost-benefit analysis
G. Project appraisal
FEASIBILITY ANALYSIS
Feasibility analysis is the first stages in the process of project development. The
purpose of the analysis is to examine the desirability of investing in pre-investment
studies. For this purpose it is essential to examine project idea in the light of the
available

internal

(inputs,

resources

&

outputs)

and

external

constraints

(environment). When a project idea is taken up for developmental three situations can
arise. The project may appear to be feasible, project may turn out to be not feasible or
the available data may not e adequate for arriving at reasonable decision regarding
further investment. In the last mentioned case, investment in pre-investment studies
will obviously have to be adequate for arriving at reasonable decision regarding
further investment. In the last mentioned case, investment in pre-investment studies
will obviously have to e deferred till such time s adequate date regarding the project
feasibility is available. The project sponsoring body will therefore have to invest in
collection additional data and refer the investment decision for the time being. In the
second situation when the project is found to e not feasible, further investment in the
project idea is completely ruled out. In the third situation, when the project idea is
found to be feasible, the decision-makers can proceed to invest further resources in
pre-investment studies and design development.

TECHNO-ECONOMIC ANALYSIS
Techno-economic analysis is primarily concerned with the identification of project
demand potential and the selection of the optimal technology which can be used to
achieve the project objectives. The analysis provides necessary material on which the
project design can be based. It also indicates whether the economy is in position to
absorb the output of the project or not.
PROJECT DESIGN AND NETWORK ANALYSIS
Project design is the heart of the project entity. It defines the individual activities
which go into the corpus of the project and their inter-relationship with each other. It
identifies the flow of events, which must take place before a project can start yielding
the results for which it has been set up. The inter-relationship between various
constituent activities of a project in most Conveniently expressed in the form of a
network diagram. Project design and network analysis are concerned primarily with
the development of the detailed work plans of the project and its time profile, and the
presentation of this plan is form of a detailed network drawing. Project design and
network analysis make available to the project formulation team a clear picture of the
work elements of the project and also their sequential relationship..
INPUT ANALYSIS
The objective is to identify and quantify the project inputs and to assess the feasibility
of a sustained supply of these inputs all through the effective life span of the project.
Resources are consumed in project constituent activities. The best method of
identifying the project constituent activities. The best method of identifying the
project inputs is therefore to identify these activities determine the resources which
each activity will consume individual requirements. Input analysis uses the network
plans for developing the input characteristics of the project. If thereafter proceeds to
evaluated the availability of the inputs both in quantitative as well as qualitative terms.

Resources require for a successful implementation of a project include not only the
material inputs but also human resources which are necessary both for the setting up
of the project as also its successful normalization run. Resources requirements
estimates form the basis of costs estimates of the project and are, therefore, essential
for developing the financial profile and cost-benefit profile of the project.
FINANCIAL ANALYSIS
The objectives of financial analysis is to develop the project from the financial angle
and to identify these characteristics. Financial analysis concerns itself with the
estimation of the project costs, estimation of project funds requirements, It also
involves appraisal of the financial characteristics of the project so as to establish the
relative merits and demerits of the project as compared to other investment
opportunities. Financial analysis reduces investment proposition in diverse fields of
human activity to one common scale, thereby simplifying the project is developing
project financial forecasts.
COST BENEFIT ANALYSIS
In judging the overall worthiness of the project, the effect of the project on society as a
whole is very essential. While financial analysis evaluates a project from the
profitability point of view, social cost benefit analysis views it from the point of view
of national viability. The cost-benefit analysis however takes into account not only the
direct costs and benefits which will accrue to the project implementing body but also
total costs which all entities connected with the project will have to bear and the
benefits which well be enjoyed by all such entities. The idea here is to evaluate the
project in terms of absolute costs and benefits rather than in terms apparent costs and
benefits.

PRE-INVESTMENT APPRAISAL
Pre investment appraisal is the process of consolidating the results of feasibility
analysis, the techno-economic analysis, the design and network analysis, the input
analysis, the financial analysis and the cost benefit analysis, so as to give the
investment proposition a final and formal shape, It naturally involves selection of
appraisal format, the material which should go into pre-investment report and the form
of presentation of various conclusions. The sun
total of the pre-investment appraisal is to present the project idea in a form in which
the project sponsoring body, the project implementing body and the outside agencies
can take investment decision regarding the proposals.
CRITERIA TO BE FOLLOWED
The main criteria in the project formulation process are:
Forecasting understanding and precisely identifying the objectives/needs/goals
(regional/state/national/international) of the unit/society/economy/on a sustained
basis.
Setting up priorities and choosing the goals that are more urgent
Searching for alternations and carrying out feasibility studies to pick up projects
that appear most beneficial and desirable.
Carrying out detailed studies of the project so selected
Estimation the needed resources (human and physical) and finding the yearly cost and
benefit of project Arranging funds both approval and allocation. The successful
implementation of any project depends upon the timely availability of the required
resource as per projections.
Preparing of time schedule for all hobs so that the physical and financial targets of
the projects are passed appropriately.
Distributing the works to various departments or agencies having the appropriate
technical expertise.

Execution and controlling the project. This requires frequent reviewing, updating and
constant action to restore the operation to its planned characteristics.
Evaluating the performance of each project to ensure the worth of good or service for
each rupee to be spent.
CONCLUSION
Thus the process of project formulation involves a stage by stage development of the
project idea into an investment proposition. The conclusion down at the end of each
stage forms the basis of development of the ensuing stage. These conclusions also
provide necessary materials for re-checking of the initial premises from which a
beginning was made. There must be forward and backward look at the completion of
every stage. So the project formulation team has to be ready to revise its opinions and
conclusions in the light of further evidence