Elements of Project Formulation: This is the process of examining the technical, economic, financial, and commercial aspects of a project. It is the process and steps through which an opportunity becomes a project in which the entrepreneur is willing to invest his time, money, and other resources. This study is undertaken to find out whether the proposed project would be feasible or not.
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What is Need for Project Formulation?
Let us look at the point of need for project construction. Those who understand the following five forms.
- Selection of Appropriate Technology: Modern technologies developed in advanced countries may not be suitable for adoption in developing countries.
- Resource Mobilization.
- Non-Availability of Technically Qualified Personnel.
- Absence of External Economies: A project has to depend upon other industries for the supply of raw material, power, spares, etc,
- Knowledge About Government Regulations: The entrepreneur must have a piece of thorough knowledge about Government regulations, policies, licensing procedures, etc.
7 Ways for Elements of Project Formulation.
1. Pre-Investment Appraisal:
The proposal gets the final and formal shape. The purpose of the pre-investment appraisal is to enable the concerned authorities to take an investment decision about the project i.e. to accept or reject.
2. Social Cost-Benefit Analysis:
Under cost-benefit analysis, the investment projects are evaluated from the point of view of society as a whole. The cost-benefit analysis aims at analyzing the real contribution of an investment project towards the welfare of the country as a whole.
It implies the enumeration and evaluation of all the relevant costs and benefits. It can be applied to both private and public investments.
3. Financial Analysis:
It involves estimates about the project costs and revenues and the funds required for the project. It seeks to find out whether the project will generate income to realize the ultimate objective for which it is undertaken.
4. Input Analysis:
Input analysis is primarily concerned with the identification, qualification, and evaluation of project inputs. The objective of input analysis is to identify the nature of resources needed to estimate the quality of the required resources and to ensure that there is a continuous and adequate supply of inputs. Input analysis is the basis for financial analysis and cost-benefit analysis.
5. Project Design and Network Analysis:
A project comprises certain sequential activities which are interrelated. These activities can be shown in the form of a diagram, which is called a network diagram. Project design is concerned with the development of a detailed work plan for the project and its time estimates.
When a network is designed, its analysis is carried out to identify the optimal course of action so as to complete the project with the minimum of time and cost, subject to the available resources. Important network analysis techniques are PERT (Programme Evaluation Review Technique) and CPM (Critical Path Method).
6. Techno-Economic Analysis:
It is mainly concerned with the identification of the project demand potential and selection of the optimal technology suitable for achieving the project objectives. This study includes:
Estimation Of Demand Or Market Potential: The entrepreneur has to estimate the expected share of the sale in the market, intensity of competition, mobility of products to other places, etc., The data collected from various sources are first complied with, tested, and tabulated in a form suitable for interpretation.
Selection Of Technology: It refers to the combination of controlled variables that will ensure the achievement of the project objectives with minimum expenditure of resources.
7. Feasibility Analysis:
It involves an examination of the project idea in light of internal and external constraints. Internal constraints arise because of limitations of the project sponsoring body and external constraints arise due to the characteristic of the environment. If on feasibility analysis, the project is found feasible, the same is put to further analysis.