ASSIGNMENT PGPM 21

PROJECT FORMULATION & APPRAISAL

NICMAR/CODE OFFICE
ASSIGNMENT

 Course code : PGPM 21

 Course title : Project Formulation &

Appraisal

 Assignment no : One

Prepared
By :
Rutvan
Jariwala
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ASSIGNMENT PGPM 21
PROJECT FORMULATION & APPRAISAL

211-08-31-9748-2131

PROJECT FORMULATION

•Taking a first look carefully and critically at the project idea

•Carefully weighing its various components
•Analyzing with the assistance of specialists or consultants
•Assessment of the various aspects of an investment proposition
•It is an important stage in the pre-investment phase Stages of
Project Formulation

Entrepreneurship Management

1. Feasibility Analysis
2. Techno-Economic Analysis
3. Project Design and Network Analysis
4. Input Analysis
5. Financial Analysis
6. Cost-Benefit Analysis
7. Pre-Investment Analysis

1. Feasibility Analysis:
•First stage in project formulation
•Examination to see whether to go in for a detailed
investment proposal or not
•Screening for internal and external constraints Conclusion
could be:
•The project idea seems to be feasible
•The project idea is not a feasible one
•Unable to arrive at a conclusion for want of adequate data

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2. Techno-Economic Analysis:
 Screens the idea to Estimate of potential of the demand for
goods/services.
 Choice of optimal technology
 This analysis gives the project a platform for preparation of
detailed project design.

3. Project Design and Network Analysis:

•It is the heart of the project entity
•It defines the sequence of events of the project
•Time is allocated for each activity
•It is presented in a form of a network drawing
•It helps to identify project inputs, finance needed and cost-
benefit profile of the project.

4. Input Analysis:
•Its assesses the input requirements during the construction
and operation of the project
•It defines the inputs required for each activity
•Inputs include materials, human resources
•It evaluates the feasibility of the project from the point of
view of the availability of necessary resources
•This aids in assessing the project cost

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PROJECT FORMULATION & APPRAISAL

Methods and Tools for Project Formulation:

 Problem Tree Analysis

 Stakeholder Analysis
 Logical Framework Analysis
 Goal-Oriented Project Planning (ZOPP)

The Problem Tree

Purpose: To identify major problems and their main causal

relationships.
Output: A graphical arrangement of problems differentiated
according to ‘causes’ and ‘effects'.

Core Problem Approach

1. Identify a “core” or
central problem
2. List all the problems
related to or stemming
from the core problem
3. Determine which
related problems are
causes and which
effects of the core
problem
4. Arrange the problems in a cause-effect hierarchy around the core
problem.
From Problems to Objectives

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PROJECT FORMULATION & APPRAISAL

The Problem Tree provides the basis for:

a) the identification of specific project objectives (by converting

problems or constraints into specific objectives)

b) the definition of project activities and outputs (by substituting

cause-effect relationships with means-end relationships)

Problem Tree Analysis Relies on:

• Group-based inter-action eg. Workshop format
• Participation of key stakeholders
• Process facilitation
• Achieving consensus on problems, causes and effects

i. Market analysis

There are a number of techniques for evaluating. The most usual of

these techniques is to prepare a financial analysis, where the costs
and revenues of a project are represented as a financial statement
as cash flows. To do this, all the physical inputs required over a
project's life will need to be phased and then cost on an annual
basis, in present-day prices.
Typical inputs, which would be compiled in a tabulated form, may
include: civil works (buildings and infrastructure); equipment;
technical assistance and professional fees of design and supervision
consultants; furniture and fittings; land purchase, and temporary
rental of accommodation. Recurrent costs will include staff wages
and salaries and other operating expenditure, such as interest
payments, insurances, office overheads, utilities, repairs and

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maintenance, audit fees and depreciation. These costs are set

against the anticipated revenues derived from renting space to
wholesalers, parking fees, commission on auctions and other
charges.
Accurate cost estimates of capital works, recurrent expenditure and
anticipated revenues for a project are often not possible at this
stage and, in preparing the cash flows, assumptions will need to be
made.
Financial and economic analysis
The expected returns of a project should be initially analyzed on the
basis of the projected cash flow for the "basic case". This will
produce a financial "internal rate of return" (IRR), represented as a
percentage and a "net present value" of the project, represented as
a monetary sum.
Project returns and methods of calculation. As markets are often
fully or partially financed by central or local government funding
they have to compete with other projects for this financing. It is
usual, therefore, to expect that a project will have a return at least
equal to what might be expected from comparable investments. A
typical range of values would be between 10-20 percent. Net
present values should always be positive and exceed the total
capital outlay on the project.
Internal rates of return and net present values can be calculated
manually but it is more usual to use either the financial functions on
a desk calculator or to enter the cash flows into a spreadsheet
program on a personal computer. The latter is most convenient, as
variations can be calculated most easily.

ii. Technology and system feasibility

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The assessment is based on an outline design of system

requirements in terms of Input, Processes, Output, Fields,
Programs, and Procedures. This can be quantified in terms of
volumes of data, trends, frequency of updating, etc. in order to
estimate whether the new system will perform adequately or not.
Technological feasibility is carried out to determine whether the
company has the capability, in terms of software, hardware,
personnel and expertise, to handle the completion of the project.

iii. Financial analysis

Economic analysis is the most frequently used method for

evaluating the effectiveness of a new system. More commonly
known as cost/benefit analysis, the procedure is to determine the
benefits and savings that are expected from a candidate system and
compare them with costs. If benefits outweigh costs, then the
decision is made to design and implement the system. An
entrepreneur must accurately weigh the cost versus benefits before
taking an action.
Cost-based study: It is important to identify cost and benefit
factors, which can be categorized as follows: 1. Development costs;
and 2. Operating costs. This is an analysis of the costs to be
incurred in the system and the benefits derivable out of the system.

PROJECT EVALUATION

A project is a set of activities, limited in space, time, and scope,

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which is to achieve specified objectives. Project evaluation is the

control of the planning and implementation of project activities with
regard to the objectives to be achieved. This means that project
evaluation, just like program evaluation (see below), puts
normative assessments into the context of planning and
management and hence into the context of intentional action and
cycles of action. Here not only the assessment of facts and
scenarios is important but also the, more or less implicit, causal
chains which connect activities with project results and finally with
goal achievement.

Program Evaluation and Review Technique

PERT network chart for a seven-month project with five milestones

(10 through 50) and six activities (A through F).
The Program (or Project) Evaluation and Review Technique,
commonly abbreviated PERT, is a model for project management
designed to analyze and represent the tasks involved in completing
a given project. It is commonly used in conjunction with the critical
path method or CPM.

i. Market and real estate feasibility:

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Market Feasibility Study typically involves testing geographic

locations for a real estate development project, and usually involves
parcels of real estate land. Developers often conduct market studies
to determine the best location within a jurisdiction, and to test
alternative land uses for given parcels. Jurisdictions often require
developers to complete feasibility studies before they will approve a
permit application for retail, commercial, industrial, manufacturing,
housing, office or mixed-use project. Market Feasibility takes into
account the importance of the business in the selected area.

ii. Technical analysis:

The study of relationships among security market variables, such as

price levels, trading volume, and price movements, so as to gain
insights into the supply and demand for securities. Rather than
concentrating on earnings, the economic outlook, and other
business-related factors that influence a security's value, technical
analysis attempts to determine the market forces at work on a
certain security or on the securities market as a whole Technical
Analysis.

The practice of using statistics to determine trends in security prices

and make or recommend investment decisions based on those
trends. Technical analysis does not attempt to determine the
intrinsic value of securities, but instead focuses on matters such as
trade volume, demand, and volatility. Technical analysts evaluate
short-term trends almost exclusively, which is both a strength and a

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weakness in their analysis. They are sometimes called chartists

because of the importance charts have in technical analysis.

A method of evaluating securities by analyzing statistics and data

such as historical prices and trading volumes. Technical analysts do
not attempt to measure a security's intrinsic value but instead use
charts, graphs, and other analytic tools to identify patterns that
they believe will help predict future activity.

Technical analysts believe that the historical performance of stocks

and markets provides indications of future performance. In a
shopping mall, a fundamental analyst would go to each store, study
the product that was being sold, and then decide whether to buy
the store. By contrast, a technical analyst would sit on a bench in
the mall and watch people go into the stores. Disregarding the
intrinsic value of the products in the store, he or she would base the
decision on the patterns or activity of people going into each store.

iii. Financial analysis :

Refers to an assessment of the viability, stability and profitability of

a business, sub-business or project.

It is performed by professionals who prepare reports using ratios

that make use of information taken from financial statements and
other reports. These reports are usually presented to top
management as one of their bases in making business decisions.
Based on these reports, management may:
• Continue or discontinue its main operation or part of its business;
• Make or purchase certain materials in the manufacture of its

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product;
• Acquire or rent/lease certain machineries and equipment in the
production of its goods;
• Issue stocks or negotiate for a bank loan to increase its working
capital;
• Make decisions regarding investing or lending capital;
• Other decisions that allow management to make an informed
selection on various alternatives in the conduct of its business.

GOALS
Financial analysts often assess the firm's:
1. Profitability - its ability to earn income and sustain growth in both
short-term and long-term. A company's degree of profitability is
usually based on the income statement, which reports on the
company's results of operations;
2. Solvency - its ability to pay its obligation to creditors and other
third parties in the long-term;
3. Liquidity - its ability to maintain positive cash flow, while
satisfying immediate obligations;
Both 2 and 3 are based on the company's balance sheet, which
indicates the financial condition of a business as of a given point in
time.
4. Stability- the firm's ability to remain in business in the long run,
without having to sustain significant losses in the conduct of its
business. Assessing a company's stability requires the use of both
the income statement and the balance sheet, as well as other
financial and non-financial indicators.

METHODS
Financial analysts often compare financial ratios (of solvency,
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profitability, growth, etc.):

•Past Performance - Across historical time periods for the same firm
(the last 5 years for example),
•Future Performance - Using historical figures and certain
mathematical and statistical techniques, including present and
future values, This extrapolation method is the main source of
errors in financial analysis as past statistics can be poor predictors
of future prospects.
•Comparative Performance - Comparison between similar firms.

PROJECT APPRAISAL

Project Appraisal is Systematic and comprehensive review of the

economic, environmental, financial, social, and technical and other
such aspects of a project to determine if it will meet its objectives.

i. Feasibility appraisal:
Most major investment agencies require that the completed
feasibility study be subject to a review by an Appraisal Mission.
Following completion and submission of the project proposals, a
review carried out by the Appraisal Mission leads to the final

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decisions as to whether the project should be implemented,

modified or rejected.
The main purpose of the Appraisal is to confirm that the project is:
- in conformity with the country's development objectives and
immediate priorities;
- technically sound, and the best of the available alternatives under
existing technical and other constraints;
- administratively workable;
- unlikely to affect the environment adversely

Steps for project appraisal/Aspects of project appraisal

• Economic Aspects
• Technical Aspects
•Organizational Aspects
•Managerial Aspects
•Financial Aspects
•Market/Commercial Aspects

ii. Market Analysis:

The market for life skills training software can be segmented into
four groups. The first is centers for independent living, the second is
school districts, the third is proactive parents, and the last is
agencies charged with special education administration. Each of the
four segments is distinct and will be
communicated with in different ways. These four segments have
been chosen because they are the main purchasers of products for
individuals with developmental disabilities.

SWOT Analysis:

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 Strength:
 Highly qualified staff
 Introduction of new technology
 Providing customized products.
 Focusing on multiple target markets.
 Quality value added services.

 Weakness:
 Lack of training within organization in start of business
 Name recognition

 Opportunities:
 Vast market
 Untapped target market to cover
 Variety of products according to clients demand

 Threats :
 Globalization trend
 High turn over rate
 Impact of Economy deterioration in market.

Recommendations

a. I would like the proposed organization structure to be

followed including the independent function of the quality
control manager and observe the growth of the organization
for many such projects to come in the near future.
b. The line organization function should strictly follow the
written communication pattern in order to effectively
function as an efficient organization
c. Closely monitored information brings to light the data on the
live wires and real performers who under the watchful eye

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of the Top Management get the right incentives and

enhancement in their position as earlier indicated.
d. The Human Resource so treated. And developed remain the
backbone of the Organization in the days of fierce
competition and help the organization to survive and stand
on its own. It is the most intangible as well as invaluable
asset of the organization.
e. The quality issues can be well tackled at very source itself.
Only then proper preventive measures can be taken and the
issue can be nipped at the bud itself, so that the defects can
be rectified at an earlier stage and hence the complaints and
complications arising out of it can be brought down to
minimum level.

Bibliography:
1. Nicmar Lesson book.
2. Construction journals.

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