Project Formulation

Unit - 1
Project Formulation

▪ The search for promising ideas is the first step towards establishing a successful
venture.
▪ Identification of opportunities require imagination, sensitivity to environmental
changes, and realistic assessment of what a firm can do.
▪ Identification is often the outcome of a triggering process rather than an
analytical exercise.
▪ The task is partly structured, partly unstructured, partly dependent on
convergent thinking, partly on divergent thinking, partly requiring objective
analysis of quantifiable factors, partly requiring subjective evaluation of
qualitative factors, partly amenable to control and partly dependent on fortuitous
circumstances.
Generation of Ideas

▪ Stimulating the flow of ideas

– SWOT Analysis
▪ Strengths, Weaknesses, Opportunities, Threats
– Clear articulation of objectives
▪ Cost reduction
▪ Productivity improvement
▪ Increase in productivity utilisation
▪ Expansion into promising fields
– Fostering a conducive climate
Monitoring the Environment

▪ Economic Sector
– State of economy
– Overall rate of growth
– Growth rate of primary, secondary and tertiary sectors
– Cyclic fluctuations
– Linkages with world economy
– Trade surplus/deficit
– Balance of payment situation
Monitoring the Environment

▪ Environmental Sector
– Industrial policy
– Government programmes and projects
– Tax framework
– Subsidies, incentives, and concessions
– Import and export policies
– Financing norms
– Lending conditions of financial institutions and commercial banks
 Monitoring the Environment

▪ Technological Sector
– Emergence of new technologies
– Access to technical know-how, foreign as well as indigenous
– Receptiveness on the part of industry
▪ Socio-demographic Sector
– Population trends
– Age shifts in popolation
– Income distribution
– Educational profile
– Attitudes towards consumption and investment
 Monitoring the Environment

▪ Competition Sector
– No. of firms in the industry and market share
– Degree of homogeneity and differentiation among products
– Entry barriers
– Comparison with substitutes in terms of quality, price, appeal and functional
performance
– Marketing policies and practices
▪ Supplier Sector
– Availability and cost of raw-materials and sub-assemblies
– Availability and cost of energy and money
Tools for identifying investment opportunities
▪ Porter’s Five Forces Model
Tools for identifying investment opportunities
▪ Product Life Cycle Approach
Tools for identifying investment opportunities

▪ The Experience Curve

 Scouting for project ideas

▪ Analyse the performance of existing ▪ Study new technological developments

industries ▪ Draw clues from consumption abroad
▪ Examine the inputs and outputs of ▪ Explore the possibility of reviving sick
various industries units
▪ Review imports and exports ▪ Identify unfulfilled psychological needs
▪ Study plan outlay and governmental ▪ Attend trade fairs
guidelines ▪ Stimulate creativity for generating new
▪ Look at the suggestions of financial product ideas
institutions and developmental agencies ▪ Hope that the chance factor will favour
▪ Investigate local materials and you
resources
▪ Analyse economic and social trends
Preliminary screening

▪ Compatibility with the promoter

▪ Consistency with governmental priorities
▪ Availability of inputs
▪ Adequacy of markets
▪ Reasonableness of cost
▪ Acceptability of risk level
Market Feasibility
Market feasibility

▪ Potential market
▪ Potential customers
▪ Competition
▪ Marketing strategy (Product, Price, Promotion, Place)
▪ Sales forecast
▪ SWOT analysis (Strength, Weakness, Opportunity, Threat)
Collection of Secondary information

▪ General Sources of Secondary Information – Monthly studies of production of selected

industries
– Monthly bulletin of RBI
– Census of India
– Publications of advertising agencies
– National Camp Survey Reports
– Other publications
– Plan reports
– ETIG-Economic Times Intelligence Groups
– Statistical abstract of the Indian union
– Corporate Databases
– India year book
– Industry associations
– Statistical year book
– Consultancy firms
– Economic survey
– World Bank
– Guidelines to industries
– Brokerage reports
– Annual survey of industries
– Annual reports of the development wing
– Annual bulletin of statistics of exports and imports ▪ Industry Specific Sources of Secondary
– Techno-economic surveys
Information
– The stock exchange directory
Conduct of market survey

▪ Information sought in market survey

– Total demand and rate of growth of demand
– Demand in different segments of the market
– Income and price elasticity of demand
– Motives for buying
– Purchasing plans and intentions
– Satisfaction with existing products
– Unsatisfied needs
– Attitudes towards different products
– Distributive trade practices and preferences
– Socio-economic characteristics of buyers
Steps in sample survey

▪ Define the target population

▪ Select the sampling scheme and sample size
▪ Develop the questionnaire
▪ Recruit and train the field investigator
▪ Obtain information as per the questionnaire
▪ Scrutinize the information gathered
▪ Analyse and interpret the information
Characterization of the market

▪ Effective demand in the past and present

▪ Breakdown of demand
▪ Price
▪ Methods of distribution and sales promotion
▪ Consumers
▪ Supply and competition
▪ Government policy
Demand Forecasting

▪ Qualitative Methods ▪ Causal Methods

– Jury of executive methods – Chain ratio method
– Delphi method – Consumption level method
▪ Time Series Projection Methods – End use method
– Trend projection method – Bass diffusion model
– Exponential smoothing method – Leading indicator method
– Moving average method – Econometric method
Uncertainties in demand forecasting

▪ Principal sources for error

– Data about past and present market
– Methods of forecasting
– Environmental change
Marketing startegy

▪ Target Segment ▪ 4 Ps of Marketing

▪ Positioning – Product
▪ Product line – Price
– Place
▪ Price
– Promotion
▪ Distribution
▪ Sales force
▪ Sales promotion
▪ Advertising
Technical Feasibility

▪ Choice of Technology ▪ Appropriateness of Technology

– Plant capacity – Whether the technology utilizes local
– Principal inputs raw material?
– Investment outlay and production cost – Whether the technology utilizes local
– Use by other units manpower?
– Product mix – Whether the g/s produced cater to the
basic needs?
– Latest developments – Whether the technology protects
– Ease of absorption ecological balance?
– Whether the technology is harmonious
with social and cultural conditions?
Material inputs and utilities

▪ Broadly classified into four major categories

– Raw-materials
– Processed industrial materials and components
– Auxiliary materials and factory supplies
– utilities
Material inputs and utilities

▪ raw-materials ▪ Processed industrial materials and

– Agricultural products components
– Mineral products – Base metal
– Livestock and forest products – Semi-processed materials
– Marine products – Manufactured parts, components
– Sub-assemblies
Material inputs and utilities

▪ Auxiliary materials and factory ▪ utilities

supplies ▪ Power
▪ Chemicals ▪ Water
▪ Additives ▪ Steam
▪ Packaging materials ▪ Fuel
▪ Paint
▪ Varnishes
▪ Oils
▪ Grease
▪ Cleaning materials
Plant capacity

▪ Technological requirements
▪ Input constraints
▪ Investment cost
▪ Market condition
▪ Resources of the firm
▪ Governmental policy
Location and site

▪ Proximity to raw materials and markets

▪ Availability of infrastructure
▪ Labour situation
▪ Governmental policies
▪ Other factors
– Climate conditions
– General living conditions
– Proximity to ancillary units
– Ease in coping with pollution
▪ Site selection
Machineries and equipments

▪ Equipments can be classified into: ▪ List should be prepared for spare

1. Plant (process) equipments parts too:
2. Mechanical equipments – Spare parts and tools to be purchased
3. Electrical equipments with the original equipment
4. Instruments – Spare parts and tools required for
operational wear and tear
5. Controls
6. International transportation system
7. Others
Machineries and equipments

▪ Constraints in selecting M&E ▪ Procurement of plant and

1. Limited availability of power machinery
2. Difficulty in transporting heavy
equipment
3. Lack of skilled labour
4. Import policy of government
Structure and civil works

▪ Can be divided into three broad categories

– Site Preparation
– Building and structures
– Outdoor works
Structure and civil works

▪ Site Preparation and Development

– Grading and leveling of the site
– Demolition and removal of existing structure
– Relocation of existing pipelines, cables, roads, power lines etc.
– Reclamation of swamps and draining and removal of standing water
– Connection for the public utilities from the site to the public network: electric power,
water for drinking and other purposes, communications, roads, railways
– Other site preparation and development work
Structure and civil works

▪ Buildings and structures

– Factory or process building
– Ancillary buildings required for stores, warehouses, laboratories, utility supply
centres, maintenance services and others
– Administrative buildings
– Staff welfare buildings, cafeteria, and medical service buildings
– Residential buildings
Structure and civil works

▪ Outdoor works
– Supply and distribution of utilities
– Handling and treatment of emission, wastage and effluents
– Transportation and traffic signals
– Outdoor lighting
– Landscaping
– Enclosure and supervision (boundary wall, fencing, barriers, gates, doors, security
posts etc.)
Project charts and layouts

▪ General functional layout

▪ Material flow diagram
▪ Production line diagrams
▪ Transport layout
▪ Utility consumption layout
▪ Communication layout
▪ Organisational layout
▪ Plant layout
Need for considering alternatives

▪ Nature of project
▪ Production process
▪ Product quality
▪ Scale of operation and time phasing
▪ location
Key project inter-linkages
Economic feasibility
Clearance Required

▪ https://realty.economictimes.indiatimes.com/realty-check/7-steps-to-get-
clearance-for-building-construction/1511
▪ ECconstruction.pdf
▪ Bangalore-commercial project.pdf
▪ Road Project-Gujarat.pdf
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