UNIT 2 PROJECT DIMENSION,

IDENTIFICATION AND
FORMULATION
Contents
2.0 Objectives
2.1 Introduction
2.2 Dimensions of a Project
2.3 Project Identification
2.4 Project of Formulation
2.5 Detailed Project Report (DPR)
2.6 Let Us Sum Up
2.7 Key Words
2.8 Suggested Readings

2.0 OBJECTIVES
This unit has the primary aim of acquainting you with the dimensions of a
project, steps involved in project identification, steps involved in project
formulation and in preparing the format of a detailed project report. After
completing this unit, you will be able to:

indicate the dimensions of a project;

describe the process of formulating a project; and

list the constituents of a project report.

2.1 INTRODUCTION
The project life-cycle, as you have already learnt in the preceding Block, has
six distinct phases. In this unit, we will discuss the first two phases of the
project life-cycle, viz. project identification and project formulation. However,
we will first make a detailed examination of the dimensions of projects including
various types of linkages. The discussion is expected to facilitate identification
of development projects for selection and appraisal.

2.2 DIMENSIONS OF A PROJECT

It is generally known that a project would belong to a sector/sub-sector of
development. In the process, it gets identified with a particular sector/sub-
sector. In the real world situation, such identification has been misleading. A
project has many more dimensions and it is essential to identify them at the
outset. Let us take these up now.
i) Activity group: The first dimension of the project is the activity group or
nature of the activity to which it belongs. This is the most fundamental
14 dimension recognized by everyone. The project would belong to any of the
following four activity groups classified according to the nature of the activities. Project Dimension,
Identification and
Such activity groups are: Formulation

a) final commodity producing sectors,

b) productive infrastructural sectors,
c) marketing infrastructural sectors, and
d) social service infrastructural sectors.
We will briefly describe their nature here.
The nature of this pattern of grouping is such that groups (b),(c) and (d) are
complementary to group (a). Group (d) stands on its own, as it largely comprises
sectors/sub-sectors that provide for minimum social needs. Hence, it leaves
little choice of any shift of investment from one sector to another within the
group or with (b) and (c).
In terms of implications, consequent to a change or revision in groups, the
direction of change needs to be assessed properly. In respect of groups (b) and
(c), a revision effected within group (a) will indicate the direction in which the
revision in these two groups should be done.
For example, let us take milk production. Suppose, there is a revision within
group (a), since milk production is to be assigned relatively more investment.
This would call for, correspondingly, more investment in feeding and veterinary
facilities in group (b) and, similarly, more in marketing infrastructure for animal
feed and milk output.
Therefore, it follows that sequential procedure is to be followed while
identifying and revising projects.
ii) Independence and complementarity: We have already discussed in detail
about this dimension in preceding units. As discussed, the project may belong
to a wider programme in which it may either be independent or complementary
to other projects. The attempt should, however, be to avoid conflict of objectives
between the projects. This will ensure maximization of benefits to the
beneficiaries and, ultimately, the society.
iii) Potential beneficiary group: Since a project is a planned intervention for
the development of a certain social segment within a specific time period, the
potential segment’s interest becomes another dimension of the project. The
project would have one or other of the following potential beneficiary groups
as targets:
– the population of a Community Development Block in general or the
inhabitants of a group of villages, e.g., for roads/electrification;
– the village community as a whole, e.g., for school, primary health centre,
drinking water, public tube well;
– members of a cooperative society, e.g., for collection/chilling centre for a
milk cooperative, wool carding center for a weaver’s cooperative;
– a specific target group, such as an association of target group persons or
households for sharing an irrigation tube-well or a drinking water well. It
may also consist of individual members of households belonging to the
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target group, e.g., housing, dairy unit, shoe making;
Rural Development – private individuals, private firms and companies or households in general,
Management
e.g., small scale unit, dairy unit, orchard plantation.
iv) Share in investment (capital structure): The capital structure is determined
by the share in investment proposed by the private sector in the project.
Therefore, the capital structure is a very important dimension of a project.
Depending on the beneficiary group, and their interests as outlined above, the
capital could be obtained from the public sector, individuals and institutions
in the private sector, the village community or panchayat, a cooperative society
or a combination of these.
In some extreme cases, investments would be wholly public or private. Further,
depending on the investors and in what proportions they share the project
investment, the capital assets formed under the project may be shared and
owned accordingly.
v) Financial interests: Consequent to the capital structure, financial interests
in the project could be many. Depending on the contributor’s share in the
project, the interests would vary. Project finances may also come partly through
fund transfers among the investors themselves by way of grants and loans or
partly in the form of loans from financial institutions. This dimension of the
project cannot be overlooked.
vi) Allocation and area specificity: The problem of allocation of time and
resources, especially capital, has an important bearing on project identification.
Therefore, it calls for proper coordination among different activities.
The spatial distribution and locational structure of economic activities and
facilities determine which type of projects could be formulated and what could
be the allocation of different resources. Concepts like growth poles and central
places can be used to illustrate the spatial and locational dimension of the
project.
A growth pole is a location (a town, village, or area) where one or more major
economic activities (e.g., major industries or production centers) are
concentrated. A central place is a location where major physical (transport,
warehouses, communication) and institutional (marketing, financial
infrastructural) facilities are concentrated.
There would normally be an order of priority amongst growth poles and central
places in a region, depending on the extent of concentration of production
activities and infrastructural facilities. While some projects may yield better
developmental results when located in existing growth poles or central places,
other projects my need to be set up to create new growth poles or central
places.
Can you identify why?
It is because of different multiple effects between the project and the existing
facilities. Therefore, the command areas of growth poles and central places
need to be properly assessed before identifying a project(s).
Identification and clear specification of all the dimensions mentioned here in
of the proposed project is a necessary aid to a proper appraisal and ultimate
selection of projects. Formulation of the project blue-print should, accordingly,
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start with such a specification of project dimensions.
 Project Dimension,
Check Your Progress I Identification and
Formulation
Notes: a) Write your answers in the space provided.
b) Compare your answers with the text.
1) List the reasons why the capital structure is an important dimension of a
project.
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2) Identify the target groups for a family planning programme. Mention

which of these you consider to be primary.
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3) Indicate two projects in a community development block, which are

characterised by complementarity and two in which, there is conflict.
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Activity I
Identify some growth poles and central places in your district. Indicate the
reasons why you consider them as growth poles and central places.
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2.3 PROJECT IDENTIFICATION

The process of project identification, as mentioned in the preceding unit, starts
with the conception of an idea. The ideas have to be tested for their practicality
and worthiness, say in a community development block. The key factor in the
guide is to subject the idea to the following questions:
– Will the project implied in the idea fall within block level planning
activities in terms of scope and the order of investment it is likely to
require?
– Are its technical features, including physical location, layout, alignment,
etc. prima facie sound?
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Rural Development – Do the material conditions for its successful operation, in terms of actual
Management
and potential availability of required raw materials and energy, exist in
the block?
– Will the required skilled manpower be available either because it already
exists or there are conditions for its speedy development?
– Is there a local demand for the goods or services the potential project is
intended to produce? And if local demand is not adequate, can the excess
output be sold to urban centres or to neighbouring blocks at competitive
prices?
– Are the particular social minimum needs the potential project is intended
to serve at present unfulfilled in the block?
If the answer to these questions is an emphatic ‘yes’, the project idea should
be translated into a project blue-print. And if the answer turns out to be ‘no’,
the project idea should be dropped or, at best, postponed until conditions
favourable for reconsideration arise.

2.4 PROJECT FORMULATION

After the series of project ideas have, thus, been identified and tested, individual
projects need to be explicitly formulated or prepared on the basis of a detailed
analysis of specific techno-economic relationships. Project formulation
generally leads to a Detailed Project Report (DPR). This is the stage at which
detailed studies will commence, so that realistic estimates can be made of how
the project might be implemented and of its likely income generating capacity.
A detailed preparation of a blue-print takes time, often a year or two or even
longer for complex projects. It is expensive, too, as it may well cost seven to
ten per cent of the total project investment.
The process of formulation or preparation includes all the work necessary to
bring the project to the point at which a careful review of appraisal can be
undertaken and, if selected, implementation can be carried out.
A feasibility study has to be undertaken as the first step in project preparation.
This initial step makes it easier to decide if detailed advanced planning needs
to be done. The feasibility study should also provide an opportunity to shape
the project to fit its physical and social environment. This is expected to ensure
that the project when implemented will be giving maximum returns. Details
of feasibility analysis will be discussed in subsequent units.
Step One
We have discussed earlier the process by which the objectives of a block plan
are finalized. These objectives will now have to be matched with the physical
and social conditions of the block (Step One).
Since each plan for a project is time-bound, you have to first make an inventory
of all the resources in the base year. The accompanying chart will describe the
manner or scheme of actions to be initiated by you at the block level, see Chart
(1).

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 Chart I : Details about the features of the project area to be identified Project Dimension,
Identification and
while formulating a project Formulation
PROJECT AREA

FEATURES PHYSICAL ECONOMIC SOCIAL INFRASTRUCTURAL INSTITUTIONAL

Land Tenure & Population Social

Holding Size Migration Services
Geographical Climate Topography Water Health
Location Resources Education
and Others

Roads Electricity Communication

Agriculture and Land usepattern Input Supply Other

Livestock Resources & Product Economic
Market Activities Financial Marketing

This scheme will describe the existing status of the area where the project will
be located and the bases from which the project would start. In other words, it
will set the framework of constraints and opportunities for the project.
Check Your Progress II
Notes: a) Write your answers in the space provided.
b) Compare your answer with the text.
Think of the ways in which you can match the objectives with the physical
and social conditions of a block you have visited.
(Hint: See the chart and the preceding text.)
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The Next Step

The next step involves working out the activities and general facilities, their
phasing, costs and mode of financing. The organisation and management
aspects are also worked out at this stage. However, it must be noted that the
activities would vary depending on the nature of the project. Therefore, a
suggestive outline is given below:
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Rural Development i) The Project Description
Management
ii) Component Details: Works and General Facilities
iii) Project Phasing
iv) Cost Estimates
v) Financing
vi) Organisation and Management
vii) Production, Markets and Financial Expectations
viii) Benefits and Justification
ix) Outstanding Issues
x) Annexure
Activity II
You may now like to further subdivide each of the main points mentioned above
for a typical rural development project.
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2.5 DETAILED PROJECT REPORT (DPR)

The World Bank recommends that, as a rule of thumb, a DPR should aim at a
main text of about twenty-five single spaced typescript pages for a simple
agricultural project and not more than fifty pages for a complex rural
development project. This has to be supported by a series of annexures, possibly
in a separate volume. As far as possible, the main text should present the
project in a form that a non-specialist can understand. Specialised back up
information – maps, charts and detailed tables – should be reserved for the
annexures.
In the beginning, however, it must be noted that the substance of a project’s
DPR is more crucial than its format, primarily because each project will have
a different focus. Hence, different elements of the project will need different
emphasis. However, an outline of format is provided here, so that you can
have a starting point. The checklist of the format, as discussed in previous
sections, can now be given as follows:
Summary and Conclusion: This section should, very briefly, give the essential
elements of the project. It will include the rationale, priorities, beneficiaries,
main components, investment period, costs, organisation, financial and
economic efforts.
Introduction: This section should indicate the origin of the project idea and
agencies responsible for preparing the DPR. This section is basically a non
technical one and should be brief.
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Background: This part is mainly for establishing the framework of the project Project Dimension,
Identification and
in relation to the environment (natural, economic and social). The material Formulation
presented here should have a direct bearing with materials to be presented in
subsequent sections.
Project Rationale: This section should provide a persuasive discussion based
on the process of identification discussed earlier. It should also give technical,
economic and social justification for the selection of the project. Since there
are many development strategies, all cannot be adopted by the project. Hence,
an explanation must be provided for choosing a particular strategy. Limitations
of the project should also find a place in this section.
Project Area: The development opportunities and potentials of the project
need to be mentioned here. We have already dealt with this aspect in a detailed
manner in a preceding section.
Organisation and Management: This section will describe the
implementation and monitoring agencies for different aspects of the project. It
should also discuss the administrative arrangements, staffing patterns,
equipment, functions and powers of the project authority.
Production, Markets and Financial Results: This section should show why
beneficiaries should join the mainstream of the project. The financial and
economic feasibility of the project should be provided here.
Benefits and Justification: This is a crucial part of the DPR where all aspects
of the project, discussed till now, are to be assessed for social and economic
desirability. We will take this up in the next section for a detailed treatment.
Outstanding Issues: This section contains some major issues, which the project
will have to tackle at some future date.
Annexure: This part contains the detailed support for the project. As this
section is meant for specialists and experts, it must be prepared with special
care. The material included are statistical tables, maps, drawings, charts,
photographs and diagrams. The order of presentation in this section must
correspond with the man presentation.
Activity III
Take a detailed project report of any project from a District Rural Development
Agency office near you. Study the DPR carefully. List at least five strong and
weak points each. Briefly justify your answer.
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2.6 LET US SUM UP

In this unit, we discussed the dimension of a project and noted that these are
related to activity, independence/complementarity, beneficiary group, capital 21
Rural Development structure, and financial interests. We, then, considered the process of
Management
identification of a project and the main questions to be answered. We proceeded
to discuss the process of formulation of a project and identified the different
steps involved in it. Later, we listed the components of a project report.

2.7 KEY WORDS

Capital Structure : Denotes share in investment by various
agencies.
Central Place : Location of major physical and institutional
infrastructual facilities.
Detailed Project Report : A report providing details about the proposed
report.
Growth Pole : Location where one or more economic
activities are located and which develops faster
than neighbouring locations.
Project Formation : Preparation of a blue-print of the project.
Project Identification : Elaboration of a basic conceived idea after
rejection of alternatives. This is carried out by
techniques, which translate the strategy for
investment into actual specific investment.

2.8 SUGGESTED READINGS

Gittinger, J.Price (1982), Economic Analysis of Agricultural Projects (Rev.
2nd Edn.), The John Hopkins University Press, Baltimore and London.
Mishra, S.N. (1984), Rural Development Planning – Design and Method,
Satvahan Publications, New Delhi.

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