Course code : PGPM 21

 Course title : Project Formulation & Appraisal

Assignment no : One

Rutvan Jariwala 211-08-31-9748-2131 Page 1

Cost-Benefit Analysis 7.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & By : Rutvan Jariwala 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. Techno-Economic Analysis 3. 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 Rutvan Jariwala 211-08-31-9748-2131 Page 2 . Financial Analysis 6. Project Design and Network Analysis 4. Feasibility Analysis 2. Pre-Investment Analysis 1. Input Analysis 5.

Choice of optimal technology This analysis gives the project a platform for preparation of detailed project design. 4. • • 3. 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 Rutvan Jariwala 211-08-31-9748-2131 Page 3 . finance needed and costbenefit profile of the project. 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. 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. Techno-Economic Analysis: • Screens the idea to Estimate of potential of the demand for goods/services.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & 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 2.

Determine which related problems are Rutvan Jariwala 211-08-31-9748-2131 Page 4 . List all the problems related to or stemming from the core problem 3. Core Problem Approach 1. Identify a “core” or central problem 2.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & 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'.

The most usual of these techniques is to prepare a financial analysis. equipment. where the costs and revenues of a project are represented as a financial statement as cash flows. To do this. which would be compiled in a tabulated form.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & causes and which effects of the core problem 4. Market analysis There are a number of techniques for evaluating. all the physical inputs required over a project's life will need to be phased and then cost on an annual basis. may include: civil works (buildings and infrastructure). Typical inputs. in present-day prices. Arrange the problems in a cause-effect hierarchy around the core problem. Rutvan Jariwala 211-08-31-9748-2131 Page 5 . Workshop format • Participation of key stakeholders • Process facilitation • Achieving consensus on problems. causes and effects i. From Problems to Objectives 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.

furniture and fittings. Accurate cost estimates of capital works. recurrent expenditure and anticipated revenues for a project are often not possible at this stage and. repairs and maintenance. to expect that a project will have a return at least equal to what might be expected from comparable investments. parking fees. These costs are set against the anticipated revenues derived from renting space to wholesalers. such as interest payments. insurances. represented as a monetary sum. commission on auctions and other charges. office overheads.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & technical assistance and professional fees of design and supervision consultants. Net present values should always be positive and exceed the total capital outlay on the project. land purchase. It is usual. Recurrent costs will include staff wages and salaries and other operating expenditure. As markets are often fully or partially financed by central or local government funding they have to compete with other projects for this financing. Internal rates of return and net present values can be calculated Rutvan Jariwala 211-08-31-9748-2131 Page 6 . represented as a percentage and a "net present value" of the project. utilities. therefore. and temporary rental of accommodation. in preparing the cash flows. 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". A typical range of values would be between 10-20 percent. assumptions will need to be made. audit fees and depreciation. Project returns and methods of calculation. This will produce a financial "internal rate of return" (IRR).

which can be categorized as follows: 1. trends. Rutvan Jariwala 211-08-31-9748-2131 Page 7 . personnel and expertise. An entrepreneur must accurately weigh the cost versus benefits before taking an action. This can be quantified in terms of volumes of data. then the decision is made to design and implement the system. in terms of software. Programs. iii. to handle the completion of the project. The requirements terms Input. Technological feasibility is carried out to determine whether the company has the capability. Cost-based study: It is important to identify cost and benefit factors. Technology and system feasibility assessment in is based of on an outline design of system Fields. The latter is most convenient. Output. in order to estimate whether the new system will perform adequately or not. etc.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & 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. If benefits outweigh costs. and Procedures. Development costs. as variations can be calculated most easily. Financial analysis analysis is the most frequently used method for Economic evaluating the effectiveness of a new system. frequency of updating. More commonly known as cost/benefit analysis. ii. hardware. Processes. the procedure is to determine the benefits and savings that are expected from a candidate system and compare them with costs.

and scope. Operating costs. causal chains which connect activities with project results and finally with goal achievement. This is an analysis of the costs to be incurred in the system and the benefits derivable out of the system. This means that project evaluation. PROJECT EVALUATION A project is a set of activities. limited in space.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & and 2. Program Evaluation and Review Technique PERT network chart for a seven-month project with five milestones Rutvan Jariwala 211-08-31-9748-2131 Page 8 . Project evaluation is the control of the planning and implementation of project activities with regard to the objectives to be achieved. more or less implicit. which is to achieve specified objectives. time. Here not only the assessment of facts and scenarios is important but also the. planning puts and assessments management and hence into the context of intentional action and cycles of action. normative just like program into evaluation the context (see of below).

Developers often conduct market studies to determine the best location within a jurisdiction. and to test alternative land uses for given parcels.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & (10 through 50) and six activities (A through F). and other business-related factors that influence a security's value. so as to gain insights into the supply and demand for securities. ii. technical analysis attempts to determine the market forces at work on a certain security or on the securities market as a whole Technical Rutvan Jariwala 211-08-31-9748-2131 Page 9 . housing. Market and real estate feasibility: Feasibility Study typically involves testing geographic i. office or mixed-use project. such as price levels. commercial. Technical analysis: The study of relationships among security market variables. Market locations for a real estate development project. commonly abbreviated PERT. trading volume. Jurisdictions often require developers to complete feasibility studies before they will approve a permit application for retail. industrial. It is commonly used in conjunction with the critical path method or CPM. is a model for project management designed to analyze and represent the tasks involved in completing a given project. and usually involves parcels of real estate land. Rather than concentrating on earnings. the economic outlook. Market Feasibility takes into account the importance of the business in the selected area. The Program (or Project) Evaluation and Review Technique. and price movements. manufacturing.

A method of evaluating securities by analyzing statistics and data such as historical prices and trading volumes. a technical analyst would sit on a bench in the mall and watch people go into the stores. The practice of using statistics to determine trends in security prices and make or recommend investment decisions based on those trends. which is both a strength and a weakness in their analysis. Technical analysts do not attempt to measure a security's intrinsic value but instead use charts. a fundamental analyst would go to each store. Disregarding the intrinsic value of the products in the store. In a shopping mall. By contrast. Financial analysis : Rutvan Jariwala 211-08-31-9748-2131 Page 10 . Technical analysis does not attempt to determine the intrinsic value of securities. They are sometimes called chartists because of the importance charts have in technical analysis. iii. and other analytic tools to identify patterns that they believe will help predict future activity. he or she would base the decision on the patterns or activity of people going into each store. Technical analysts evaluate short-term trends almost exclusively. study the product that was being sold. demand. but instead focuses on matters such as trade volume.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & Analysis. and volatility. and then decide whether to buy the store. graphs. Technical analysts believe that the historical performance of stocks and markets provides indications of future performance.

its ability to pay its obligation to creditors and other third parties in the long-term. stability and profitability of a business. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports. • Issue stocks or negotiate for a bank loan to increase its working capital. Based on these reports. • Make or purchase certain materials in the manufacture of its product. management may: • Continue or discontinue its main operation or part of its business. GOALS Financial analysts often assess the firm's: 1. • Other decisions that allow management to make an informed selection on various alternatives in the conduct of its business. Solvency . • Make decisions regarding investing or lending capital. • Acquire or rent/lease certain machineries and equipment in the production of its goods. A company's degree of profitability is usually based on the income statement. Rutvan Jariwala 211-08-31-9748-2131 Page 11 .its ability to earn income and sustain growth in both short-term and long-term. Profitability . which reports on the company's results of operations. 2. These reports are usually presented to top management as one of their bases in making business decisions.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & Refers to an assessment of the viability. sub-business or project.

Both 2 and 3 are based on the company's balance sheet. growth.Comparison between similar firms. •Future Performance Using historical figures and certain mathematical and statistical techniques. which indicates the financial condition of a business as of a given point in time.): •Past Performance . Assessing a company's stability requires the use of both the income statement and the balance sheet. Stability. •Comparative Performance . profitability.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & 3. etc. while satisfying immediate obligations. without having to sustain significant losses in the conduct of its business. as well as other financial and non-financial indicators. 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. 4. Liquidity . METHODS Financial analysts often compare financial ratios (of solvency.the firm's ability to remain in business in the long run.Across historical time periods for the same firm (the last 5 years for example).its ability to maintain positive cash flow. Rutvan Jariwala 211-08-31-9748-2131 Page 12 .

unlikely to affect the environment adversely Steps for project appraisal/Aspects of project appraisal • Economic Aspects • Technical Aspects •Organizational Aspects Rutvan Jariwala 211-08-31-9748-2131 Page 13 .in conformity with the country's development objectives and immediate priorities. a review carried out by the Appraisal Mission leads to the final decisions as to whether the project should be implemented.administratively workable. Feasibility appraisal: Most major investment agencies require that the completed feasibility study be subject to a review by an Appraisal Mission.technically sound. . environmental. financial. The main purpose of the Appraisal is to confirm that the project is: . and the best of the available alternatives under existing technical and other constraints. social.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & PROJECT APPRAISAL Project Appraisal is Systematic and comprehensive review of the economic. Following completion and submission of the project proposals. modified or rejected. . and technical and other such aspects of a project to determine if it will meet its objectives. . i.

ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & •Managerial Aspects •Financial Aspects •Market/Commercial Aspects ii. and the last is agencies charged with special education administration. the second is school districts. These four segments have been chosen because they are the main purchasers of products for individuals with developmental disabilities. Market Analysis: The market for life skills training software can be segmented into four groups. The first is centers for independent living. the third is proactive parents.  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 Rutvan Jariwala 211-08-31-9748-2131 Page 14 . Each of the four segments is distinct and will be communicated with in different ways. SWOT Analysis:  Strength: • • • • • Highly qualified staff Introduction of new technology Providing customized products. Focusing on multiple target markets. Quality value added services.

Rutvan Jariwala 211-08-31-9748-2131 Page 15 . Only then proper preventive measures can be taken and the issue can be nipped at the bud itself. 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.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION &  Threats : • • • Globalization trend High turn over rate Impact of Economy deterioration in market. It is the most intangible as well as invaluable asset of the organization. The Human Resource so treated. 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. d. Recommendations a. e. b. The quality issues can be well tackled at very source itself. The line organization function should strictly follow the written communication pattern in order to effectively function as an efficient organization c. 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. Closely monitored information brings to light the data on the live wires and real performers who under the watchful eye of the Top Management get the right incentives and enhancement in their position as earlier indicated.

Rutvan Jariwala 211-08-31-9748-2131 Page 16 . 2. Construction journals. Nicmar Lesson book.ASSIGNMENT PGPM 21 APPRAISAL PROJECT FORMULATION & Bibliography: 1.

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