PROJECT FORMULATION

Project formulation means the systematic development of a project idea for arriving at an
investment decision. It contains a mechanism of knowing risks at the earlier possible stage of
resource mobilisation. It involves a step by step investigation and development of project idea.

Project formulation is a process which involves team effort of various experts. For this, each
member of the team should be familiar with broad strategy, objectives and other aspects of the
project.

Significance of Project Formulation

A well formulated project is of great help in obtaining assistance from financial institutions.
When resources are limited and are allotted to various projects on the basis of their relative
importance and viability, a well formulated project is the best way of convincing a financial
institution.

A well formulated projects get easy Government clearance and removing hurdles of procedural
formalities. It provides an independent assessment of feasibility of obtaining these sanctions
based on Government’s policies.

Elements of Project Formulation

Project formulation is by itself an analytical management aid. It enables the entrepreneur to
arrive at most effective project decision.

A project formulation process involves the following aspects:

1. Feasibility Analysis
2. Techno – economic Analysis
3. Project Design and Network Analysis
4. Input Analysis
5. Financial Analysis
6. Social cost benefit Analysis
7. Project Appraisal
8. Location and Layout Analysis
9. Selection of form of ownership.
 PROJECT REPORT

A project may be defined “as a scheme, design, a proposal or something intended to be devised.”

In simple words project report is business plan. It is written statement of what entrepreneur is
likely to take up. It is a course of action what an entrepreneur hopes to achieve in the business
and how will he achieve it. Project report serves as a big road map to reach the destination
determined by the entrepreneur.

A project report serves two purposes:

(i) It serves as a guide map. It describes the direction by which the enterprise will gain in
what are the objectives, where it should be, how it is going to reach these goals.
(ii) A project report is made to attract lenders and investors. Although preparation of
project report is not essential for small scale entrepreneurs but still it is advisable for
them to do so.

Contents:
Generally a good project report should contain following contents:

(i) General information, i.e., project profile and its details.

(ii) Promoter’s Name, educational qualifications, work and project related experience.
(iii) Locational aspect place, lease or freehold, locational advantages.
(iv) Land and building area, construction area, type and cost of construction, etc.
(v) Production Resource, production processes, technology alternatives,etc.
(vi) Various utilities, water, power, steam, compressed air, cost estimates and their
sources.
(vii) Modes of transport and communication
(viii) Details regarding raw material and its sources.
(ix) Details of manpower requirement and sources.
(x) Product details, i.e., product mix, estimated scales, channels of distribution,
competitors etc..
(xi) Working capital requirements.
(xii) Market details, i.e., ultimate users of product, distribution of market as local, national
and international, market research, etc.
(xiii) Requirement of funds.
 (xiv) Cost of production and profitability for first 10 years.
(xv) Break-even analysis.
(xvi) Schedule of implementation.

Objectives of Project Report:

1. To obtain financial assistance.
2. To evaluate investment opportunities.
3. To send the report to Government departments and District Industries Centre.
4. To have the knowledge of objectives and available resources.
5. Comparative study of estimated cost and incomes.
6. Project report are systematic viewpoints for investment decisions.
7. Serve as strong basis for getting tax concessions, financial help, facilities, subsidies and
incentives from Government and other agencies.

Difference between Project Report and Project Formulation

Project Report Project Formulation

It mainly focuses on providing full visibility It mainly focuses on development of project
about each and every activity that is related to idea in systematic way for reaching at
project. investment decision.

Factors affecting project report include
unfinished planning, close communication,
unavailability of intelligent people, etc..
Factors affecting project proposal includes no
qualified personnel, no knowledge about
government regulations, influence of external
economics, inappropriate selection of
technology, etc..

Its benefits include track current progress of Its benefits include enable decision marker to
project, track issues, budget, schedule, identify take decision, represent project related facts,
risk and take corrective action, etc.. analysis of input, managerial, etc.
Its main objective is to give detail Its main objectives is to highlight complete
representation of what project is all about and picture of project being undertaken without
power to view health of project. providing detail about feasibility study.

It includes project description, organization It includes objectives, activities, expected

summary, management plan, financial aspects, outcomes to be produced out of project.
project description, etc.
Disadvantages include time consuming, Disadvantages include time consuming,
difficult to understand, difficult to implement misdirected, etc.
report recommendations, etc.

Stages of project report include understanding Stages of project formulation includes

project report, gathering and selecting feasibility analysis, techno-economic analysis,
information, organization material, analyzing input analysis, cost-benefit analysis, etc..
material, etc..