LECTURE 7
PROJECT FORMULATION
The project formulation is a systemic expression of such plan with detailed estimates within certain parameters. Such estimates in order to be more realistic and reliable are based on actual experiences, environments along with the trends forecasted for the coming years. All these are formulated in a ‘project report’. The project formulation needs lot of functional support from the specialists in their relevant fields.
Once the project has been identified necessary steps are taken to explore and assess the viability of the project.
It involves a study in one or more or all of the following areas:
(i) Technical:
a. Whether the technology involved in the project is appropriate to meet the objectives, to ensure that
b. It is not an obsolete technology;
c. The technical collaborator is capable to impart such technology often assured by a term of buy-back of part of the production;
d. The other terms for the know-how are reasonable and acceptable as per norms.
(ii) Economical:
a. The investment for the project is justified considering the overall economical situation and, in particular, relevant to the industry for which the project is being planned.
b. The project cost is justified as against the economic benefit to be derived from it.
(iii) Financial:
a. The necessary resources will be available in time during the implementation of the project and its subsequent operation. Experience indicates that many projects, after being partially carried out, are stopped (particularly in the public sector) due to lack of funds leading to delay in its implementation and cost escalation.
b. The estimated revenue to be generated from the project after being implemented is sufficient to justify the project capital cost.
(iv) Social:
a. The objective of the project is to serve common people through rural development, education, health-care etc. It should be ensured that sufficient funds are available to maintain such project e.g. a hospital built-up and equipped with necessary machineries/apparatus could not be run in the absence of funds to pay the doctors, nurses/maintenance staff etc.
Such studies are made and database prepared having information from various authentic sources as well as professional bodies, market research & analysts etc. The preparation of a project report passes through phases as project profile, pre-feasibility, feasibility and end up with a detailed project report (DPR).
Every such study is a costly affair, and it is not a must that a project should pass through all such studies. The status of the studies and reliability of the forecasted details in the report (pre-feasibility, feasibility etc.) improve with the managerial decision to dig in further as well as more detailed information available with the passage of time.
Thus, the project formulation develops from a Project Profile to a DPR. On the other hand, the project owner may even look for a DPR without any other reports as project profile etc.
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