PREPARATION OF

PROJECT
VIII MODULE


Project is an organised unit dedicated to the attainment of a goal,

the successful completion of a development project on time,

within budget, in conformance with predetermined programme
specifications.

Project are composed of activities, usually non-repetitive,
operating on an interrelated set of items. It involve multiple
resources with unique technologies, skills and traits.

The following are the features of the project:

It has definite objectives.

It consists of interrelated activities.

It requires multiple skills.

It has constraints of time, resources and budget.

It is unique.

Project identification

Project identification refers to the process of finding out the

most appropriate project among the several available investment

opportunities.

Project identification is concerned with collection, compilation
and analysis of economic data of the eventual purpose of locating
possible opportunities for investment, based on opportunities in
the market.

The steps involved in project identification are:

Conceiving project ideas.

Choosing the right line of business.

Opportunity seeking.

Decision-making process.


Sources of information for project identification:

 Consumers: potential customers are the source of any business and understanding
their exact needs is the key for the success of the business. Hence very important for
the entrepreneur to understand the needs of the customers which is obtained
through market research.
 Existing products and services: this throw certain information to
entrepreneurs and this information can be more relevant for identifying a project in
form of improving the products and services.
 Distribution channels: members of distribution channel are more familiar about
the markets and hence they can also provide potential information about the needs of
the customers and possible new products or services which can be successful.
 Government sources: many departments both central and state governments
publish some useful information which helps entrepreneurs in indentifying new
projects. Information related to patents, new opportunities, potential markets for
various projects, etc are obtained from these sources.
 Observation: observation of existing markets, scan of environment etc can help
the entrepreneur to identify unutilised potential for new business ventures.
 Trade and professional journals: they provide potential information on
investment opportunities, statistics related to market opportunities, demand and
supply, availability of raw materials, availability of facilities etc.

Project selection

After considering a few project ideas, the entrepreneur

finally may select one project idea most suited to him. For
arriving at this decision of selection of a project, the
entrepreneur may analyse his strengths and weaknesses as
well as opportunities and threats offered by each of the
project idea. This analysis is called SWOT analysis.


Before selecting a particular project some of the important criteria are

below:

Investment size: investment required is to be studied accurately and

rationally, so that arranging funds becomes easier. The size of investment

should be optimum, so that there is no funds shortage at any point of time
during the project completion.
Location: it is very important. Nearness to raw material, nearness to
market, availability of resources, etc are taken into consideration while
selecting the location for a project.
Technology: it is better to choose indigenous technology than sophisticated
foreign technical collaboration. The technology used by entrepreneur
should be indigenously proven one in which the entrepreneur is well
versed.
Plant and machineries: best equipment to be selected by the entrepreneur
to get optimum results from the project. Quality compromise in choosing
the best equipment should never be done to avoid frequent breakdowns
and maintenance costs.
Marketing : the success of entire project revolves round the marketing of
goods produced. The demand for the product should be studied carefully
and the capacity of the project should be accordingly designed.

Project report

Project report is a written document prepared by the

entrepreneur that describes all the relevant external and

internal elements involved in starting a new venture.

It is prepared by an expert after detailed study and analysis of
the various aspects of the project.

NEED AND SIGNIFICANCE OF PROJECT REPORT

1. For refining the business idea and to eliminate
shortcomings : project report is means to put business idea
in form of document, evaluate various aspects of the plan and
eliminate shortcomings existing in plan.
2. For justifying viability of the venture : it serves as
powerful mechanism to evaluate viability of report for
investors to check as to what extent the investment can yield
profit.
3. For securing the equity venture capital : the investors
and silent partners require business plan in form of a project
report before considering the sanction of equity venture capital
for the project.

4. For securing bank finance : SSI go in for borrowing

required finance from banking institution for which it is
mandatory on the part of SSI to submit copy of project
report to get required loan sanctioned.
5. For attracting joint venture partner : in certain
circumstances some existing firms may be willing to be
partner with SSI as joint venture for which again they
require project report for the purpose of reference.
6. For obtaining clearance and approvals from
governmental agencies : in certain set of industries
depending on nature of business they are bound to get
clearance from government for which they have to submit
project report for evidence.

7. For securing orders from key potential customers : risk

involved in the new business can be reduced to larger extent by
having some regular customers for which customer loyalty is
important and this can be done only when project report of
company is transparent in terms of clarity about business.
8. For providing a road map and direction during
implementation : project report serves as road map for
company activities during implementation as main project serves
as standard with which present activities of company can be
compared with.
9. For seducing the best talent to join as employees in
start up ventures : as attracting candidates towards new
organization is difficult task, entrepreneur by presenting
potential project report can make candidate realize opportunity
vested for him after joining the company.

CONTENTS OF PROJECT REPORT

1. Cover page : page of the project report should contain the
title of the project, name, address so that the readers of the
report can easily contact entrepreneur relating to queries of
report.
2. Table of contents : table of content are compiled after the
main body of the project report is finalized. Topics covered in
the project report along with the page number should be
mentioned in the project report.
3. Executive summary : should be written after the completion
of project report as it gives brief gist of project. Length of the
executive summary should not exceed more than two pages.

4. Company information and industry : here they should

explain the ownership form of the company, which should
contain the reason for venturing into the proposed business plan,
how do you plan to satisfy the needs and expectation of the
potential customers and existing competitors in industry. It
should also include SWOT analysis of company.
5. Technical plan : in this part of the report the key aspect
analyzed during the technical feasibility of the report should be
highlighted. The choice of the product and service to be offered
should be justified. Report should be able to explain how the
product of the company is creative and innovative from the
existing product in the market.

6. Marketing plan : this aspect of the product should focus on

the industry and market feasibility conducted at earlier stage. It
should describe about the pricing policy, findings of market
research, how large is the market for the product to be offered
by the company, details about marketing strategy adopted by the
company to promote the product, target customers company is
focusing on.
7. Operations plan : it describes about the manufacturing and
service delivery process to be utilized for production of chosen
product and service. It should explain about the innovation
brought in the process of production which makes it better when
compared to existing competitors. It should also focus on the
location, availability of resources required for production.

8. Organizational plan : it gives information about the

management team who are part of the company. It focuses on the
management and technical skills possessed by the employees in
company and how it will prove to be beneficial for the work
process to be carried in the company. It should highlight as
though why even after possessing such efficient skills they
preferred joining your organization.
9. Project timeline : this chapter explain about the network
diagram which explains about the time duration required for the
project. Diagram explains about the various activities in the
project, which are sequentially organized and the time duration
required for the execution of the project is arrived by estimating
time required for completion of every activity for the formation
and later process of the company.

10. Critical risk and assumption : it explain about the various

assumption made during the formation of the company E.g.
rather then considering the previous sales forecast for similar
product to be offered by the company, the organization may have
gone in for expert advise, their may be various risks related to
the product and kind of service company is planning to offer in
the market all these details should be highlighted in this part of
the report.
11. Social plan : it explains about how company project will
benefit the society. It should highlight how company will
generate employment opportunities, lead to skill development of
local people, provision of goods and services to be provided to
the local people, utilization of local resources etc. It should also
include various help provided by the financial agencies and
government to start SSI in country.

12. Exit strategy : this is the negative aspect of the business but
the company should explain how they would close down the
business if the company is not able to earn the expected
profitability, the investors will be keen to know as though how
their investment can be recovered in such situation.
13. Financial plan : it is important part of the report which will
contain brief content all the sections with numbers in monetary
terms. It explain about the financial composition of the company,
various sources through which company has raised required
finance, total expenditure incurred by the company which will
be effectively explained through the means of break even analysis
and ratio analysis in the company financial report.

14. Conclusion : this summarizes the key aspect of the report in

concise manner. It should end the report on a positive note so
that the readers develop positive image about the report.
15. Appendices : it contains conclusion part of the report and
supplement data which is important part for the report but
cannot be included in the initial topics of the report.

FORMULATION OF PROJECT

A step by step investigation of the resources and development project
ideas is called as project formulation.

It is done mainly to achieve the objectives of the project utilising
optimum resources with minimum expenditure within shortest
possible time.

The project formulation contains various elements which aid an

entrepreneur in project decision making.

Feasibility analysis
Techno economic analysis
Project design and network analysis
Input analysis
Financial analysis
Social cost-benefit analysis
Project appraisal


Feasibility analysis: this is conducted to analyse the viability of

the identified project and to know the acceptability of new

project from technical, financial, marketing, managerial,
commercial and other considerations. External and internal
constraints are to be considered while examining the project idea
to decide whether the project feasible, not feasible.

Techno economic analysis: estimation of demand potential
for the product and selection of optimal technology suitable for
achieving the objectives of the project are considered in this
analysis. A optimal size of the project and suitable technology
adopted helps in deriving economies of scale.

Project design and network analysis: project is a detailed
work plan of the project which is prepared with time allocation
for each activity and presented in a network drawing. It is useful
for identification and quantification of project inputs and
developing cost-benefit analysis.


Input analysis: input requirements during the construction and

operation of the project are assessed in this analysis. This is related to

identification, quantification and evaluation of the project inputs.

Financial analysis: it covers estimation of project costs, operating
costs and fund requirements. This analysis helps in comparing various
project proposals on common scale, thereby helping in decision making.

Social cost-benefit analysis: the aim of this analysis is to ascertain all
social costs and benefits with the purpose of finding out impact of the
project on society.

Project appraisal: it is independent examination of various aspects on
technical, managerial, commercial, economic and financial with the
regard to the proposal. In this stage project is presented in such a way
that the project sponsoring body, project implementation body and
external agencies are able to decide whether to accept the proposal or
not.

GUIDELINES FOR PROJECT REPORT

General information: the feasibility report should include an
analysis of the industry to which the project belongs. It should discuss
the type of the industry and its past performance.
Preliminary analysis of alternatives: the report should discuss
the supply and demand gap in the industry. This should contain the
details of total production capacity available in the existing units, the
existing demand and the possible gap for further capacity
enhancement. It should also project possible rate of return on
investment based on future demand.
Project description: report should contain the details of
technology and process chosen for the project. It should also discuss
location of project and possible environmental impact if any. It should
discuss in detail various requirements like capital equipments, power
and water and other utilities requirements etc.

Marketing plan: it should discuss the demand for product,

market areas covered, price etc.
Capital requirements and costs: a reasonable estimate of
investment on capital equipments should be presented.
Operating requirements and costs: costs related to
commercial production, including raw materials, labour,
utilities, maintenance etc. should be projected.
Financial analysis: financial viability of the project very
important. A proforma balance sheet of the project-data should
be presented. It should project possible income, cash flow etc.
Economic analysis: social profitability analysis should be
presented.

ERRORS IN PROJECT REPORT

Some of the possible errors are the discussed below:
 Lack of good market research leading to under-estimation or overestimation of customer needs.
 Improper product selection that leads to failure in acquiring as per
projection.
 Selection of improper technology ,resulting in either poor quality of
product or increased cost of manufacturing.
 Failure to make realistic project cost and time estimations
 Failure to select a suitable location leading to unexpected stoppages
 Failure to understand sociological and ecological impacts .
 Failure to anticipate accurately the cash flow thus facing cash crunch.
 Failure due to ownership pattern which is not suitable.
 Lack of sufficient skills for report preparation.
 Failure to collect relevant data.


Project feasibility study:

Feasibility literally means whether some idea will work or not.It knows
before hand whether there exists a sizeable market for the proposed
product/service ,what would be the investment requirements and
where to get the funding from,whether and where from the
necessary technical know-how to convert the idea into a tangible
product may be available and so on. In other words feasibility study
involves an examination of the operations ,financial ,HR and
marketing aspects of business before the venture comes into
existence. The various feasibility study under project feasibility are:


Market Feasibility Study:

 A market whether a place or not is the arena for interaction

among buyers and sellers .From sellers point of view,market

analysis is primarily concerned with the aggregate demand of the
proposed product/service in future and the market share
expected to be captured.It is a study of knowing who all
comprise of customers and for this the required information is:
 Consumption trend.
 Past and present supply position.
 Production possibilities and constraints.
 Imports and exports
 Competition

 Elasticity of demand
 Consumer behavior, intentions, motivations , attitudes ,preferences

and requirements.
 Distribution channels and marketing policies in use.
 Administrative, technical and legal constraints impinging on the
marketing of the producers.
 Cost structure
If market feasibility study results are positive it indicates that the
project involves a good business idea that will bring a positive
return on investment back to the producers.


Financial Feasibility Study:

One of the most important factors in conducting project feasibility study is

the financial feasibility of the project.This involves the preparation of cost
estimates, means of financing, financial institutions, financial projections,
break even point, ratio analysis etc.The cost of the project includes the
land and site development , building , plant and machinery ,technical
know-how fees, pre-operative expenses, contingency expenses. While
conducting a financial appraisal certain aspects has to be looked into like:
 Investment outlay and cost of the project- includes cost of land
and building, cost of installation of plant and machinery, preliminary
expenses, contingency expenses.
 Means of financing/ sources of financing- includes own funds,
term loans, public deposits, share capital.
 Projected profitability- it represented through cash flow estimate
which establishes the relationship between net profit and repayment of
term loans and interest thereon.

 Break even analysis- break even point signifies no profit no

loss level of operation. Hence it helps the entrepreneur to find

out minimum production required, so as to meet all the liabilities
without incurring a loss.
 Investment worthiness judged in terms of various criteria of
merit.
 Projected financial position-helps to find out the effect of
operations on assets, liabilities and capital of the organisation.


Technical Feasibility Study/Analysis:

The issue involved in the assessment of technical analysis of the

proposed project may be classified into those pertaining to inputs ,
throughputs and outputs. It is a systematic analysis and gathering of
the data pertaining to technical inputs required .The availability of
raw materials, power,sanitary and sewage services, transportation
facility, skilled man power, engineering facilities, maintenance ,
local people etc are coming under technical analysis.
 Input

analysis: It is mainly concerned with the

identification,quantification and evaluation of project inputs
i.e,machinery and materials

 Throughput analysis :It refers to the production/operation

that would perform on the inputs to add value.

 Output analysis :This involves product specification in terms of

physical features-color , weight ,length ,breadth , height,

functional features ,chemical material properties as well as
standards to be complied with such as BIS,ISI, and ISO.

 Economic Feasibility Study Or Analysis:

Economics is the study of costs and benefits. Economic feasibility

focuses on how far the project contributes to the development of
sector, industrial development,social development and maximizing
the growth of employment etc.
In regard to this feasibility of the study the
entrepreneur is concerned whether the capital cost as well as the
cost of the product is justifiable like this the price at which it will
sell at the market place.

 Ecological Feasibility Study /Analysis:

In recent years environmental concerns have assumed a great

deal of significance especially for projects which have significant
ecological implications like power plants irrigation schemes and
for environment polluting industries. The concerns that are
usually addressed include water , air , land , sound , geographical
location etc.

PROJECT NETWORK ANALYSIS

Network analysis is a vital technique in project management which

enables a systematic quantitative structured approach to the problem of

managing a project through to successful completion. Diagram presents
various activities of project. An event or node marks the begging or end
of activity and is represented by small circles in network diagram. An
activity is represented by straight line arrow. Their can be only one
activity taking place between nodes at time. This diagram is usually
used to depict information relating to construction activity during
process of formation of business.

Objectives of network analysis:
1.
2.
3.
4.
5.

To help in planning, scheduling and controlling the various activities of a

project.
To minimize the maintenance time.
To reduce the total time of the project.
To avoid delays and interruptions.
To delegate various responsibilities to different supervisor.

NETWORK TECHNIQUES:There are two basic network techniques:

1. CPM- Critical path method : it is method through which
entrepreneur can evaluate time period required for completion of
activity depending on their past experience. Critical path is defined as
longest duration path between the first and last nodes of the project.
The critical activity are crashed by providing additional resources so as
to complete the project on time. CPM is a deterministic model.
2. PERT- Program Evaluation and Review Technique: it is a chart
which depict task, duration, and dependency information. It is a
probabilistic model. In PERT three time estimates are takenOptimistic time: minimum time taken to complete the project.
2. Pessimistic time: maximum time taken to complete the project.
3. Most likely time: normal time taken to complete the project.
Using the above three time average expected time of activity is calculated.
1.

Steps involved in PERT are1. Identification of activities.

2. Sequential arrangement of activities.
3. Drawing of network diagram and noting the time completion of each
activity in the network.
4. Minimum time required to complete the project is estimated.
5. Critical activities are identified for efficient resource allocation.
6. Continuous monitoring of various activities for on-time completion
of the project.

PROJECT APPRAISAL

Project appraisal is an attempt to examine, the viability of project

from economic, technical, marketing, managerial, commercial

and operational angles.

The soundness of the project is the main concern of the banks and
other financial institutions before taking any decision for
extending any financial commitments.

A project basically is appraised against benefit and cost in order to
predict its viability.