Entrepreneurship Management
Project Formulation
What is Project Formulation?
Stages of Project Formulation
Project Report
Entrepreneurship Management
What is Project Formulation?
• Taking a first look carefully and critically at the project idea
• Carefully weighing its various components
• Analysing 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
Entrepreneurship Management
Stages of Project Formulation
1. Feasibility Analysis
2. Techno-Economic Analysis
3. Project Design and Network Analysis
4. Input Analysis
5. Financial Analysis
6. Cost-Benefit Analysis
7. Pre-Investment Analysis
Entrepreneurship Management
1. 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 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
Entrepreneurship Management
2. Techno-Economic Analysis:
Screens the idea to-
Estimate of potential of the demand for goods/services
Choice of optimal technology
This analysis gives the project a platform for preparation of
detailed project design
Entrepreneurship Management
3. 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, finance needed and cost-
benefit profile of the project
Entrepreneurship Management
4. 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, 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
Entrepreneurship Management
5. Financial Analysis:
• It involves estimating the project costs, operating cost and
fund requirements
• It helps in comparing various project proposals on a common
scale
• Analytical tools used are discounted cash flow, cost-volume-
profit relationship and ratio analysis
• Investment decisions involve commitment of resources in
future, with a long time horizon
• It needs caution and foresight in developing financial
forecasts
Entrepreneurship Management
6. Cost- Benefit Analysis:
• The overall worth of a project is considered
• The project design forms the basis of evaluation
• It considers costs that all entities have to bear and the
benefit connected to it
Entrepreneurship Management
7. Pre-investment Analysis:
• The results obtained in previous stages are consolidated to
arrive at clear conclusions
• Helps the project-sponsoring body, the project-
implementing body and the external consulting agencies to
accept/reject the proposal
Entrepreneurship Management
Project Report
• It is a concise copy of detailed analysis done for the project
• An entrepreneur/expert prepares the report before the
investment in project is done
• The report assesses the demand for proposed
product/service, works out cost of investment and
profitability on this investment
• It acts as an instrument to convince investors to invest in
the project
Entrepreneurship Management
A project report gives information on the following:
• Economic aspects – present market, scope for growth,
justification for investment
• Technical aspects – technology, machinery, equipment
needed
• Financial aspects – Total investment needed, entrepreneur’s
contribution, cost of capital and return on capital
• Production aspects – Product details, justification for the
choice of product, export worthiness
• Managerial aspects – Qualifications, experience of people
needed for managerial posts
Entrepreneurship Management
Contents of a project report
• Objectives and scope of the report
• Product characteristics (product design, specifications,
quality standards, uses and applications)
• Market position and trends (current capacity for production,
potential demand, export prospects, trends in import-
export, price structure etc)
• Raw materials (types, quality, sources, price)
• Manufacturing (process, production schedule, technique
used)
Entrepreneurship Management
• Plant and machinery (types, infrastructure support, cost)
• Land and building (Requirement, building construction
schedule, choice of location, cost)
• Financial implications (Capital structure, fixed and working
capital investment, project cost, profitability)
• Marketing channels (Trade practices, marketing and
advertising strategy)
• Personnel (Requirement of staff, skilled-unskilled labour,
salary and wage payment, qualifications, experience)
Entrepreneurship Management
• The project report is submitted to financial institutions for
grant of land and other financial concessions
• Organisations like Small Industries Service Institute (SISI)
and Small Industries Development Organisation (SIDO) help
entrepreneurs to prepare project report
• The financial institutions ascertain from the report,
whether the project can generate enough funds to repay the
borrowings in stipulated time frame
