Project Formulation involves the following steps.
1. Opportunity Studies - An opportunity study identifies investment opportunities and is normally undertaken at macro level by agencies involved in economic planning and development. In general opportunity studies there are three types of study – Area Study, sectoral and Sub-sectoral Studies and Resource Based Studies. Opportunity Studies and Support studies provide sound basis for project identification.
2. Pre feasibility Studies / Opportunity Studies - A pre-feasibility study should be viewed as an intermediate stage between a project opportunity study and a detailed feasibility study, the difference being primarily the extent of details of the information obtained. It is the process of gathering facts and opinions pertaining to the project. This information is then vetted for the purpose of tentatively determining whether the project idea is worth pursuing furthering.
3. Feasibility Study - Feasibility Study forms the backbone of Project Formulation and presents a balanced picture incorporating all aspects of possible concern. The study investigates practicalities, ways of achieving objectives, strategy options, methodology, and predict likely outcome, risk and the consequences of each course of action. It becomes the foundation on which project definition and rationale will be based so that the quality is reflected in subsequent project activity.
A well conducted study provides a sound base for decisions, clarifications of objectives, logical planning, minimal risk, and a successful cost effective project. Assessing feasibility of a proposal requires understanding of the STEEP factors. These are as under Social, Technological, Ecological, Economic, and Political.
The project feasibility studies focus on - Economic and Market Analysis, Technical Analysis, Market Analysis, Financial Analysis, Economic Benefits, Project Risk and Uncertainty, Management Aspects.
4. Project Appraisal - The project appraisal is the process of critical examination and analysis of the proposal in totality. The appraisal goes beyond the analysis presented in the feasibility report. At this stage, if required compilation of additional information and further analysis of project dimensions are 17 undertaken. At the end of the process an appraisal note is prepared for facilitating decision on the project implementation. The appraisal process generally concentrates on the following aspects.
Market Appraisal: Focusing on demand projections, adequacy of marketing infrastructure and competence of the key marketing personnel.
Technical Appraisal: Covering product mix, Capacity, Process of manufacture engineering know-how and technical collaboration, Raw materials and consumables, Location and site, Building, Plant and equipments, Manpower requirements and Breakeven point.
Environmental Appraisal: Impact on land use and micro-environment, commitment of natural resources, and Government policy.
Financial Appraisal: Capital, rate of return, specifications, contingencies, cost projection, capacity utilization, and financing pattern.
Economic Appraisal: Considered as a supportive appraisal it reviews economic rate of return, effective rate of protection and domestic resource cost.
Managerial Appraisal: Focuses on promoters, organization structure, managerial personnel, and HR management.
Social Cost Benefit Analysis (SCBA): Social Cost Benefit Analysis is a methodology for evaluating projects from the social point of view and focuses on social cost and benefits of a project.
5. Detailed Project Report (DPR) - Once the projects are appraised and the investment decisions are made a Detailed Project Report (DPR) is prepared. It provides all the relevant details including design drawings, specifications, detailed cost estimates etc. and this would act as a blue print for project implementation.
