Professional Documents
Culture Documents
IDENTIFICATION
AND
FORMULATION
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1-2
Introduction
1-3
Project Identification
Project
Identification:
Collection,
compilation and analysis of data to locate
potential opportunities for starting business
and development of such opportunities
1-4
Project Identification
Opportunities
are
identified
through
innovation/search of business ideas. Types of
innovation:
1-5
Dimension of Project
Identification
Project identification cannot be complete without identifying the
Importance of Project
Identification
1-6
1-7
Methods Of Project
Identification
1-8
Contd.
2.Analyzing National Development Objectives
Policies are instruments designed to attain stated
objectives and projects are the tangible
realization of these policies,
Projects are the end products of a process which
begins with an analysis of social needs and gives
rise to policies and plans to meet the needs,
1-9
Contd.
3.Economic Analysis
Statistical analysis of trade reports - on
examine the data on the flow of imports or
exports.
Study of Comparative Advantage the
study
of successful replicable experience
of other countries.
Analysis of Linkage examine existing
economic activities (enterprises) in view of
their linkage potential so that backward and
forward linkages can be maximized.
1-10
Contd.
Natural
resource
surveys
are
important sources of for identifying
agricultural and mineral related
development projects.
1-11
Contd.
5.Socio-spatial
Identification
Approach
To
Project
1-12
Contd.
In addition to the above five method
there are two other major approaches
to project identification
(a)
Top-down approach
(b)
Bottom-up approach
1-13
Contd.
1-14
Advantages of Top-Down
Approach
Limitations of Top-Down
Approach
1-15
Advantages of Bottom-Up
Approach
1-16
Limitations of Bottom-Up
Approach
1-17
1-18
Contd.
1-19
Contd.
By the end of the identification stage we should know: whether further detailed work is justified,
what major issue have been identified?
what project alternatives have been considered?
which of them have been rejected?
rough estimate of costs including specific for promising
projects,
1-20
Identification of investment
opportunities
Internal Sources
SWOT Analysis
Analysing the industry
Analysing the input-output relationships
Analysing the labour and capital market
Analysing the consumer market
External Sources
Government Regulations
Import / Export opportunities
Suggestions from financial institutions
Survey of social and economic resources
Survey of new technology
1-21
1-22
1-23
Contd.
Project ideas arise from identification of a number of
different factors.
A) At the micro-level project ideas emanate from:
1-24
Contd.
B) At the macro-level project ideas emerge from:
1-25
1-26
Investment size
Location of project
Technology to be used
Equipment
Marketing
Labour
Working Capital Requirements
Economic Viability
1-27
Contd.
1-28
Contd.
1-29
Contd.
1-30
Contd.
MARKET AND
DEMAND ANALYSIS
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31
1-32
1-33
Demand
Forecastin
g
Characterizati
on of the
Market
Conduct of
Market
Survey
Market
Planning
1-34
1-35
A. Specification of Objectives
1-36
A. Specification of Objectives
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
1-37
B. Collection Of Market
Information
Primary Data
-- information collected first hand.
-- questionnaires, surveys , interviews etc.
Secondary Data
-- information already been collected .
-- Census of India , India Year Book , Planning
commission reports , Economic Survey , Industrial
potential surveys , etc.
1-38
1-39
1-40
Contd
Some Problems:
Heterogeneity of the Country
Multiplicity of the Languages
Design of Questionnaire
1-41
D. Characteristics Of Market
1.
2.
3.
4.
5.
6.
7.
Consumer Groups
Geographic Variables
Demographic Variables
Psychographic Variables
Behavioural Variables
Price
Methods of distribution and sales promotion
Consumers
Suppliers & Competitors
Government Policy
1-42
Forecasting
subjective
1-43
Depend on
time frame
demand behavior
causes of behavior
1-44
Time Frame
Long-range forecast
1-45
Demand Behavior
Trend
Random variations
Cycle
Seasonal pattern
1-46
Causes of Behavior
Analytical
Cause effect relationship basis
Quantitative
Explicit
1-47
E. Demand Forecasting
Qualitative Methods
Delphi Method
1-48
Rationale
Approach
Main advantages
1-49
Main drawbacks
Expensive
No individual responsibility for forecast
quality
Risk that few people dominate the group
Subjective
Reliability is questionable
Typical applications
Short-term
forecasting
and
medium-term
demand
1-50
Delphi Method
Rationale
Anonymous
written
responses
encourage honesty and avoid that a
group of experts are dominated by
only a few members
1-51
Delphi Method
Approach
Coordinator
Sends Initial
Questionnair
e
Each expert
writes
response
(anonymous
)
Coordinator
sends
updated
questionnair
e
Coordinat
or
performs
analysis
No
Consens
us
reached?
Yes
Coordinat
or
summarize
s
forecast
1-52
Delphi Method
Main advantages
Generate consensus
Can forecast long-term trend without availability of
historical data
Main drawbacks
Slow process
Experts are not accountable for their responses
Little evidence that reliable long-term forecasts can be
generated with Delphi or other methods
Typical application
Long-term forecasting
Technology forecasting
1-53
1-54
More complicated
The results are valid only when certain
conditions are satisfied
1-55
Exponential Smoothing
et
= smoothing parameter
= error in the forecast for year t = St = Ft
1-56
Moving Average
Naive forecast
1-57
WMAn =
Wi Di
i=1
where
W = 1.00
i
WEIGHT
August
September
October
DATA
17%
33%
50%
130
110
90
3
November
Forecast
WMA3 = Wi Di
i=1
1-58
1-59
Causal Methods
1-60
1-61
1-62
1-63
1-64
1-65
1-66
Alpha
Beta
Kappa
Gamma
Consumption
Coefficient
Projected Output
in Year X
2.0
1.2
0.8
0.5
10,000
15,000
20,000
30,000
Total
20,000
18,000
16,000
15,000
69,000
1-67
2.
Identify
the
appropriate
leading
indicator(s)
Establish the relationship between the
leading indicator(s) and the variable to
forecast.
1-68
Econometric Method
An advanced forecasting tool, it is a mathematical
expression of economic relationships derived from
economic theory.
Economic variables incorporated in the model
1. Single Equation Model
Dt = a0 + a1 Pt + a2 Nt
Where
Dt = demand for a certain product in year t.
Pt = price of the product in year t.
Nt = income in year t.
1-69
Econometric Method
2. Simultaneous equation method
GNPt = Gt + It + Ct
It = a0 + a1 GNPt
Ct = b0 + b1 GNPt
Where
GNPt = gross national product for year t.
Gt = Governmental purchase for year t.
It = Gross investment for year t.
1-70
Econometric Method
Advantages
The process sharpens the understanding of
complex cause effect relationships
This method provides basis for testing
assumptions
Disadvantages
It is expensive and data demanding
To forecast the behaviour of dependant
variable, one needs the projected values of
independent variables
Uncertainties in Demand
Forecasting
1-71
Methods of forecasting
1-72
Contd
Environmental changes
Technological changes
Shift in government policy
Developments on the international scene
Discovery of new source of raw material
Vagaries of monsoon
1-73
1-74
F. Market Planning
(a)
(b)
1-75
Contd.
(c)
(d)
Objectives
Marketing Strategy
(e)
(f)
Budgeting
Implementation and Control
1-76
1-77
Primary Objective
Secondary Objective
1-78
Technical Analysis
1-79
Technology selection
Material and utilities input requirements
Flexibility in product-mix
Plant capacity
Location and size of the project
Machinery and equipment
Charts and Layouts
Work Schedule
Cost of Project
1-80
1. Technology Selection
Plant Capacity
Material and utilities input requirements
Investment Outlay and production costs
Use by other units
Flexibility in Product mix
Latest Developments
Appropriateness of technology.
2.
Materials
Requirements
and
Utilities
Input
Raw-materials
Processed Industrial materials and components
Auxiliary materials and factory supplies
Utilities
1-81
1-82
1-83
4. Plant Capacity
Technological requirements
Input constraints
Market conditions
Investment cost & resources of firms
1-84
1-85
1-86
1-87
8. Work Schedule
To anticipate problems like to arise during
the installation phase and suggest possible
means for coping with them
1-88
9. Cost of Project
Land and site development
Building and civil works
Plant and machinery
Technical Know-how and Engineering fees
Expenses on foreign technicians and
training of Indian technicians abroad
Preliminary and capital issue expenses.
Pre-operative expenses
Margin money for working capital
Initial cash losses
1-89
1-90
Financial Analysis
The Financial Analysis, examines the
viability of the project from financial or
commercial considerations and indicates the
return on the investments.
Main Activity:
Other Activity:
Cost of Project
Decision about sources of finance
Working capital requirement.
1-91
1-92
Cost of
Operators (from
Technical Analysis)
Revenue Cash
Inflows (from
Market and
Demand Analysis)
Financial Cost
(from Financial
Analysis)
Net Cash
Inflows
Various
Appraisal
Techniques
ARR
PBP
Accept/Reject
Decision
NPV
IRR
PI etc.
PROJECT FORMULATION
What is Project Formulation?
Stages of Project Formulation
Project Report
1-94
1-95
Project Formulation
1-96
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
1.
1-97
1. Feasibility Analysis
1-98
2. Techno-Economic Analysis
Screens the idea toEstimate of potential of the demand for
goods/services
Choice of optimal technology
1-99
1-100
4. Input Analysis
1-101
5. Financial Analysis
Analytical tools used are discounted cash flow, cost-volumeprofit relationship and ratio analysis
1-102
1-103
7. Pre-investment Analysis
Constraints in Project
Formulation
1-104
1-105
Project Report
1-106
1-107
Contd
1-108
Contd.
A project report gives information on the following:
1-109
1-110
Contd.
1-111
Contd.
1-112
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