PRESENTATION ON PROJECT MANAGEMENT

Presented to: Shah mohd. Sir presented by:

akriti saxena farhan khursheed ishanuddin reshu srivastava saurabh singh subhranshu shekhar sumit sonkar tafseer ahmed tulsi karmakar

CONTENTS
Project Formulation Project Profile Project Report Project Appraisal Project Financing

PROJECT FORMULATION

Project formulation is defined as taking a first look carefully and critically at a project idea by an entrepreneur to build up an all-round beneficial to project after carefully weighing its various components.

CONTD.
Aim is to achieve the project objectives with the minimum expenditure and adequate resources Analysing with the assistance of specialists and consultants Assessment of the various aspects of an investment preposition of a project idea for determining its total impact and also its liability It is an important phase in the pre-investment phase

PHASES OF PROJECT FORMULATION

Conception of an idea

Analysis of related aspects

Formulation of a project

Design of a project

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

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

TECHNO ECONOMIC ANALYSIS

Screen the idea to Estimate the potential of demand for goods/ services Choice of optimal technology

PROJECT DESIGN AND NETWORK ANALYSIS It is the heart of project entity It defines the sequence of events of the project Time is allocated for each activity It is presented in the form of network drawing It helps to identify project inputs, financial needed or cost benefit profile of the project.

INPUT ANALYSIS
Its access of the input requirements during the construction and operation of the project It identifies the input required for each activity Input include material human resource It evaluates the feasibility of the project from the point of view of the availability of the necessary resources This aids in accessing the project cost

FINANCIAL ANALYSIS
It involves estimating the project cost, operating cost and funds requirement It helps in comparing various proposal on a common scale Analytical tools used are discounted cash flow, costvolume profit relationship and ratio analysis Investment decision involves commitment of resources in future, in long time horizon It needs caution and foresight in developing financial forecasts.

COST BENEFIT ANALYSIS

The overall cost of the project is considered The project design forms the basis of evaluation It considers cost that all entities have to bear and the benefit connected to it

PRE-INVESTMENT ANALYSIS
The result obtained in various stages are consolidate to arrive at a clear conclusion Helps the projects- sponsoring body, the project implementation body and the external consulting agencies to accept/reject the proposal.

PROJECT PROFILE

A project profile defines a set of privileges for access to project-specific information. Project profile is a simplified description of an eventual project. In addition to defining the purpose and ownership of the project, it presents a first estimate of the activities involved and the total investment that will be required, as well as the annual operating costs and, in the case of income generating projects, the annual income. It is simplified in a number of senses; costs may still not be well defined, minor items may be excluded, and assumptions as to the demand for the output of the investment, whether it be a childcare facility, a bridge, or canned vegetables, are probably just that - assumptions.

PURPOSE OF THE PROFILE

The project profile serves a number of important purposes. These are: a) It helps to ensure that the members of the community or group involved understand the probable implications of their proposal in terms of investment and operating costs, labour requirements, scale of operations and other factors. b) It helps eliminate wasted effort in preparing detailed projects that are incoherent, lacking support among the applicants, or which fail to meet basic tests of viability. If human and financial resources to support project formulation are limited - which is usually the case this aspect of the profile in acting as a 'filter' is very important. If the community can only receive funds to support one full project preparation per year, it is best not to waste those resources on a project that has no chance of success.

CONTD.
c) The

participation of group members in the preparation and assessment of the profile is an important stage in the ownership process for the specific project, as well as increasing the confidence of the participants in their ability to identify and develop real solutions to their problems (or responses to opportunities).

KEY CHARACTERISTICS OF PROJECT PROFILE

A Profile is a 'Snapshot' of the Project A Profile Simplifies the Replacement of Equipment and Machinery A Profile Includes no Financing Costs A Profile Uses Broad Estimations for Costs and Income A Profile Excludes Associated Costs A Profile Pays Limited Attention to Project Organization and Impact

COSTS IN PROJECT PROFILE

There are three principal types of costs to be considered in preparing a project profile: Investment costs Production or Operating costs General costs or Overheads

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

PARTIES INTERESTED IN PROJECT REPORT

Financial institution Commercial bankers Entrepreneurs

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, entrepreneurs 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

CONTENTS OF THE 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) Plant and machinery (types, infrastructure support, cost)

CONTD..
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)

CONTD
The project report is submitted to financial institutions for grant of land and other financial concessions Organizations like Small Industries Service Institute (SISI)and Small Industries Development Organization (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

IMPORTANCE OF A PROJECT REPORT

It highlights the practicability of a project in terms of different factors like economy, finance, technology and social desirability It is needed by the entrepreneur for carrying out expansion or starting a new product line May be carried out by individuals like engineers and scientists, bankers or institutions, consultancy services and development banks. Important aspect of the report lies in the profitability of the project and minimizing risk in the execution of the project.

PROJECT APPRAISAL
Meaning:

It simply means the assessment of a project in terms of its economic, social and financial viability It is critical as it calls for a multi-dimensional analysis of the project that is, a complete scanning of project Financial institutions and banks make a critical appraisal of projects which are submitted to them by the entrepreneurs for getting loans.

DEFINITION OF PROJECT APPRAISAL

It can be defined as the promoter taking a second look critically and carefully at a project as presented by the promoter person who is in no way involved in or connected with its preparation and who is as such able to take an independent, dispassionate and objective view of the project in its totality as also in respect of its various components.

CONTD.

Project appraisal aims at sizing up the quality of projects and their long-term profitability aims at minimizing the risk of lending by rectifying their weaknesses and improving their quality by incorporating into them features/safeguards missed by the promoters either because of lack of knowledge or information.

SCOPE OF APPRAISAL
Certain common aspects of study from the angle of technology and engineering are with a mention: Choice of technical process and/or appropriate technology; Technical collaboration arrangements, if any; Size and scale of operations; Locational aspects of the project and availability of infrastructural facilities; Selection of plant, machinery and equipment together with background competency and capability of machinery/equipment suppliers;

CONTD.

Plant layout and factory buildings; Technical engineering services; Project design and network analysis for the assessment of project implementation schedule; Aspects relating to effluent disposal, mgt of entry, utilisation of by-products, etc; Project cost and its comparison with other similar products, based on technology, equipment, product mix and time spread; Determination of project cost estimates, profitability projections, etc; Senstivity analysis.

PROJECT APPRAISAL STEP

Economic

Aspects Technical Aspects Organizational Aspect Managerial Aspect Financial Aspect

ECONOMIC ASPECT
The economic aspect of the appraisal are fundamental as they are logically precede all other aspects this is so because the bank will not finance the project unless it stands assured that the project represent a high priority use of regions resources.

TECHNICAL ASPECTS
Techinical apprisal of a project contains Raw material supply Transportation facilities Power and fuel supply Water Manpower Labour law and government policy

ORGANIZATIONAL ASPECT
As a lender and a development institution the bank places particular stress on the need for an efficient organization and responsible management for the execution of the project.

MANAGERIAL ASPECT
It is rightly pointed out that if the project is week, it can be improved upon, but if the promoters are week and lack in business acumen, it is difficult to reverse the situation.

FINANCIAL ASPECT
The purpose of the appraisal of financial aspect of a project is generally to ensure its inflation of financial condition for the sound implementation and effective operation.

PROJECT FINANCE
Finance is one of the basic requirements of a project which an entrepreneur needs to start with at every stage of project Project finance is both for short-term and longterm Entrepreneur raises his finance by availing of available subsidies, state aid to industries, etc

FINANCIAL MODLES

NPV FORMULA NPV =[R1 /(1 + i)1+R2/(1 + i)2+R3/(1 + i)3+ ... ] Initial Investment i= is the target rate of return per period; R1= is the net cash inflow during the first period; R2= is the net cash inflow during the second period; R3 is the net cash inflow during the third period, and so on ...

DECISION MAKING
NPV > 0 The investment would The project may be add value to the firm accepted

NPV < 0

The investment would The project should be subtract value from rejected the firm

NPV = 0

This project adds no monetary value. Decision should be The investment would based on other neither gain nor lose criteria, e.g., strategic value for the firm positioning or other

BENEFITCOST RATIO A benefit-cost ratio (BCR) is an indicator, used in the formal discipline of cost-benefit analysis, that attempts to summarize the overall value for money of a project or proposal. A BCR is the ratio of the benefits of a project or proposal, expressed in monetary terms, relative to its costs, also expressed in monetary terms. All benefits and costs should be expressed in discounted present values. Benefit = Total revenue before deductions The BCR = Benefit/Cost where > 1 is good

FORMULA OF BCR
The benefit-cost ratio (BCR) is calculated as the NPV of benefits divided by the NPV of costs: BCR=NPV BENEFIT/NPV OF COSTS

INTERNAL RATE OF RETURN(IRR)

The internal rate of return on an investment or project is the "annualized effective compounded return rate" or "rate of return" that makes the net present value (NPV as NET*1/(1+IRR)^year) of all cash flows (both positive and negative) from a particular investment equal to zero. In more specific terms, the IRR of an investment is the discount rate at which the net present value of costs (negative cash flows) of the investment equals the net present value of the benefits (positive cash flows) of the investment

FORMULA OF IRR

DECISION MAKING
Accept project when- r>k Reject the project when-r<k May accept or reject if -r=k IRR=BENEFIT-COST=0

PAYBACK PERIOD

Payback period in capital budgeting refers to the period of time required for the return on an investment to "repay" the sum of the original investment. For example, a $1000 investment which returned $500 per year would have a two year payback period. The time value of money is not taken into account. Payback period intuitively measures how long something takes to "pay for itself." All else being equal, shorter payback periods are preferable to longer payback periods.

FORMULA OF PAYBACKPERIOD
Payback Period = (p - n)p + ny = 1 + ny - np (unit:years) ny= The number of years after the initial investment at which the last negative value of cumulative cash flow occurs. n= The value of cash flow at which the last negative value of cumulative cash flow occurs. p= The value of cash flow at which the first positive value of cumulative cash flow occurs.

IMAPACT OF TAXATION
In order to undertake this development, there is need for resource mobilisation both domestically and internationally Many big infrastructure projects have largely been financed by borrowing from multilateral or international institutions.

CONTD..
In Financing the Budget (Resource Mobilisation) Tax revenue Direct taxes - income tax, corporate tax, withholding taxes, etc. Indirect taxes - VAT, import taxes, excise duties, etc. Non-Tax Revenue Fees, fines, levies and others Grants from cooperating partners Budget Support and project Grants

CONTD,,,,
Tax policy and administration must be tailored in such way that they yield adequate resources to Government but must be fair and effective in order to promote economic growth. Some problems in tax administration: - Transfer pricing, tax sparing, smuggling, non-tax compliance have negative impact on total revenue,

ROLE OF PROJECT FINANCING

Tax exemptions have an effect of shrinking the tax base i.e. less revenue to Government. Taxing infrastructure projects financed by multilateral institutions or cooperating partners may face problems as they may not provide extra resources and they will ask recipient country to find extra money. User charges as a means of financing may be ineffective if services are rendered to the poor.

Financing access to basic utilities is a costly venture requiring huge amount of resources and the challenge for tax policy and administration is to mobilise adequate financial resources. The linkage between taxation and infrastructure financing is not always direct for developing countries because of the pooling of different resources in one basket.

BIBLIOGRAPHY
http://www.scribd.com/doc/13735217/ProjectFormulation http://www.fao.org/docrep/009/a0322e/a0322e04.ht m#TopOfPage http://www.fao.org/docrep/009/a0322e/a0322e03.ht m#TopOfPage Project Management- Vasant Desai (Himalaya Publication)