Project formulation and Appraisal

There are 3 phases in project development process:-

1.Pre-investment phase:- it includes finding project ideas,selection from alternatives(pre-feasibility studies),detailed feasibility analysis,final decision making

2.investment phase:- It includes procurement,design,inplementation,execution etc.

3.Operation phase:-In this phase project is in operation.

Project Appraisals

It involves analysis of various aspects of project like aim of project,technology used in the project,geographical location of project,machinery and manpower used,environment impact assessment etc.

Demand Forecasting

It is the estion of future demand and trend on the basis of past data.

Two types of demand forecasting are avialable:-

qualitative methods:-market openion/survey,customer survey method,delphi method(panel of experts suggest),Jury openion method

Quantitative method:-

1.Simple Average method

Simple average=(Sum of all demands)/(no. of time)

2.Moving average method

moving avg=(sum of demand in selected time period)/(no. of selected time period)

3.Weighted moving average method:-In this method different priority is given to different demands.

Financial Analysis Methods:-

1.Average/accounting rate of return:-is used to determine annual rate of return on investment.

ARR=(annual profit)/(avg. investment)

2.Payback period:-used to determine the time in which investment is recovered.

payback period=(investment)/(annual profit)

3.Discounted cash flow techniques:-

DCF=CF1(1+r)1+CF2(1+r)2+CF3(1+r)3+⋯CFn(1+r)n$$DCF=\frac{C{F}_1}{(1+r{)}^1}+\frac{C{F}_2}{(1+r{)}^2}+\frac{C{F}_3}{(1+r{)}^3}+\cdots \frac{C{F}_n}{(1+r{)}^n}$$

where,cf=cash flow

r=discount rate

Internal Rate of Return:-it is effective rate at which net present value becomes zero.

Social Cost Benifit Analysis

1.United nation industrial development organisation(UNIDO METHOD):-for developing country projects,measures in terms of domestic price.it is stagewise analysis.

shadow price-estimate how much cost is paid for certain benifit

2.Little-mirrless(LM) method:-Measures in terms of international price,simultaneous analysis.

Economic Return of Return:-measures rate of return to the society.

Domestic Resource Cost:-

DRC=[(value added at domestic prices)/(value added at world prices)]*exchange rate

Effective Rate of Protection:-

ERP=[(value added at domestic price)-(value added at world price)]/(value added at world price)

Detailed Project Reports(DPR)

It is detailed plan/blueprint for execution of project and gives authority to different person to use resources according to their role.

Project Risk Management:

Risk-possibility if project fails to achieve its aim.

1.completion failure

2.technological risk

3.political risk

4.resource risk etc.

Project risk analysis tools:-

1.Sensitive analysis:-it is used when deviation occurs from expected results,but it consider only one variable at a time.

2.Scenario Analysis:-it considers several deviations simultaneously on the basis of 3 scenario :-optimistic,pessimistic,most likely scenario

3.Simulation analysis:-MONTECARLO METHOD

4.Break Even Analysis

5.Decision Tree Analysis