Idea Generation:

Project selection process starts with the generation of a product idea. In o r d e r t o

select the most pro mising p r o je c t , the entrepreneur needs to
generate a few ideas about the possible projects he/she can undertake. T h e
p r o je c t i d e a s c a n b e d i s c o v e r e d f r o m v a r i o u s - i n t e r n a l a n d e xt e r n a l
sources.
These may include:

 Knowledge of potential customer needs,

 Watching emerging trends in demands for certain products,
 Scope for producing substitute product,
 Going through certain professional magazines catering to specific interests like
electronics, computers etc.,
 Success stories of known entrepreneurs or friends or relatives,
 Making visits to trade fairs and exhibitions displaying new products and services,
 Meeting with the Government agencies,
 Ideas given by the knowledgeable persons,
 Knowledge about the Government policy, concessions
a n d incentives, list of items reserved for exclusive manufacture in
small-scale sector, and
 A new product introduced by the competitor. A l l o f t h e s e s o u r c e s p u t t i n g
t o g e t h e r ma y g i v e a f e w i d e a s a b o u t t h e possible projects to be
examined as the final project. This is also described as 'opportunity scanning and
identification' .
It’s a process of buying and selling with and understanding where both invest to fulfill their needs
and the economic aspects where satisfaction and services are most important aspects.
 Inception of Idea
 Development of Idea
 Evaluation of Idea
 Accumulation/addition of Idea

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
MEANING OF PROJECT:
A project is an idea or plan that is intended to be carried out.

T h e dictionary meaning of a project is that it is a scheme, design; a proposal

of something intended or devised to be achieved.
Definitions on 'project':
Newman d e f i n e t h a t " a p r o je c t t y p i c a l l y h a s a d i s t i n c t mi s s i o n t h a t i t i s
designed to achieve and a clear termination point, the achievement of the
mission".
Gillinger defines project “as the whole complex of activities involved in using resources
to gain benefits”.
According to Encyclopedia of Management, "a project is an organized unit dedicated to
the attainment of a goal - the successful completion of a d e v e l o p me n t
p r o je c t o n t i me , wi t h i n b u d g e t , i n c o n f o r ma n c e wi t h p r e - determined
programme specifications". N o w, a p r o je c t can be defined as a
s c i e n t i f i c a l l y e v o l v e d wo r k p l a n devised to achieve a specific objective within a
specified period of time. Here, it is also important to mention that while projects can
differ in their size, nature, objectives, time duration and complexity, yet they
partake of the following three basic attributes:
 A Course of Action
 Specific Objectives, and
 Definite Time Perspective
Proposal
Report
Organized Output
Justified
Evaluation
Course of action
Thought process

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
Project is a is proposal of organized report which will
evaluate and justify the course of action by
application of the thought

Every project has a starting point, an end point with

s p e c i f i c objectives.
Project Classification
Project classification is a natural corollary to the study of project idea. Different
authorities have classified projects differe ntly. Following are the major
classifications of projects:
1. Quantifiable and Non-Quantifiable Projects:
Projects for which a plausible quantitative assessment of benefits canb e m a d e a r e
c a l l e d ' q u a n t i f i a b l e p r o j e c t s . ' P r o j e c t s c o n c e r n e d w i t h industrial
development, power generation, mineral development fall in thiscategory. On
the contrary, non-quantifiable projects are those in which a p l a u s i b l e
q u a n t i t a t i v e a s s e s s m e n t c a n n o t ’ b e ma d e . P r o j e c t s i n v o l v i n g h e a l t h
education and defense are the examples of non -
q u a n t i f i a b l e projects.

Definite p rocedure of selecti ng a project. Basical l y, project

s e l e c t i o n consists of two main steps:
1. Project Identification
2. Project Selection
PROJECT IDENTIFICATION
Project identification is concerned with the collection, compilation and a n a l y s i s o f
e c o n o mi c data for the eventual purpose of locating possible
opportunities for investment and with the
development of the characteristics of such opportunities.

Opportunities, according Drucker ( 1 9 5 5 ) , a r e o f t h r e e k i n d s ; a d d i t i v e ,

c o mp l e m e n t a r y a n d b r e a k - t h r o u g h .

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
Additive opportunities are those opportunities, which enable the decision -
maker to better utilize the existing resources without in any way involving a change in
the character of business.
Co m p l e m e n t a r y o p p o r t u n i t i e s i n v o l v e t h e i n t r o d u c t i o n o f
n e w i d e a s and as such do lead to a certain amount of change in the existing
structure.
Break-through opportunities, on the other hand, involve
fundamental changes in both the structure and character of
business.i i i ) A d d i t i v e o p p o r t u n i t i e s i n v o l v e t h e l e a s t a m o u n t o f
d i s t u r b a n c e t o t h e existing state of affairs and hence the least amount of risk.
The element of risk is more in other two opportunities. When the element of
risk increases, it becomes more important to precisely define the scope and
nature of project idea, to develop alternative solutions for achieving the
project objectives and to select the best possible approach so as to minimize
both resource consumption and risks and to optimize the return or gains. Project
identification cannot be complete without identifying the c h a r a c t e r i s t i c s o f
a p r o je c t . E v e r y p r o je c t h a s t h r e e b a s i c d i m e n s i o n s - inputs, outputs and
social costs and benefits. The input characteristics define what the project will consume
in terms of raw materials, energy, manpower, finance and organizational setup. The
nature and magnitude of each of these inputs must be determined in order to make the
input characteristic explicit. The output characteristics of a project define what
the project will generate in the form of goods and services, employment, revenue etc.,
the quantity and quality of all these outputs should be clearly specified. In addition to
inputs and outputs every project has an impact on the s o c i e t y . I t i n e v i t a b l y
a f f e c t s t h e c u r r e n t e q u i l i b r i u ms o f t h e d e m a n d a n d supply in the
economy. It is necessary to evaluate carefully the sacrifice, which the society
will be required to make, and the benefits that will accrueto the society from a given
project. Project do not emerge themselves. The inputs to set up a project can c o me
from different sources such as G o v e r n me n t agencies, credit
and financial institutions, n o n - g o v e r n me n t a l organization like

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
c h a mb e r s o f commerce and industry, inter-institutional groups, technical
consultancy organizations and inter -national collaborations. Once the venture
ideas have been developed by entrepreneurs by following on or combination
of s o u r c e s explained, these have to be screened and
evaluated in a preliminary fashion on the basis of internal and external
constraints prior to b e i n g p u t t o a d d i t i o n a l t e s t s o f p r e - f e a s i b i l i t y . T h i s
p r o je c t i d e n t i f i c a t i o n c o me s t o an end b y l a y i n g d o wn specific
p r o je c t o b je c t i v e s c l e a r l y a n d c o n c i s e l y a n d wi t h o u t a n y a m b i g u i t y
s o t h a t t h e s e c o n v e y o n e a n d t h e same meaning to all concerned.

PROJECT FORMULATION
The entrepreneur in a developing c ountry has to encount er a nu mber
o f problems while establishing a new project. These problems cause greater c o n c e r n
t o m a n y e n t h u s i a s t i c e n t r e p r e n e u r s . H o we v e r , t h e y c o u l d b e saved to
a greater extent by undertaking a project formulation exercise at the
appropriate time.

Selection of appropriate technology:

The first problem faced by an entrepreneur is in the matter of selection of
appropriate technology for his enterprise. Modern technology d e v e l o p e d i n
t h e h i g h l y i n d u s t r i a l i z e d c o u n t r i e s m a y n o t b e s u i t a b l e f o r adoption in
the developing countries as the conditions prevalent differ from country to country.
For example, the optimal size of plants recommended f o r a highly
industrialized country may be too big for acceptance in a
d e v e l o p i n g c o u n t r y o wi n g t o t h e f a c t o r s s u c h a s l i mi t e d ma r k e t f o r
t h e p r o d u c t s a n d l i mi t a v a i l a b i l i t y o f c a p i t a l a n d s k i l l e d l a b o r . H e n c e ,
t h e e n t r e p r e n e u r h a s t o e xa m i n e t h e p r o je c t i d e a t h o r o u g h l y a s
r e g a r d s i t s design, production, and marketing after sales service, etc.
.

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
Influence of External Economics:
The second problem relates to the absence or non -availability of external
economics. No project can function in isolation in any economy. It has to depend on
other industries for the supply of raw materials, power t o o l s s p a r e p a r t s
e t c . , o r o n a n c i l l a r y e n t e r p r i s e w h i c h c a n p r o v i d e technical,
financial, and ma n a g e r i a l services or a co mplex n e t wo r k
o f communication and transport facilities or an intricate system of business
practices. The entrepreneur in developing countries is, therefore to
consider not only the basic costs of the project but also the ancillary costs, which in
industrially advance countries would have been contributed by the external economics.
.
Dearth of Technically Qualified Personnel:
The third problem is the non-availability of technically qualified and appropriate
personnel. Modern technology calls for a certain minimum supply of various
skills that are generally lacking in developing countries.

Resource mobilization
The fourth problem is resource mobilization. In the context of present day
development of the magnitude and size of project it would be very difficult for
an entrepreneur to provide the entire development capital that a project may
need.
.knowledge about government regulations
:Besides these problems the entrepreneur has to comprehend a n umber of
Government directives. Import and export policies, price controls, etc. The difficulty is to
be familiar with all these regulations, for they are not a v a i l a b l e i n a c o n s o l i d a t e d
a n d d e t a i l e d f o r m i n mo s t o f t h e d e v e l o p i n g c o u n t r i e s . H o we v e r , i n
I n d i a , a c o m p e n d i u m e n t i t l e d ’ G u i d e l i n e s f o r Industries has been published
by the Ministry of Industrial Development. It provides information regarding the industrial
regarding the present status of capacities and possibilities of future development in
various industrial fields like metallurgical industries,
electronics equipment industries, transportation industries and

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
the like. T h e s e p r o b l e ms m a k e t h e e n t r e p r e n e u r t o u n d e r g o a l o t
o f harassment, disappointment and despair. However a project formulation
e xe r c i s e u n d e r t a k e n a t t h e r i g h t t i m e mi t i g a t e s t h e s e v e r i t y a s we l l
a s magnitude of these problems.

CONCEPT OF PROJECT FORMULATION

Project formulation is the systematic development of a project idea for the eventual
objective of arriving at an investment decision. It has the built-in mechanism of
ringing the danger bell at the earliest possible stage of r e s o u r c e
utilization. Project formulation involves a step-by-step
investigation and development of project idea. And it provides a controlled mechanism
for restricting expenditure on project development. Project formulation is a process
involving the joint efforts of a team of e xp e r t s . E a c h m e m b e r o f t h e t e a m
should be f a mi l i a r wi t h the broad strategy, objectives and other
ingredients of the project. The government o f f i c i a l wh o d e a l s wi t h t h e
p r o je c t ’ s f i n a l c l e a r a n c e h a s t o b e t r e a t e d a s forming part of the team.
A well-formulated feasibility report provides a me dium, which cuts across
scientific, social and positional prejudices and provides a common meeting
ground for all those who have a contribution to make in successful implementation of a
project. Project team should consist of experts in major substantive f ields
of the project. Depending on the situation any large project should comprise the
following team members.( a ) O n e industrial economi st ( b ) O n e
market a n a l y s t (c)One or more technologist/engineer
s p e c i a l i z i n g i n t h e a p p r o p r i a t e industry.( d ) O n e me c h a n i c a l a n d / o r
i ndustri al engi neer. ( e ) O n e m a n a g e m e n t a c c o u n t i n g e x p e r t .
SIGNIFICANCE OF PROJECT FORMULATION
A well-formulated project is the best passport for obtaining the required
assistance from financial institutions. When there is a situation of resource constraint
and the available resources are allocated to various projects based on their
importance and viability a well -formulated project formulation is the best way of
selling a project idea to a financing agency. Project formulation will also be of great

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
assistance for obtaining necessary G o v e r n m e n t clearances and I
m e e t i n g t h e h u r d l e s o f p r o c e d u r a l formalities. It will pinpoint the
matters for which Government sanctions have to be obtained and also
provide an independent assessment of the feasibility of obtai ning these
sanctions based on the existing Government policies. The project report
submitted by the entrepreneur will establish his bonafides in the eyes of the
bureaucracy and obtain the due Government sanction without much difficulty.

FORMULATION OF A PROJECT REPORT

Normally, small-scale enterprises do not include sophisticated technique,
wh i c h is used for preparing p r o je c t reports of large -scale
enterprises. Within the s ma l l - s c a l e enterprises too, all the
i n f o r ma t i o n ma y n o t b e homogeneous for all units. In fact, what and how
much information will be g i v e n i n t h e p r o je c t r e p o r t d e p e n d s u p o n t h e
s i z e o f t h e u n i t a s we l l a s nature of the production. A general set of
information given in any projectr e p o r t i s l i s t e d b y V i n o d G u p t a i n h i s
study on
"Formulation of a Project Report".
We are reproducing it here. Project formulation divides the process of project
development into eight distinct and sequential stages.
These stages are:
1. General Information.(Bio data, industrial profile, constitution and product details )
2. Project Description. (Site, physical in fracture, raw material, power, water..)
3. Market Potential.
4. Capital Costs and Sources of Finance.
5. Assessment of Working Capital Requirements.
6. Other Financial Aspects.
7. Economic and Social Variables.
8. Project Implementation.

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
PROJECT APPRAISALCONCEPT OF PROJECT APPRAISAL:
P r o je c t a p p r a i s a l me a n s t h e a s s e s s m e n t o f a p r o je c t . Project appraisal is
made for both proposed and executed projects. In case of former, project appraisal is
called ‘ex-ante analysis’ and in case of latter ‘post-ante analysis’. Here, project appraisal
relates to a proposed project. Project appraisal is a costs and benefits analysis
of different aspects of proposed project with an objective to adjudge its viability .After
the project is decided upon and before the entrepreneur approaches a l e n d i n g
institution, he needs to understand the evaluation method
employed by the lending institutions for obtaining any financial assistance. Some
aspects of the feasibility are also used for the purpose of appraisal. If a n
entrepreneur is aware of the project appraisal methods,
h e c a n anticipate the requirements of the lending institutions
a n d m a t c h h i s a n s we r s a c c o r d i n g l y t o e n s u r e t h a t a n s we r s a r e
a v a i l a b l e i n t h e p r o je c t report.
Meaning of project appraisal:
A s s e s s i n g t h e v i a b i l i t y o r f e a s i b i l i t y o f a p r o p o s e d p r o je c t b y t h e
lending institutions is called as
“project appraisal
”. The difference bet ween feasi bi li ty and apprai sal i s, that the
f e a s i b i l i t y i s d o n e b y t h e investors and lending institutions. Entrepreneur
also does the appraisal when he has to choose between two or more
alternative projects. Project appraisal is
ex-ante analysis.
It identifies and values the expected cost and benefit of the project. Project evaluation is
ex-post analysis of an executed project. However, sometimes the concepts of appraisal
and evaluation are u s e d i n t e r c h a n g e a b l y , b u t b o t h me a n t h e s a m e .
D i f f e r e n t a n a l y s e s a r e done in the different stages of the project appraisal.
Project appraisal is a process of transmitting information accumulated through
feasibility studies into a comprehensive form in order to enable a decision
maker undertake a comparative appraisal of various projects. Different methods are
used by the lending institutions to evaluate a project appraisal. Marketing,

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University
Economic, financial, management and social feasibilities are
studied by lenders/investors as well. The various
profitability appraisal methods used for evaluation are:
 Payback period method
 Return on investment method
 Discounted cash flow method
 Internal rate of return method
 N e t p r e s e n t v a l u e
 Profitability index

Dr. S. K. Acharya, MBA(HR), M.Com(Finance), M.Phil (Com), MA PMIR (HR), PhD (HR)
Assistant Professor, Department of Management Studies, DDCE, Utkal University