Esbm 3

PROJECT
PLANNING
PROJECT
 A project deals with three dimensions i.e..
Innovation, Vision and Risk. So, it is
something to be done in a viable
framework.
 According to Encyclopedia of
Management. "A project is an organized
unit dedicated to the attainment of a
goal”.
Characteristics of Project
 Investment Pattern
 Expected Return
 Time Limit
 Location
Factors to be considered for Project Selection
 Size of Investment
 Location
 Technology
 Equipments
 Marketing
Project Life Cycle
 Pre- investment Phase

 Construction Phase
 Normalization Phase
Project Classification
1.Quantifiable v/s Non-Quantifiable Projects
2.Sectorial Projects
 Agriculture and Allied Sector, Irrigation and Power
Sector, Industry and Mining Sector, Transport and

Communication Sector, Social Services Sector
3.Techno-Economic Projects
(a)Factor Intensity Oriented (b)Causation Oriented
(c)Magnitude Oriented
Project management
 Project management is the discipline of
planning, organizing and managing resources to
bring about the successful completion of specific
project goals and objectives. A project is a finite
endeavor undertaken to create a unique product
or service which brings about beneficial change
or added value.
Phases of Project Management
 1. Identification
 2. Formulation
 3. Appraisal
 4. Selection
 5. Implementation
 6.Management
Project planning
 Project planning is the most important aspect
of project preparation, it is all about thinking
deeply through a problem, examining all the
logical paths and writing down in a proper
logical sequence and time order, initially, the
project scope is defined and the appropriate
methods for completing the project are
determined.
The planning of a project should centralize
on:
 Optimizing the use of scarce resources.

 Optimization and better utilization of the
existing resources.
 It should be within the budgetary provision
of a financing institution.
 It should result in the desired benefits.
Important Factors for Project planning
 Business strategy
 Competition
 Realistic Vision
 Involvement of people in creating the
project plan
 Factual and brief project plan
Financial Analysis
 The feasibility plan meant to be an initial effort to
show that the business idea can be realized and to
give reasons why it will succeed. The objective of
financial analysis is to ascertain whether the
proposed project will be financially viable and will
satisfy the return expectations of those who
provide the capital.
While conducting a financial appraisal certain
aspects has to be looked into like :
 Investment outlay and cost of project

 Means of financing
 Projected profitability
 Break-even point
 Cash flows of the project
 Investment worthiness judged in terms of
various criteria of merit

 Projected financial position.
 The commonly used methods for evaluating
and ranking the financial investment
proposals are as follows:-
 1. Urgency Method
 2. Pay-Back Period Method
 3. Rate of Return Method
 4. The Present Value Method

1. Urgency Method
 This method is simple and does not require the
evaluation of the project’s profitability. It also
influences the top management’s capital
expenditure decisions as the manager of each
department persuades it to assign first priority to the
project of his department. Thus, the decisions in
respect of investment proposals under this method
are not taken on economic considerations but on
the basis of power or persuasion of the individual
departmental manager.
2. Pay-Back Period Method
 It is also known as pay-off, pay-out method. It is the
length of time required to cover the initial cost of
the project. In other words, it indicates the period
within which the total cash inflows is equal to the
total cash outflows. When the payback period
calculated is less than some maximum acceptable
period, then a proposal is accepted otherwise not.
P.B.P.= Initial investment
Annual Cash flow
3. Rate of Return Method
 The simple rate of return method does not focus on

cash flows. Rather, it focuses on accounting net
operating income. The approach is to estimate the
revenue that will be generated by a proposed
investment and then to deduct from these revenues
all of the projected expenses associated with the
project.
 (a) Average Rate of Return on Total Investment (ROI):
It is the ratio of money gained or lost on an investment
relative to the amount of money invested. The money
invested may be referred to as the asset, capital,
principal, or the cost basis of the investment. ROI is
usually expressed as a percentage.
R.O.I.= Avg. annual income x 100

Initial investment
 (b) Average Return on Average Investment (ARR):
Method of investment appraisal which determines
return on investment by totaling the cash flows (over
the years for which the money was invested) and
dividing that amount by the number of years.
A.R.R.= Avg. annual cash inflows - Annual dep. x 100

Avg. investment
4. The Present Value Method
 In finance, the present value method or the
discounted cash flow (DCF) analysis is a method of
valuing a project, company, or asset using the
concepts of the time value of money. Discounted cash
flow analysis is widely used in investment finance,
real estate development, and corporate financial
management.
P.V.= C1 + C2 +….. Cn
(1+r) (1+r)2 (1+r)n
 (a) Net Present Value: Under the net present value
method, the present value (PV) of all cash inflows from
the project is compared against the initial investment
(I). The Net Present Value (NPV) which is the
difference between the present value and the initial
investment (i.e., NPV = PV - I ), determines whether
the project is an acceptable investment. To compute the
present value of cash inflows, a rate called the Cost of
Capital is used for discounting. Under the method, if
the net present value is positive (NPV > 0 or PV > I ),
the project should be accepted.
 (b) Present Value Index Method: The ratio of the NPV
of a project to the initial outlay required for it. The
index is an efficiency measure for investment decisions
under capital rationing.
P.V.Index(%)= Present value of cash inflows x 100

Cost of investment
Project Report
 The finding of the feasibility analysis may be

compiled in a project report. An entrepreneur
must prepare a project report before proceeding
to launch his venture.
 Once the entrepreneur satisfied with the
feasibility of his project, he should take the next
step of drafting a project report.
Features of a Project Report
 It is basically a business plan.

 It outlines the desired goals.
 It describes all necessary inputs to the enterprise.
 It explains the mode of utilization of the resources.
 It details the strategies for the execution of the
project.
Objectives of Project Report
 To identify the requirements of the resources.

 To assess the chances of the success of the enterprise
before its actual commencement.
 To find out the critical component of the Project data.
 To obtain the opinion of experts from various fields.
 To facilitate financial appraisal of the project by
financial institutions, banks, insurance companies etc.
Uses of Project Report
 The Entrepreneur: It facilitates to plan a course of
action and evolve business strategy.
 Financial Institutions: For extending financial existence
the bankers would like to know the feasibility and
profitability of the enterprise.
 The Government: Some of the legal requirements like
water and power connection, pollution control certificate
etc. are fulfilled by the Government based on the report.
Elements of Project Report
 Description of the entrepreneur.
 Description of the Enterprise and Brief summary of the
project.
 Inputs for the proposed project.
 Financial aspects/Cost of fixed assets, working capital,
sources of finance, assets and liabilities.
 Economic feasibility.
 Total income, operative net profit etc.
 Technical feasibility, Licencing regulations, foreign
exchange requirements etc.
 Information regarding marketing, present demand,
new market likely to be available, foreign exchange
market, competition, marketing strategies, availability
of substitutes etc.
 Profitability analysis.
 Importance of Project to the National economy,
availability of Government support (if any).
Planning Commission's Guidelines for
Project Formulation
 General Information.
 Preliminary Analysis of Alternatives.
 Project Description.
 Marketing Plan.
 Capital Requirements and Costs.
 Operating Requirements and Costs.
 Financial Analysis.
 Economic Analysis.

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PROJECT

 Pre- investment Phase

Sector, Industry and Mining Sector, Transport and

 Optimizing the use of scarce resources.

 Involvement of people in creating the

 Investment outlay and cost of project

 Cash flows of the project

 Investment worthiness judged in terms of

various criteria of merit

 3. Rate of Return Method

 4. The Present Value Method

 The simple rate of return method does not focus on

R.O.I.= Avg. annual income x 100

A.R.R.= Avg. annual cash inflows - Annual dep. x 100

P.V.Index(%)= Present value of cash inflows x 100

 The finding of the feasibility analysis may be

 It is basically a business plan.

 To identify the requirements of the resources.

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