Project Identification - Project Life Cycle

1. PROJECT
IDENTIFICATION

2. Meaning Of Project
 A Project is a idea or plan that is indeed to be carried
out.
 It is a specific activity on which money is spent in the
expectation of some Returns
 From Entrepreneur’s point of view, Project can be
considered as a proposal involving capital investment
for the purpose of developing facilities to provide goods
and services.

3. Definition Of Project
 According to Gittinger “Project is the whole complex of
activities involved in using resources to gain benefits”
 According to Encyclopedia of Management “ Project is
an organized unit dedicated to the attainment of a
goal, the successful completion of a development
project on time within budget and in conformity with
the programme specifications”

4. Project Classification
Projects have been classified differently by different authorities and
in fact project classification helps in graphically expressing and
highlighting the essential features of a project. According to the
needs and in general the projects are classified as below:
 Quantifiable and Non-Quantifiable Projects
 Sectoral Projects
 Techno-Economic Projects
 Financial Institutions Projects

5. Quantifiable vs Non Quantifiable
Projects
 Quantifiable projects are those projects where the
benefits can be assessed in quantifiable terms.
 Projects dealing with industrial development, power
generation etc., comes under this category.
 Non Quantifiable Projects are those projects where
such quantifiable assessment of benefits is not
possible. Projects concerned with health, education
etc., comes under this category.

6. Sectoral Projects
 In India, the Planning commission has adopted the sectoral basis
for project classification so as to allocate the scarce resources at
macro levels.
 A Project may fall into any one of the following sectors:
1. Agriculture Sector
2. Irrigation and Power Sector
3. Transport Sector
4. Mining Sector

7. Techno-Economic Projects
 Sometimes, Projects can be classified on the basis of
Techno-Economic factors like the size of investment,
factor intensity etc., On the basis of Techno-Economic
factors, Projects can be again classified into:
1) Factor Intensity Oriented classification
2) Causation-Oriented Classification
3) Magnitude Oriented classification

8. Factor Oriented Classification
 Under this Type, A Project is classified on the basis of
the factor intensity whether capital intensive or labour
intensive. In case of a project where large scale
investment is made on plant and machinery, it is called
capital-intensive project.
 Heavy investment on human resources makes it labour
intensive.

9. Causation Oriented Classification
 The Cause for starting a project forms the basis for
classification of projects under this type. For Example,
the availability of certain raw materials is the ultimate
cause for starting a project, then the project is classified
as Raw-Materials based.
 On the Other hand, If it is because of the demand of
Goods and Services then it is classified as demand
based.

10. Magnitude Oriented Classification
 Under this type, the size of investment forms the basis
of classification. Thus the projects may be classified into
Large-Scale, Medium Scale, Small Scale depending upon
the quantum of Project Investment.

11. Financial Institutions Projects
 The Various Financial Institutions established both at the central and
state levels. The Projects are classified into Profit Oriented and Service
Oriented Projects.
 Profit Oriented Projects:
1. New Projects
2. Expansion Projects
3. Modernization Projects
 Service-Oriented Projects:
1. Welfare Projects
2. Educational Projects

12. Project Life Cycle
 Just Like Human Beings, projects also do have a life
cycle. A Project has to necessarily pass through the
following stages in its life cycle:
1) Pre-Investment Stage
2) Construction Stage
3) Normalization Stage

13. Pre-Investment Stage
 This is the first phase in life cycle of a project. During
this stage, The Project idea is developed into an
investment proposal on which investment decisions can
be taken by promoters.
 This Stage consists of setting up aims and objectives,
Demand forecasting, Selection of Best means to
achieve the objectives, Projection of Financial Plan and
finally pre-investment appraisal

14. Construction Stage
 After the investment decision is taken, Next stage would be
construction stage. During this stage Investment Proposal is
developed into a tangible project so as to achieve the
Objectives.
 Resources are invested in building the basic assets of the
project so that necessary infrastructure may be developed.
The assets may be in the form of land, Building, Plant and
machinery, Transport, Human Resource recruitment and
development of Appropriate control systems.

15. Normalization Stage
 The Main Objective of this stage is to produce Goods
and services for which the project was established.
 In Simple words, the assets created in the second stage
are utilized to produce Goods or Services. Thus Project
starts operating by processing inputs and generating
outputs.

16. Project Report
 A Project Report is report which provides all the necessary
details of the unit proposed to be established for the
manufacture of a product or for rendering a service.
 The Project report is an essential document for procuring
financial assistance from financial institutions and banks to fulfill
the formalities for the implementation of the project.
 It is nothing but a blueprint of all those activities that a
entrepreneur proposes to engage in. Thus a Project report for an
entrepreneur is similar to a guide map for a traveller.

17. Contents of Project Report
 A Project report must contain all necessary information to appraise it and take
a financial decision by lending institutions.
 The Following guidelines will help entrepreneur to prepare a report generally
for establishing Small-Scale Unit.
1) General Information
2) Project Description
3) Market Potential
4) Capital Costs and Sources of Finance
5) Assessment of Working Capital Requirements
6) Financial Consideration
7) Economic and Social Considerations

18. General Information
Here, Some Basic Information Should be Provided. These include,
 Name and Address of the Entrepreneur
 Qualification, Experience and capabilities of the Entrepreneur.
 Profile of the Industry to which Project Belongs.
 Organizational Structure- Whether Sole Proprietorship or
Partnership Firm.
 Registration Certificate from the Directorate of Industries.
 Range of Products to be Manufactured and their utility.

19. Project Description
 SITE:
1) The proposed Location with full address.
2) Whether Owned or Leased Land
3) Whether Approved Industrial Area or not.
 RAW MATERIALS
1) Availability of Raw Materials, Their Quality and feasibility of
procuring regularly

20. Project Description
2) If Imported Raw Materials to be used, Whether License has been Obtained.
3) Sources of Raw Materials
 Skilled Labour Requirements
1) No of Staffs totally required and whether skilled labour is required if Yes, What
is their Numbers should be mentioned
 Machinery and Equipment and Common Facilities
1) A Complete List of all items of Machinery and other equipment already
purchased and to be purchased- Their type, size and cost.
 Manufacturing Process
1) Various stages of Production and the process involved in each stage.
2) The Period required for Converting raw materials into Finished Goods

21. Project Description
 Disposal Of Waste
1) Whether the Project Involves production of waste materials or emissions.
2) Provisions for dumps, Sewage System and Sewage Treatment Plan.

22. Market Potential
An Entrepreneur should state in his project report about the potentialities for
the marketing of his products. Following Aspects relating to market potential
should be given in the report
 Demand and Supply Position
1) Total Expected demand for the proposed product
2) The Supply Position of that product in the market
3) The Gap between demand and supply and how much this gap will be met
by the proposed unit

23. Market Potential
 Cost and Price Position
1) An estimate of the Price Expected
2) Competitors Selling Price
3) An Assessment on the Margin of Profit
 Marketing Strategy
1) The Strategy to be allotted for selling the products
2) Whether there is any arrangement to use the trademark of reputed
companies on the proposed products?
 After Sales Service
1)The Necessity of providing after sales service to win the confidence of
customers and earn a Good Name

24. Capital Costs and Sources of Finance
An Estimate of the Capital Expenditures to be incurred by the unit on various
items should be given in the report.
 The various components of capital items may relate to the following:
1) Land and Building Cost
2) Cost of Plant and Machinery
3) Preliminary and Miscellaneous Expenses
4) Labour Costs
 Sources of Finance May Include:
1) Owner’s Contribution towards the proposed venture
2) Loans to be raised and Deposits in the bank

25. Capital Costs and Source of Finance
3) State and Central Government’s Capital Subsidies
4) Finance from Friends and Relatives.

26. Assessment of Working Capital
Requirements
 No Unit can function without the availability of adequate working capital
finance. Hence the estimate of the working capital requirements should be
made and shown with the total cost of the Project Itself. The Working Capital
calculation involves the following:
1) Expenditures to be incurred on raw materials
2) Expenses on Goods under process
3) Costs involved in Finished Goods Stock.
4) Expense on Stores and Spares
5) Monthly Expenses.

27. Financial Considerations
 The Project must retrieve the investment made within its lifecycle. For this
purpose, A Projected Profit and Loss Account should be prepared.
S No Details I Year II Year III Year
1 Sales Revenue
2 Estimated Production
Expenses
3 Other Income
4 Profit Before Tax
5 Expected Income Tax to be
paid
6 Percentage of Net Profit

28. Financial Consideration
 Financial Inflows:
1) Net Profit
2) Own Investment
3) Investment Allowances
4) Long Term Loan
5) Other Income
 Financial Outflows:
1) Fixed Investment
2) Preoperative Expenses
3) Interest
4) Income Tax
5) Increase in Current Asset

29. Economic and Social Considerations
 It is the abatement Costs i.e., the costs to be incurred for controllable
environmental damage like pollution, Effluents, Emissions etc.,
 Socio-Economic Benefits for the Country may also be mentioned. Some of the
Examples are:
1) Promotion Of Employment in that particular area
2) Export Potentials which may bring in Foreign Reserves
3) Development of the Area