Unit IV

Project Formulation

Project Formulation
Meaning and concept of project formulation Stages in project formulation a)Elements of
project formulation b) Project Appraisal-concept and features, methods of appraisal
c)Project Selection-meaning, Factors to be considered for project selection d) Project
report-meaning importance and contents of project report.

Project Formulation
Meaning and concept of project formulation Stages in project formulation
Elements of project formulation, Project Appraisal-concept and features,
Methods of appraisal and Project Selection-meaning
Factors to be considered for project selection
Project report-meaning importance and contents of project report.

The entrepreneur faces number of problems while establishing new project. These
problems may be in relation to the formalities and procedures to be completed, technical
requirements or even financial constraints also. There is a need to set the boundaries or the
limit of the work intended to be performed under the proposed project. In fact, the project is
required to be given the precise meaning. It definitely prevents the confusion, conflict or
duplication of various aspects related with the project. The very first stage in life cycle of
project is project formulation. This module discusses the need, significance and elements of
project formulation. Now-a-days the impact on environment needs to be analysed
compulsorily. The Environment Impact Analysis has also been included in this module

Concept of Project Formulation

Project formulation is a step by step investigation and development of the project

where each step is for further development of project idea. It is a control mechanism which
provides for restricting expenditure on project development. So, it enables to control the
expenditure and if at any step there are signs of anything going wrong or if weakness is
observed in the project at any stage of investigation, the project may even be called off.

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 resource utilization.

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Need for Project Formulation

In the process of establishment of a new project, number of problems is faced by the

entrepreneur. The resources are scarce and alternative uses are available for these. That is
why step-by-step investigation and development of project idea are required. Following are
some of the problems that make the entrepreneur to undergo a lot of harassment, frustration
and disappointment. But a project formulation exercise undertaken at right time in a right
manner mitigates the rigorousness as well as magnitude of these problems. The following
are some of these key issues due to which the need for project formulation becomes
inevitable.

1. Selection of Appropriate Technology:

The project necessarily requires technology to be adopted. The entrepreneur faces

great difficulty in the selection of appropriate technology for the project. The problem may
be in relation with development of new technology or selection of suitable and adequate
technology out of technologies available. In highly industrialized economies, modern
technologies have been developed. But these may not be suitable for small and medium
projects or in case of developing economies. There may be a case that good technology is
available but resources are not adequate enough. Another problem may be the requirement
of skilled manpower. This clearly indicates that the project needs to be thoroughly examined
as regards these factors. It is not possible without project formulation.

2. Influence of External Economies:

Any project cannot function in isolation and it requires the support of external
economies. The dependency of the project in question on other projects or industry may be
with respect to:

a) Supply of raw material

b) Requirements of power and its supply
c) Supply of tools, spare parts
d) Ancillary enterprises for supply of technical, financial or managerial services
e) Complex network of communication and transport facilities
The direct costs are the basic costs of the project. But, in the case of developing
countries the above stated ancillary costs are also considered. In developed countries or
advanced industrial environment, this basic cost is not required as it is contributed in terms
of external economies.

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3. Non-availability of Technical Manpower

The successful execution requires availability of appropriate and technically qualified

personnel. The project formulation duly analyses this aspect of project so that a technically
infeasible project may be abandoned at very initial stage.

4. Resource Mobilisation

The resource mobilization refers to the ability to gather various resources to

accomplish the desired goals. The mobilization may be very easy and feasible at the very
initial level of the project. But it is required continuously throughout the project. The project
formulation takes into account this aspect also.

5. Legal Scenario

The Government policies require being adhered compulsorily. The basic problem,
faced in most of the countries, is non-availability of consolidated and detailed information.

In India“Ministry of Industrial Development” has issued a compendium in the name

of “Guidelines for Industries”. This compendium covers the following aspects:

a) Industrial Policy
b) Licensing policy and procedures, if any
c) Guidelines for foreign collaboration
d) Import and export control orders
e) Present status of capacities
f) Possibility of further development
5. Significance of Project Formulation

The huge projects require assistance from the financial Institutions. The funding
becomes hassle- free in case of well-formulated projects. The most viable way of selling a
project idea to financing agency requires allocation of resource constraints to various
projects with due consideration of relative importance and viability. It can be made possible
in an effective manner through project formulation. The project report, prepared after due
project formulation, will be of great assistance.

Elements / Stages of Project Formulation

In order to take the most effective project decision, project formulation is required.
This exercise of project formulation usually contains the following elements:

1. Feasibility analysis
2. Techno-economic analysis

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3. Project Design and Network analysis
4. Input analysis Financial analysis
5. Social Cost-benefit analysis
6. Project appraisal
Feasibility Analysis

Feasibility analysis is a process undertaken to determine whether the project idea is

worth proceeding with or not. It evaluates the future of the project idea within the
limitations imposed by the environment upon it and also the constraints of the
implementing body. Generally, the outcome of the study can give a positive result under
which the decision to proceed with the project is taken otherwise the project can be
abandoned. Sometimes, the data is not sufficient to arrive at any decision and in that case
further information is collected till a decision can be reached. The feasibility analysis
consists of three stages. These are pre-feasibility study, feasibility study and Project report.

Techno-Economic Analysis

It is concerned with finding out the demand potential of the project and the right
technology required attaining the objective of the project. It is important to analyse whether
the economy will absorb the output. The technology would mean the project design, the
methodology and the process required. Thus it is to be understood in a broader sense. This
analysis consists of two important segments. The first segment is related with ascertainment
of maximum project output whereas the purpose of second segment is the selection of
optimal strategy to achieve the output

Project Design and Network Analysis

It is related with the flow of various individual activities and their inter-relationship
in order to complete the project. It identifies activities which can be started and also the
activities which can be taken up simultaneously. It is generally depicted in the form of a
network diagram. .

Input Analysis

After all the analysis the next step is to find out all the resources that are required to
complete the project. These resources form the inputs of the project. It also identifies all the
different phases where the resources are required.

Financial Analysis

The estimates about the financial costs of the project and the revenue generated by it
so as to determine whether it will be profitable to undertake the project or not is termed as
financial analysis.
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The following norms are adopted by Financial Institutions in the examination of financial
feasibility of project:

1. Cost estimates of the project are to be examined whether such costs are realistic and
escalation is taken into account.
2. Time and cost over-runs should be considered.
3. Sources of finance i.e. debt-equity ratio, financing of fixed assets, financing of working
capital, promoters contribution towards share capital, etc. debt equity ratio of 2:1 should be
maintained.
4. Financial viability i.e. profitability, sensitivity analysis, cash flow are to be examined
thoroughly.
5. IRR should be worked out.
6. Interest coverage ratio should be calculated.
7. The level at which the project is likely to break-even is also examined.
8. Loan repayment schedule is drawn up as per financial projections. Repayment should be
made out of internal resources.
9. In case of existing company, the impact of new project on the level of production, net
earnings, borrowings, costs, etc. is to be seen.
10. Unsecured loans from promoters are allowed only in restricted circumstances and with a
condition that they should not withdraw the amount without permission of the financial
institutions
Social Cost-benefit analysis

The concept of social cost–benefit analysis (SCBA) has been introduced by the
French economist Jules Dupuit. Social Cost benefit Analysis is a systematic evaluation
technique for long-term decision making in capital projects appraisal. It is an analytical tool
in decision making which enables a systematic comparison to be made between the social
costs and related social benefits with due emphasis on technical and other feasibility studies
but focusing more on social impact. In the context of planned economies, the social costs
benefit analysis aids in evaluating individual projects within the planning framework.

In addition to technical, commercial and financial viability of the project, it should

also be socially desirable. The following are the indicators of social desirability of a project:

a) Employment potential e) Cost benefit ratio

b) Value added per employee f) Social cost benefit analysis (SCBA)
c) Value added per rupee of capital g) Area development
d) Capital output ratio h) Foreign exchange benefit to the country

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 It must be emphasized that, there can be no definite principle which can be
universally applied to convert commercial costs and benefits into social costs and benefits.
However, the following two principal approaches are suggested for SCBA:

It deals with the estimation of social costs and social benefits. This analysis is
undertaken to ascertain the impact of the project on the society as a whole. Greater
emphasis is laid on social objectives in this analysis with lesser profit motive. The projects
aimed at the development of the society will give secondary importance to the profitability
of the project, keeping in view the social objectives as primary.

Project Appraisal

The term project appraisal refers to the process of assessing whether to proceed with
the project or nor in a systematic manner. It is related with calculating the feasibility and
viability of the project.

While appraising a project economic, technical, marketing and financial feasibility is

generally checked. A feasibility report is then prepared based on which the decision is taken
whether to proceed with the project or not.

5 Methods of Project Appraisal

1. Economic Analysis

Under economic analysis, the project aspects highlighted include requirements for
raw material, level of capacity utilization, anticipated sales, anticipated expenses and the
probable profits. It is said that a business should have always a volume of profit clearly in
view which will govern other economic variables like sales, purchases, expenses and alike.

It will have to be calculated how much sales would be necessary to earn the targeted
profit. Undoubtedly, demand for the product will be estimated for anticipating sales volume.
Therefore, demand for the product needs to be carefully spelled out as it is, to a great extent,
deciding factor of feasibility of the project concern.

In addition to above, the location of the enterprise decided after considering a gamut
of points also needs to be mentioned in the project. The Government policies in this regard
should be taken into consideration. The Government offers specific incentives and
concessions for setting up industries in notified backward areas. Therefore, it has to be
ascertained whether the proposed enterprise comes under this category or not and whether
the Government has already decided any specific location for this kind of enterprise.

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2. Financial Analysis

Finance is one of the most important pre-requisites to establish an enterprise. It is

finance only that facilitates an entrepreneur to bring together the labour of one, machine of
another and raw material of yet another to combine them to produce goods.

In order to adjudge the financial viability of the project, the following aspects need to
be carefully analysed:

1.Assessment of the financial requirements both – fixed capital and working capital need to
be properly made. You might be knowing that fixed capital normally called „fixed assets‟ are
those tangible and material facilities which purchased once are used again and again. Land
and buildings, plants and machinery, and equipment‟s are the familiar examples of fixed
assets/fixed capital.
The requirement for fixed assets/capital will vary from enterprise to enterprise depending
upon the type of operation, scale of operation and time when the investment is made. But,
while assessing the fixed capital requirements, all items relating to the asset like the cost of
the asset, architect and engineer‟s fees, electrification and installation charges (which
normally come to 10 per cent of the value of machinery), depreciation, pre-operation
expenses of trial runs, etc., should be duly taken into consideration. Similarly, if any
expense is to be incurred in remodeling, repair and additions of buildings should also be
highlighted in the project report.

2. In accounting, working capital means excess of current assets over current liabilities.
Generally, 2: 1 is considered as the optimum current ratio. Current assets refer to those
assets which can be converted into cash within a period of one week. Current liabilities refer
to those obligations which can be payable within a period of one week. In short, working
capital is that amount of funds which is needed in day today‟s business operations. In other
words, it is like circulating money changing from cash to inventories and from inventories to
receivables and again converted into cash.

This circle goes on and on. Thus, working capital serves as a lubricant for any
enterprise, be it large or small. Therefore, the requirements of working capital should be
clearly provided for. Inadequacy of working capital may not only adversely affect the
operation of the enterprise but also bring the enterprise to a grinding halt.

The activity level of an enterprise expressed as capacity utilization, needs to be well

spelt out in the business plan or project report. However, the enterprise sometimes fails to
achieve the targeted level of capacity due to various business vicissitudes like unforeseen
shortage of raw material, unexpected disruption in power supply, inability to penetrate the
market mechanism, etc.
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 Then, a question arises to what extent and enterprise should continue its production
to meet all its obligations/liabilities. „Break-even analysis‟ (BEP) gives an answer to it. In
brief, break-even analysis indicates the level of production at which there is neither profit
nor loss in the enterprise. This level of production is, accordingly, called „break-even level‟.

3. Market Analysis:

Before the production actually starts, the entrepreneur needs to anticipate the
possible market for the product. He/she has to anticipate who will be the possible customers
for his product and where and when his product will be sold. There is a trite saying in this
regard: “The manufacturer of an iron nails must know who will buy his iron nails.”

This is because production has no value for the producer unless it is sold. It is said
that if the proof of pudding lies in eating, the proof of all production lies in marketing/
consumption. In fact, the potential of the market constitutes the determinant of probable
rewards from entrepreneurial career.

Thus, knowing the anticipated market for the product to be produced becomes an
important element in every business plan. The various methods used to anticipate the
potential market, what is named in „Managerial Economics‟ as „demand forecasting‟, range
from the naive to sophisticated ones.

The commonly used methods to estimate the demand for a product are as follows:

1.Opinion Polling Method:

In this method, the opinions of the ultimate users, i.e. customers of the product are
estimated. This may be attempted with the help of either a complete survey of all customers
(called, complete enumeration) or by selecting a few consuming units out of the relevant
population (called, sample survey).

Let us discuss these in some details:

(a) Complete Enumeration Survey:
In this survey, all the probable customers of the product are approached and their
probable demands for the product are estimated and then summed. Estimating sales under
this method is very simple. It is obtained by simply adding the probable demands of all
customers. An example should make it clear.

Suppose, there are total N customers of X product and everybody will demand for D
numbers of it. Then, the total anticipated demand will be: N ∑ i=1 DiN

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 Though the principle merit of this method is that it obtains the first-hand and
unbiased information, yet it is beset with some disadvantages also. For example, to
approach a large number of customers scattered all over market becomes tedious, costly and
cumbersome. Added to this, the consumers themselves may not divulge their purchase plans
due to the reasons like their personal as well commercial/business privacies.

(b) Sample Survey:

Under this method, only some number of consumers out of their total population is
approached and data on their probable demands for the product during the forecast period
are collected and summed. The total demand of sample customers is finally blown up to
generate the total demand for the product. Let this also be explained with an example.
Imagine, there are 1000 customers of a product spread over the Faridabad market.
Out of these, 50 are selected for survey using stratified method. Now, if the estimated
demand of these sample customers is Di, i.e., it refers to 1 2 3….50, the total demand for the
entire group of customers will be
50 ∑ ni Di = n1 D1 +n2D2 + n3 D3…….. n50 D50
Where n, is the number of customers in group i, and n1 +n2 + n3….n50 = 1000.
But, if all the 1000 customers of the group are alike, then the selection may be done on a
random basis and total demand for the group will be:
(D1 D2 + D3 +D4…D5) 1000 /50
No doubt, survey method is less costly and tedious than the complete enumeration method.

(c) Sales Experience Method:

Under this method, a sample market is surveyed before the new product is offered for
sale. The results of the market surveyed are then projected to the universe in order to
anticipate the total demand for the product.
In principle, the survey market should be the true representative of the national
market which is not always true. Suppose, if Delhi is selected as a sample market, it may not
be a true representative of a small place, say Trichy in Tamilnadu simply because the
characteristic features of Delhi are altogether different from those of a small town like
Trichy.
Again, if we select Agra as a sample market, sales in Agra would be influenced by
the size of the floating tourist‟s population throughout the year. But this feature is not
experienced by many other places again like Trichy in Tamilnadu.

(d) Vicarious Method:

Under the vicarious method, the consumers of the product are not approached
directly but indirectly through some dealers who have a feel of their customers. The dealers‟
opinions about the customers‟ opinion are elicited. Being based on dealers‟ opinions, the

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method is bound to suffer from the bias on the part of the dealers. Then, the results derived
are likely to be unrealistic. However, these hang-ups are not avoidable also.

2. Life Cycle Segmentation Analysis:

It is well established that like a man, every product has its own life span. In practice,
a product sells slowly in the beginning. Backed by sales promotion strategies over period, its
sales pick up. In the due course of time, the peak sale is reached. After that point, the sales
begin to decline. After, some time, the product loses its demand and dies. This is natural
death of a product. Thus, every product passes through its „life cycle‟. This is precisely the
reason why firms go for new products one after another to keep themselves alive.

Based on above, the product life cycle has been divided into the following five stages:
 Introduction
 Growth
 Maturity
 Saturation
 Decline

4. Technical Feasibility:
While making project appraisal, the technical feasibility of the project also needs to
be taken into consideration. In the simplest sense, technical feasibility implies to mean the
adequacy of the proposed plant and equipment to produce the product within the prescribed
norms. As regards know-how, it denotes the availability or otherwise of a fund of
knowledge to run the proposed plants and machinery.

It should be ensured whether that know-how is available with the entrepreneur or is

to be procured from elsewhere. In the latter case, arrangement made to procure it should be
clearly checked up. If project requires any collaboration, then, the terms and conditions of
the collaboration should also be spelt out comprehensively and carefully.

In case of foreign technical collaboration, one needs to be aware of the legal

provisions in force from time to time specifying the list of products for which only such
collaboration is allowed under specific terms and conditions. The entrepreneur, therefore,
contemplating for foreign collaboration should check these legal provisions with reference to
their projects.

While assessing the technical feasibility of the project, the following inputs covered in
the project should also be taken into consideration:
(i) Availability of land and site.
(ii) Availability of other inputs like water, power, transport, communication facilities.
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 (iii) Availability of servicing facilities like machine shops, electric repair shop, etc.
(iv) Coping-with anti-pollution law.
(v) Availability of work force as per required skill and arrangements proposed for training-
in-plant and outside.
(vi) Availability of required raw material as per quantity and quality.

5. Management Competence:
Management ability or competence plays an important role in making an enterprise a
success or otherwise. Strictly speaking, in the absence of managerial competence, the
projects which are otherwise feasible may fail.
On the contrary, even a poor project may become a successful one with good
managerial ability. Hence, while doing project appraisal, the managerial competence or
talent of the promoter should be taken into consideration.

Project Selection
Project selection is an integral part of a company's process for choosing a project
with the highest priority to accomplish. Projects and project completion can be important in
transforming a company. Selecting the right project could create a better return on
investment for a company, increase efficiencies, shorten time-to-market and lead to
successful project delivery. In this article, we discuss what project selection is, why it is
important and list some steps on how to select a project effectively

Project selection
Project selection is the evaluation of project ideas to help decide which project has
the highest priority. It's an important part of project portfolio management (PPM), which is
a process used by project management organizations (PMOs) and project managers to
analyze the potential return on undertaking a project.
Once project managers receive project ideas or proposals, they often go through a
process to assess and select a project that will move forward. Typically, when project
managers select a project, they may consider the following factors

Costs
Resources
Benefits or ROI
Time to complete the project
Risks associated with the project

Importance of Project Selection

Project selection is important because companies want to make sure projects they
invest in are safe and will yield benefits and good returns. The process of project selection
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can analyze new opportunities and help justify the decisions for making needed monetary
investments. Companies may have several project opportunities to invest in, but because
they can't invest in all projects, they are often selective.

How to select a project

Here are some steps you can take to select a project:

1. Make sure the project fits the company's strategy

Discuss with all stakeholders whether a project you're considering fits into the
company's overall business strategy. You can work together to identify where a project may
meet a single organizational goal or multiple goals, and whether they are short-term or long-
term goals.

2. Understand your company environment

It's important to be you're aware of your organizational environment and understand
your company thoroughly. Consider asking yourself the following questions:
 What are the company's key business drivers?
 What are the company's strengths and weaknesses?
 Does the company have limited resources?
 If the company has resource limitations, where is it lacking?

3. Consider and analyze historical data

When you perform your analysis, consider previous experiences and refer to past
information or historical data as much as possible. Regardless of the outcome of a prior
project, there are environmental and organizational factors that likely influenced the
outcome. Find out whether there are changes to those factors, and discuss them with
company executives or project stakeholders.

4. Decide who will be the project champion

It's important to ensure a project has a designed champion or owner to make sure the
project stays on track and proceeds smoothly and efficiently to completion. The project
champion is often a high-level employee or executive with an interest in the project and
excellent communication skills to work with everyone involved with the project.

Project selection methods

There are several methods you can use to help you decide which project to select.
These include:

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Cost-benefit analysis
Before you take on a new project, you can perform a cost-benefit analysis to assess
all the potential costs and income that your organization might generate from the project.
The result of the analysis may uncover whether the project is workable or if the company
should consider another project.

Payback period
Another method you can use is the payback period, where you determine the time to
recover the cost of an investment. For instance, if you project you will spend $300,000 to
execute a project and expect it will generate revenue at the rate of $30,000 per year, your
payback period would be 10 years.

Discounted cash flow

A discounted cash flow (DCF) analysis allows you to estimate the money your
company would receive from an investment or project, adjusted for the time value of
money. The time value of money presumes that a dollar today is worth more than a dollar
tomorrow because you have invested it. For instance, with a 5% annual interest rate, $1 in a
savings account will be worth $2.12 after a year. Likewise, if you delay a $1 payment for a
year, its present value is 95 cents, as you can't transfer it to your savings account to earn
interest.

In order to perform a DCF analysis, it's important for a company to:

 Make estimates about future cash flows
 Make estimates about the ending value of the project
 Determine an appropriate discount rate for the DCF model

Opportunity costs
Opportunity costs refer to alternative benefits the company may realize when
choosing one alternative over another. Putting opportunity costs into consideration allows
you to weigh the benefits from alternative courses of action and not just the current choice
or path being considered in the cost-benefit analysis. By factoring in all options and the
potential missed opportunities, a company's cost-benefit analysis is more in-depth and
allows for better decision-making.

Ranking method
Ranking is a simple approach that ranks the projects on a scale according to their
importance. The benefit of the ranking method is its quick approach that enables you to
identify top priorities. It works effectively when there are limited criteria to assess and it's
easy to evaluate the factors involved. Before you assign rankings, it's important to ask
yourself questions such as:
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  What's the rate of return for this project?
 What are the qualitative and quantitative benefits to the stakeholders?
 How do efficiencies improve if the company executes this project?
 Does the company have the capability and capacity to execute the project?

Scoring model
The scoring model works when there are several selection criteria to consider and
projects being compared are very different. Instead of choosing one or two criteria, the
scoring model considers one to two groups of factors, such as risk, return on investment
(ROI), benefits and strategic alignment. Besides assigning a rating to each criterion, you give
weight to each group. For example, the risk may have a factor of 0.75, whereas benefits may
have 1.5. You then compute the weighted score to arrive at the final project score.

Analytic hierarchy process

The analytic hierarchy process (AHP) combines subjective elements with
mathematical models to give a more holistic approach than other methods. The AHP
method works with several selection criteria by pitting every two criteria against each other,
which decreases the likelihood of biases and errors. After this "apples to apples" type of
comparison, you can normalize the values and compute the weighted score. The AHP's
strong reliance on quantitative strategies is its strength, as it converts an abstract problem
into numbers and gives transparency to the reason behind your decision.

Project report
The project report is a document that contains all information regarding the
proposed project. It is served as a blueprint of all operations to be undertaken for attaining
the desired results. The project report is basically the business plan of action and clearly
describes its goals and objectives. It is one that helps in converting the business idea into a
productive venture without any chaos or confusion as it defines strategies for project
execution.
Information from various aspects like technical, financial, economic, production and
managerial are together constituted in project report for better understanding. It describes all
inputs required for the accomplishment of a project so that they can be arranged accordingly
at the right time.

The project report is an essential tool available with management for proper monitoring of
operations and helps them in recognizing any problems. Managers through project reports
are able to estimate all costs of operations and possible profitability of the proposed project.

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Contents of a Project Report
Following are the contents of a project report.
Title
The title page of the report denotes the title of a project and the author‟s name. It
mentions the name and detail of industry for which the project is undertaken. This page
must clearly define the area and scope of project.
Abstract
Abstract is a brief summary giving details about the contents of a project report. It
provides an idea to reader regarding what is project report about. Anyone who does not
know anything about report simply by reading its abstract can make out whether it is of
their interest or not. Abstract is generally half a page long.
Acknowledgements
This section of report denotes the individuals who assisted you during your project
work. It is meant for thanking the people who provided you technical or any other type of
assistance such as your supervisor.
Contents page
Content page tells about the main chapter and sub sections included in the report.
Chapters with proper titles are mentioned along with the page numbers telling where the
particular chapter/section begins and ends. It should be ensured that only sufficient levels of
subheadings are provided under each chapter.
Introduction
It is the most crucial element of the project report. The introduction tells about the
nature and scope of the report to the reader. This part summarizes what the author set out to
attain, gives a clear description regarding the background of the project, main contributions,
and relevance. The introduction shall summarize the key things in the report and provide
the sections containing the technical material.
Background
Background component sets the project report into context and describes the layout
for attaining project goals. For meeting out the proposed goals different approaches should
be evaluated for choosing the efficient one. However, this part of report can be included as a
part of introduction also but it is ideal to present it as a separate chapter in case if project
involve extensive amount of research and ground work. All pieces of work which are listed
should be provided with proper sources from where they are referred.
Body of report
This is the central part of project report which contains three to four chapters which
describes all technical work undertaken for the completion of project. The chapter‟s
structure dependent upon project which reflects the development of project in chronological
order. It should be justified why a particular approach is chosen above other alternatives
mentioned in background component. Every interesting features and problems during the

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implementation should be properly documented. All contents relating to testing and
integration should be thoroughly discussed with the supervisor.
Conclusions and future work
It denotes the achievements made as a result of completing the project. This part of
report concludes the success and failures of a project. It also provides suggestions for future
work of project for taking it further. No project is completely perfect and each of it come
with certain limitations.
Bibliography
Bibliography tells about the books, articles, journals, manuals etc. which are used
while doing the project or referred in the report. Full and accurate information regarding
sources used such as title, author name, issue and page number should be mentioned for
readers. Providing the source of information helps readers in validating the facts of report.
Appendix
This part comprises of information that is peripheral to main body of report. Things
included here are such as program listings, graphs, proofs, tables or any other thing that
would break up the theme of text if it appeared in situ. All material should be bind in a
single volume and compressed as much as possible.
User Guide
This section consists of proper instructions for better understandability of users.
Suppose a project that had led to the development of new software, it should provide a
complete guide on how to use it. It displays all essential features of project using diagrams
for illustrating them properly. User guide component of report should be kept simple and
concise.

Need and Objectives of Project Report

1. Selecting Best Investment Proposal: Project report is an efficient tool for analyzing the
status of any investment proposal. It shows the expected profitability and risk associated
with the project and this way helps in choosing the best option.
2. Approval of Project: It is essential for registration or approval purposes of the proposed
project. Different authorities like District industries center, Directorate of industries,
government departments, etc. require project reports for giving approval.
3. Tracking: The Project report assists in tracking the current activities of the project. It
helps team members and other stakeholders to check the project progress from time to
time and helps in finding out any deviations against the original plan.
4. Visibility: Another important advantage of having the project report is that it gives full
insight into the project. It gives a clear description of activities to be undertaken and
avoids any confusion or disorder.

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5. Risk Identification: Identification of risk is a significant step for the completion of every
project. The project report enables in spotting the risk early and taking all corrective
actions timely.
6. Cost Management: Project report helps in managing the expenses through regular
reporting of all activities. It sets the standard cost of every operation in advance and helps
in finding out any deviation in these costs through tracking of the project.
7. Financial Assistance: It is an important tool for availing financial assistance from
financial institutions or fund providers. The project report enables financial institutions in
judging the profitability of the proposed project and then takes the decision accordingly
for approving the funds.
8. Test Business Soundness: Project report helps in testing the profitability and soundness
of the proposed project. It tells the total estimated costs, possible income and risk
associated with any proposal.

Characteristics of Project Report

1. Scope: The project report gives a clear picture of what is to be done or to be achieved. It
describes the goals of the proposed project and activities to be undertaken for achieving
these goals.
2. Resource: It shows the means or resources required to meet the desired scope. Project
report serves as the roadmap which tells the direction in which business should go for
attaining its goals.
3. Time: The project report denotes the standard time required for the completion of each
and every task of the proposed project.
4. Quality: The project report explains the desired standards to be achieved by the
completion of all tasks. Limit of deviations that can be accepted from these defined
standards are also contained in this report.
5. Risk: Risk is an unavoidable factor associated with every business and needs to
monitored properly. The project report considers all risk factors that may arrive at the
completion of the proposed project and also tells the ways for recovering from these
factors.

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