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Chapter 2

Project Formulation It is essential to examine the most critical aspects of the project before making commitments on investment. Thus, it is worth spending a small amount of money on an exercise called pre-investment study/formulation. This cost may vary depending on the size of the project. However, during this process, based on the analytical study of the data and other information collected, enables the project sponsoring organization/Department to stop further expenditure at any stage of investigation when the data indicate unfavorable trends. Today’s projects especially in the urban development sector are focused on achieving specific social & economic development objectives. Although, problems galore in all types of projects, it is now increasingly noticed that development projects generated by the local governments, public agencies and Government departments have been faced with unclear output in terms of quality and quantity.

Why is Project Formulation Important?

Case 1: A major housing project in one of the states in India implemented by a Development Authority had after implementation faced poor public demand as a result of inadequate demand survey. It was later found that the public who had paid registration fees at the time of application did not come forward to pay the entire cost of house and majority of them expressed no response. The housing units remained unsold until the authority had to remodify the houses by joining with another private builder on an agreement to improve the plan, quality and durability of the houses at a huge cost. After modification, the houses were sold to the public after a gap of three years. This shows that the public authority was not aware of the kind of housing need and demand by the public at the time of formulation stage of the project.

Case 2: A SWM project under PPP model on build operate and transfer basis was implemented in one of the cities was abruptly ended as the private partner who was supposed to operate and maintain the solid waste of about 250 tpd and convert and recover the waste into manure did not obey the agreement and violated the terms. After three years the private partner simply stopped functioning putting forward a demand for payment of salaries to all the personnel working in the plant. The corporation did not agree to the request and as a result plant stopped working.

Case 3: Solid waste management project in one of the major city corporations had delayed by one and half years due to improper location of land for land filling site. The public/villagers residing around the location protested to the site as they thought it would cause environmental pollution. Consequently, the site was deleted and alternative location was identified.

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Case 4: A public shopping complex built by a municipality was not auctioned due to improper location of the complex for three years. The investment of the order of Rs 5.0 crores had become dead investment

Case 5: A public bus terminal after completion was not put to use for five years due to distant location from the city.

Case 6: A sites and services project implemented by public authority remained unused for fifteen years due to litigation.

Case 7: At a micro level, a micro-enterprise project launched by a group of BPL women under self-employment component of SJSRY project closed after 6 months as there was no adequate demand for the products or project formulation did not take into account the demand.

Case 8: A slum rehabilitation project in one of the cities had taken 7 years due to conflicts between Government authorities, Community & NGO’s. Later on the project was successfully implemented by taking the support of NGOs, Community, and Slum Board & Local elected representatives by developing partnership between the community & the other agencies.

The Project Formulation exercise is done with a view to;

1. Understand various dimensions of the project from a very broad angle

2. Facilitate the project authorities to take a decision as to whether it is going to be beneficial for the organization to conduct a detailed feasibility study or not. Otherwise the project idea may be dropped at this stage without proceeding or probing any further.

3. A well formulated project is the one which presents a very unbiased picture of the project idea in more clear-cut terms with regard to all the above factors.

4. The project authorities should use the information generated through the formulation

exercise to identify the deficiencies and gaps and take remedial measures ahead of time.

5. Projects leading to loss in terms of money, time and desired output need immediate

attention.

6. Pre-investment study and investment decision in any project in the government should become the important function.

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7. Preparation of detailed feasibility report should be undertaken only when there are evidence of number of positive indicators to go for the project.

8. During the pre-investment study, technical assessment, economic appraisal, input

analysis, project design, cost analysis is done to assess whether the inputs that are required for the project implementation are available. Such inputs are identified & quantified so that it becomes an important input for the cost-benefit analysis of the project.

9. The project has also to be assessed from the point of view of social benefits. Most of

the urban development projects are aimed to achieve direct and indirect social benefits. For example, a water supply project for a town has direct benefits such as supplying the required quantity of safe water to the house-holds. At the same time, it has indirect benefits such as reducing the water borne diseases, health improvement of the people, increased work out-put because of improved health etc.

Therefore, a project may have to be assessed for the positive & negative benefits as well as short-term & Long-term benefits and effects. Therefore, during pre-investment assessment of a project, the project is evaluated for all the consequences. Normally, an approach to project formulation involves various stages in the order of importance namely project idea, reasons for going in for a new project, need/demand for the project, project technology, project inputs, project location, project cost, project economics, time frame, social benefits, environmental issues etc. Project formulation is a process by which one obtains a complete picture about the project being undertaken without really arriving at a detailed feasibility study. The information collected through this exercise can be used for preliminary evaluation and screening of projects. The structure adopted for project formulation will slightly vary depending upon the types of projects. The factors that have to be considered and weightage to be given to each one of the factors will be different for different projects. At the time of exercise, we get an indication as to whether the project has high possibility of success or not. This information will help the decision makers in deciding whether to analyse the project further or drop at this stage. All projects have to undergo through different processes of preparation from the conceptual stage to completion stage. These processes are; I. Pre-investment planning

• Identification of Project • Preparation of Project

II. Appraisal III. Controlling and Monitoring IV. Operation and Maintenance V. Evaluation and feedback for correction

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Absence of qualified persons to deal with key issues of formulation, implementation and O & M is the result of inadequate project efficiency. A review of some of the projects in ULBs reveals that the formulation of projects by various agencies and urban local bodies is not seen as a discipline and integral part of their functions. There is a need to develop a full-fledged system in the form of a formulation cell which could take care of formulation and implementation on continuous basis. Every time a project is required to be implemented, a new set of officials are assigned the job of implementation. Project Formulation has following indicative processes;

Project Formulation

• Assessing the project idea

• Assessing project components

• Analysing the components with the help of specialists

• Assessment of an investment proposal

Stages in Project Formulation

1. Feasibility Analysis

2. Technical Analysis

3. Economic Analysis

4. Project Planning & Design

5. Network Analysis

6. Input Analysis

7. Financial Analysis

8. Cost-Benefit Analysis

9. Pre-Investment Analysis

Feasibility Analysis:

• First stage in project formulation

• Examination to see whether to go in for a detailed investment proposal or not

• Screening for internal and external constraints

Conclusion could be:

• The project idea seems to be feasible

• The project idea is not a feasible one

• Unable to arrive at a conclusion for want of adequate data

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Techno-economic Analysis 1. Choice of Optimal Technology, Plan and Design etc. 2. Specifications and standards 3. Demand for the project output(goods/services) 4. Overall benefits 5. Provides platform for preparation of detailed project design

Project Design and Network Analysis

• It is the heart of the project • It defines the sequence of events of the project • Time and resources are allocated for each activity • It is presented in the form of a network drawing/bar chart • It helps to identify project inputs, finance needed and cost- benefit profile of the project

Input Analysis

• Its assesses the input requirements during the construction and operation of the project

• It defines the inputs required for each activity • Inputs include materials, equipment, machines, software, human

resources etc.

Financial Analysis

• Involves estimation of the project costs, operating cost and fund requirements

• It helps in comparing various project proposals on a common scale • Analytical tools used are discounted cash flow, IRR, cost-volume-

profit relationship and ratio analysis

• Investment decisions involve commitment of resources in future

• It needs caution and foresight in developing financial forecasts

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Cost- Benefit Analysis

• The overall worth of a project

• The project design forms the basis of evaluation

• Total costs and benefits there to (Benefits > Costs or B/C>1)

Pre-investment Analysis

• The results obtained in previous stages are consolidated to arrive at clear conclusions

• Helps the project-sponsoring body, the project-implementing body and the

consulting agencies to accept/reject the proposal

Project Report

Comprises of;

• Detailed analysis of the project

• An expert prepares the report before the investment in project is done

• The report assesses the demand for proposed product/service

• Works out cost of investment and profitability on this investment

• It acts as an instrument to convince investors to invest in project

A project report gives information on the following: • Economic aspects – present market, scope for growth, justification for investment • Technical aspects – technology, machinery, equipment needed

• Financial aspects – Total investment needed, cost of capital and return on

capital

• Production aspects – Product details, justification

• Managerial aspects – Qualifications, experience of people needed for managerial posts

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Existing Approach to Project Preparation Almost all Government departments, ULBs, PRIs and other public authorities follow certain steps to prepare and implement a project. Generally, any medium to major civil work or a project involves the following stages for preparation and execution;

1. Preliminary investigation is done and a rough estimate is prepared 2. Administrative approval of the department concerned is to be obtained 3. Land acquisition if any has to be started 4. Detailed survey is done if required depending on the nature of work and survey plans are

prepared 5. Designs, drawings, plans, elevations, sections etc., are prepared 6. Detailed estimates of all the works complete with abstract, general abstract, report, design

calculations, detailed specifications etc., are to be prepared 7. Technical sanction of the competent authority is obtained 8. Allotment of funds 9. Requirement of materials such as cement, steel etc., is worked out 10. Plan for the arrangement of tools, plants, heavy machineries if required in advance

Manual tender and E-Tender for works are invited as per Rules (KTPP Act) and process of bidding and acceptance of the bidder would take place

11. Contract agreement with all contract documents, schedules, specifications, design drawings, plans etc., with terms and conditions are to be signed between the engineer and the contractor

12. For execution of works, detailed working drawings are to be prepared as required. 13. The execution of work is started, supervised, inspected and completed as per the terms

and conditions 14. For defective, unsatisfactory work or slow progress, contractor is issued notices and

penalty imposed as per the terms and conditions of contract 15. Payment to Contractor is made by running account bill from time to time as the work

progresses 16. Actual measurements of works done are recorded in the measurement book properly and

contents calculated in the proper columns by the concerned Engineer 17. A senior Engineer in charge has to check the measurements as per rule and prepare the

bill in proper form and pay orders obtained in the measurement book and bill and then payments are made to the Contractor after due acknowledgement

18. Materials if any supplied and the materials at site account are maintained 19. When the whole work is complete as per the terms and conditions of Contract, it is

inspected thoroughly and on full satisfaction, the final payment of the Contractor is made on taking actual measurement and preparing bill in proper form

20. The Security and Earnest Money Deposit amounts are paid to the Contractor after the satisfactory completion and on confirming the quality of works for a period specified in the contract agreement ( normally 12 or 24 months) after the completion of works.

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Problems in Project Formulation

Some Points that lead to Failure of Urban Infrastructure Projects

Project

Components not

tailored to the

requirements of

the towns

Inadequate

pre-assessment

of the services

and demands

Absence of Pre-

project Planning

Modalities

Absence of

Demand survey

Absence of

Feasibility

Study

Improper

acquisition of land

Delays due to

land Litigations

in the court

Absence of Co-

ordination among

the implementing

agencies

Lack of

Institutional

Mechanism

Inadequacy of qualified

and trained personnel

in the municipalities

Inadequate

recovery and

income

generation from

the projects

Absence of

integration of

various projects

and programmes

Delays due

to Release

of funds by

the state

Inadequate

attention to poor

cross section of

the society

Improper execution

of works: Poor

performance,

standards, delays etc.

Inadequate

supervision of

the contractor

and his

execution

Increased

overhead

costs and

revision of

estimates

Absence of

documentation of the

good/bad practices

of the projects

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The chart above gives the reasons for failure, non-completion and deviations in the project objectives and scope. Therefore project formulation report should be prepared with a view to foresee the likely hurdles and explore options that may give sufficient evidence of benefits to the investor and end users/public.

• Project formulation exercise should precede all other steps since it is the first and critical step in the selection of any project. It is evident from the experiences that in several of the urban infrastructure and housing projects implemented by the public agencies, problems of not meeting the required levels of results during and after the implementation of the projects only highlight the in-effective project formulation.

• Evaluation of a few projects located in Mysore City, Tumkur and Davanagere have indicated non- accomplishment and the failures were mainly due to improper planning, wrong selection of contractor, poor contract management, unrealistic estimation for different project activities, poor scheduling of works/activities, improper allocation of resources (Manpower, equipment and materials), absence of work breakdown structure.

• A good project scheduling provides information on when the project should begin and what should be the total duration of the project, preceding and succeeding relationship among the activities and allocation of time and budget for each activity. One of sewage treatment plant projects planned by Mysore City Corporation was delayed by approximately one year due to land litigation in the Court. This project was implemented by the private sector as per the design and budget.

• A State level project funded by a financial institution to all the Municipalities in the State could not be implemented on time due to change in the scope and sub-contracting at the Municipal level without giving adequate role to the Municipalities since the contractor was selected by a State level agency and the project was formulated at the State level with little or no representation from the Municipalities. As a result, many of the project components such as drain construction, solid waste management, storm water drains, roads etc., were partially completed with delay ranging from 3 months to 2 years.

• It is seen that the efforts to introduce a “social component” into “productive” projects, intended to make a balance, turns out to be counter-productive. Formal education is only a first prerequisite for competence in project analysis. On-the-job training is vital. There is a need to improve the quality and quantity of their manpower. Training of local staff has not been adequate. Officers and key staff need to be trained in project management tools.

• Evaluation of various projects such as Housing, Buildings, Roads, Water supply and SWM etc., implemented by the Departments and Local Governments has indicated poor application of tools relevant to systematic approach to project management.

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• The projects faced delays, poor fund flow, and confusing scope resulting in not reaching the desired output.

• This inefficiency in project management can be attributed to inadequate project formulation skills. The accomplishment of desired or set objectives in any project is dependent on several factors. Non-fulfillment of the requirements of such factors has resulted in project failures, ultimately resulting in time and cost over runs.

• Barring a few small projects, formulation exercise has not been adequately carried out either due to lack of know-how and skills or may be due to the little importance attached to this basic stage of project management.

• In social Housing projects in towns of Chamarajanagar and Channapatna, the quality of houses was poor and beneficiaries were not asked to participate in the project. As a result many of the houses were not occupied for a long time incurring huge economic losses to the Government. There was little or no coordination between the government, contractor and the beneficiaries. The concept of project formulation was totally absent.

Project Evaluation – Findings

The project evaluation studies on the scheme of Integrated Development of Small and

Medium Towns conducted by the author(2006), TCPO(1985), All India Institute of Local

Self Government(1986), Regional Centre for Environmental Studies(1988), National

Institute of Urban Affairs(1990) and Edelman and Banerjee(1994) have brought out the

following shortcomings in the formulation and implementation of projects;

� Selection of the town not done based on its growth potential (at times selection was

purely on political consideration)

� Various project components selected were not sufficiently tailored to or identified with

reference to the dominant functions of the town

� In many cases, survey and feasibility studies were not done for sites and services,

shopping complex and low cost sanitation project components

� Mismatch between the scale of land acquisition and actual requirement for housing and

infrastructure development.

� Non availability of land for projects and considerable delays in land acquisition due to

legal disputes in court(Dharmarajan, 1995)

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Based on the above evaluation points, it could be concluded that the schemes were unable

to create the required services nor had a discernible impact in the surrounding hinterland or

linked to proper state urbanization strategies. Project staff were not aware of project output in

terms of quality and demand. Project staff including Engineers, Head of the Dept., Accounts

were unaware of feasibility study, project appraisal, financial appraisal, cost benefit analysis. It is

also seen that tools like Gantt charts for scheduling were not used. Skills to use network

techniques such as CPM and PERT was remotely existent.

� Absence of proposals for development of industrial sheds and small scale

enterprises as may be best suited to the local economy and the objectives of the

schemes for generation of employment

� A lack of suitable institutional mechanism to ensure proper interagency co-

ordination at the field level, particularly the involvement of local Governments in

contracting and monitoring of the work

� Inadequacy of technically qualified and trained personnel at the town level and

inability of the personnel at the state and central agencies to provide necessary

support

� Reluctance of the state Governments to give matching share of funds.

� Lack of balance between remunerative and non remunerative project components

with a bias towards basic infrastructure facilities.

� Inadequate feedback, evaluation and monitoring mechanisms.

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Deriving Innovative Project Formulation Components – Common Flow chart/list

Collection of

Data/Information

Review of the

Existing

Projects

Assessing the

economic Base of

the Orgn.

Analysis of

Services

Additional

Resource

Mobilisation Defining

Objectives

Identification

and Criteria

for selection

of project

Analysis of

Developmental

Issues

Cost Estimates

and Cost Benefit

Analysis

Agencies Involved in

Implementation :

Govt/Municipality/Privat

e/NGO/Community:

Roles and

Responsibilities

Funding

Mechanism

Technical

Appraisal

Financial Appraisal Social

Appraisal

Legal and

Environmental

Assessment

Feasibility

Analysis of

Projects

Deciding the

Project

Implementatio

n Schedule

Monitoring of

projects from

beginning to

end

Operation and

maintenance of

projects on

continuous basis

Project

Evaluation

Project Formulation

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Existing Practice for SWM Project

Open Secondary Storage

Bins: ULB Maintenance

Transportation of wastes:

ULB has poorly

maintained vehicles with

open containers

Land Filling: Open Dumping in

the Designated Vacant Land

: No processing and Treatment

is done

Secondary storage

bins are not as per

MSW Rules

Improper

Design of

Secondary Bins

No

Compost

Recovery

No Segregation of waste

Door to Door Collection:

ULB and other Informal

Operators

Inadequate

Participation

of RWA/CBOs

Performance

of PKs is not

adequate

FLOW CHARTS: Formulation of Projects – Existing Practice and Innovative Approach Required

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Steps for Innovative Formulation of SWM Project

Survey and Data

Collection of the City

Designing of Solid Waste

Management Project

Acquisition of Adequate suitable

Land for Compost Plant and Land

Fill Site

Estimating the Vehicles, Auto Tippers, Push Carts, Tricycles,

Secondary Storage Containers Dumper Placers and other

equipment etc., for the slum and non-slum areas

Designing and Construction of Compost

Plant and Installation of Machines and

Equipment (with Windrow System)

Assessing the

Existing Capacities

Designing and Construction of

Land Fill Site

Necessary

Clearance from

Pollution

Control Board

Necessary

Clearance from

Pollution Control

Board

Necessary

Clearance

from

Pollution

Control Board

Redeployment of PKs and Staff

Outsourcing Plans –

RWAs/CBOs/NGOs/Private Firms

Funds/Capital

from various

sources

Cost

Benefit

Analysis

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Formulation of an Urban Infrastructure Project: Cor rective Actions

The author has tried to illustrate below a practical case of a comprehensive

formulation of a project and checklist that need to be examined and screened before

a project is prepared and implemented. This would set example for carrying out

similar formulation exercise for other sectoral projects falling in Government domain

Project Formulation

Comply with Scheme

Guidelines

Survey and data

Collection

Preparation of Master

Plan/Urban Development Plan

Selection of

Project

Components

based on the

need and demand

Basket Type

Approach to be

fully satisfied

Does it satisfy the

Creation of

Employment for the

Poor?

Go ahead, if yes.

Does it

generate

Permanent

Assets and

income to the

Municipality/

Orgn/Dept.?

Go ahead, if

Yes

Does it

Provide

Basic

services?

Go ahead, if

yes

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Case Study Template

EXERCISE ON

“PROJECT FORMULATION”

This exercise is linked with an actual rural housing project which is already implemented. The participants with different professional backgrounds such as:

i) Engineering ii) Planning iii) Community Development iv) Administration v) Finance vi) Legal vii) Political

Are put to the tasks of analysis and selection of various programme components through the

process of intensive discussions and decision making to re-formulate the housing project from the initial stage with an emphasis on the arrival of a most appropriate proposal over the already implemented project. The exercise is supplemented by the physical and socio- economic date of the project. The role of each participant in each sub-group of three to four participants is considered as crucial in the integration of ideas and solutions of each individuals background to various critical problems associated with the project formulation. The working experiences and the disciplines of the participants combined with expert views of the coordinating faculty are expected to be explored to the maximum extent in the whole process of formulation. Objectives: The first step in the housing project formulation for the rural poor is to understand the existing living conditions, needs and priorities of the target group. The precise understanding of the priorities of the target group and their positive response to the norm set and interventions from different sources to link house with employment and productive activities within the constraints of resources available is considered an important step. The growing realization of recovery of the capital investment in housing and the provision and maintenance of basic infrastructure services keeping in view the future development of the village is a major task in the formulation.

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Exercise Task: Participants have to generate innovative and appropriate action based on the situations encountered at the village settlement level within the overall framework of policy guidelines. Resources are available with reference to guidelines for scheme application but need to be utilized taking into account the community needs and priorities with the possible interventions and participatory approach for the integrated formulation of housing project. The exercise is structured to generate discussions amongst the participants on priority interventions at community level and to exchange view on the scope and possibilities there to. A checklist of various aspects to be discussed and analyzed is supplied to guide the participants in the whole process. Checklist:

1. Identification of Target Groups and its housing needs. This should include household incomes, expenditure, savings and their priorities of demand.

2. Assessment and selection of project site:

Deciding factors include: i) Access to existing potential employment opportunities ii) Access to public amenities and services iii) Access to community life iv) Access to road and transport, links between the proposed site and urban areas. v) Suitability of site, shape and size vi) Land acquisition, cost involved in acquisition, feasibility of allotment, tenure ship

etc. vii) Soil type: presence of salts/ chemicals, soil movement and expansive soils. viii) Possibilities of flooding, earthquakes’ and other natural hazards.

3. Site development options: Following aspects are required to be analyzed: i) Housing layout and densities ii) Present density and future densification iii) Existing plot sizes to accommodate the housing and employment needs of target

group.

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4. Assessment of Employment Opportunities: i) Existence of nearby industrial areas ii) Potential opportunities for gaining employment iii) Home based economic activities

5. Assessment of infrastructure services

This should include: i) Basic sanitation, drainage, soil waste disposal ii) Link roads, street pavement iii) Drinking water and electricity iv) Schools, health centers, balwadis, community halls, etc

6. Assessment of building materials and technologies This should include: i) Appropriate cost effective building materials available locally ii) Building technologies which are appropriate and cost effective to meet the

housing requirements.

7. Assessment of Financial Framework: i) Finance/grants available from government ii) Finance/grants available from NGOs iii) Finance/grants available from financial institutions iv) Finance available from beneficiaries v) Other beneficiary contributions vi) Finance for infrastructure services

8. Assessment of Economic Support Schemes and their integration in the Rural Housing Schemes.

Broad schemes are: SGRY, SGSY, NREGA, RBLS, PMGSY, IAY, CMGSY, Swachcha Grama Yojana, ASRAYA, Jalanirmala Project etc.

9. Assessment of Delivery System: Following factors to be analyzed: i) Constrictors built housing. ii) Beneficiary involvement with NGOs assistance iii) Government agencies built housing iv) Transfer mechanisms of housing

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10. Project Monitoring:

Appropriate monitoring system is to be evolved and adopted for the project monitoring. - Gantt Chart or PERT/CPM etc.

The following details are the physical and socio-economic features of a village situated about 12 kms from a Taluka headquarters. An EWS housing project is to be formulated under Indira Awazs Yojana (IAY) for about 72 households.

Data Bank:

Total population : 6500 Total house : 1200 Total No. of applications received from villagers : 150 Nos. Actual No. applications approved by the

Committee for taking- up housing : 75 Nos.

Socio-economic Data: 50% having annual household income> Rs.8000 and < Rs.12000 45% household having annual income >5000 and <8000 One family having annual income = 4000 Household size: 60% household size have family members between 4 to 6 85% household size have family members between 6 to 10 One family has 19 members Building Plans/ Design Layout: Building Plan/ designs are to be suitably fixed taking into account the ceiling cost, extra money or labor available from beneficiaries and NGO,s/CBO,s and the finance/grant being made available under various central government sponsored schemes for employment basic services, the finance/ grant from financial institutions like HUDCO for services. Suitable layouts without distorting the community and economic life of the village with minimum basic services must be evolved in the plans/ layout of dwellings cluster concept could be adopted which is an efficient way of planning without distortion of building bye laws.

51

Soil Type: Sandy soils with normal BC Building Materials: Locally available materials with innovative and cost effective technology applications. Land procurement and land use planning. Government land survey No. 752 Measuring 84580 sqmt. is used. Basic Services: Water supply, sanitation electric supply, social forestry could be provided under central government schemes Financial Aspects: Finance from HUDCO, State Government/ Central Government/ other FIs/NGOs, as per the guidelines. The guidelines for IAY are given. Labour and self-help component: Grants available for employment under Govt.schemes for social forestry, roads, digging tanks could be co-related with housing scheme. Self- help component of beneficiaries may also be incorporated to maximize the other amenities in the housing scheme. Local NGO’s / CBO’s involvement: The likely involvement of NGOs or CBOs for services with regard to guidance, finance recovery loan should be made in the scheme execution and implementation. Types of Employment 4% Government Service 56% Informal sector 30% Construction laborers 10% Widows, physically handicapped, artisans, etc. Family members with Permanent employment - 5% Temporary employment - 20% Casual employment - 60%

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Self employment - 15% Total - 100% Distribution of Earning Members in the Household Percentage of households with one earning member 45 Percentage of households with two earning members 40 Percentage of households with three earning members 10 Percentage of households with four earning members 5 Total 100 Legal Situation No legal title is held by the residents. You may make reasonable assumptions about legal title of the land based on your experience. Soil Survey The soil is sandy with normal bearing capacity. The land plan with centaurs enclosed. Educational Survey 45% of adult population is without any formal schooling. School enrolment 60% for age 4-8 35% for age 8-12 15% for age 12-18 Health Survey Health Statistics 58% children suffering from intestinal worm infection Children diet 70% under age 4 had significantly lower calory intake. Infant mortally rate: 250 per 1000 births. Educational statistics Adult literacy rate Male: 35% Female: 15% Estimated cost of Construction:

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Roads Surface ground Rs. /m

Water bound macadam Rs. /m

Concrete. Rs. /m

Drainage: 6” drain (open)

Rs. /R.mt

9” drain (open)

Rs. /R.mt

Concrete Rs. 90/m.

Rs. /R.mt

Sanitation: Sewer lines

Rs. /R.mt

Public latrine and bath

Rs. /Seat

Toilet (teach pit)

Rs. /Seat

Electricity:

Street lights

Rs. /Pole

Transformation

Rs. /Unit

Water supply:

Water pipe

Rs. /R.mt

Lines stand post

Rs. /Unit

Bore well Rs. /Unit

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Open well

Rs. /Unit

Dustbins:

Commercial collection point

Rs. /Unit

Individual bins

Rs. /Unit

Community buildings:

2 room building

Rs. /Unit

Community hall

Rs. /Unit

Project Budget: The project formulation is done within budgetary resource entrants there are: Total Cost: a successful implementation of a programme component will require the mobilization of resources which is specified as “total cost” there is no limit in the exercise as to how much the total cost of the project package will be. Grant: the grant portion of the budget represents the amount that the government considers as non-recoverable funds for the various programme components. This may be reduced, when appropriate, by cash and labour contributions from the residents. Loan: Loan and subsidized finance under various formal programmes are available from. different sources depending on the paying capacity for loans. Cash contribution: There is lump-sum contribution by families either in the form of down-payment for loans and land tenure leases or cash support for the implementation of various programme components. There is no upper limit specified in formulation exercise for each contribution. However, income distribution in the settlement will obviously define the saving capacity of families to support cash contributions. Labour contributions: Some programme components require or can optionally incorporate the labour skill of local residents for the contribution and maintenance of these facilities. Charges: The use and maintenance of some programme components involve monthly changes. There is no upper limit specified in the formulation exercise for charges however,

55

the income distribution in the settlement will obviously define the amount that the families can regularly pay.

Comparative Assessment of Budget Proposals Budget Items Group A Group B Group C Group D Total budget Budget / family

Grant from Govt.

Grant / family

Total Loan

Loan / family

Monthly Repayment/ family

Total cash contribution per family

Total Labour contribution

Labour/ family(Days)

Charges/ family/ month

Total month / Annual Recovery Delivery system: Suitable system for the execution. Monitoring and delivery of the houses is to be evolved before the scheme implementation. Various alternative based on the local conditions could be formed. - Contracting system - Self – help/ NGOs / CBOs involvement - Government agency built housing - Transfer mechanism of housing to the beneficiaries for effective delivery of housing

scheme.

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‘ FEASIBILITY CHECKLIST:

1. Basic project objectives: What is proposed to be achieved by the project.

a. Social objective of providing shelter for the poor -Yes/ No b. Mix of social and commercial objective i.e.

shelter for the poor sustained by remunerative projects to cross-subsidies

-Yes/ No

c. Commercial objective to maximize profit -Yes/ No

2. Site Data (i) Land:

d. Availability: to be acquired but may take very less time / to be acquired and may take considerable time/ available

e. Land use as per – Master plan/ Development plan: Residential/ Commercial/

Others (specify) f. Land price – High/ Medium/ Low g. Planning Regulations – FAR/ Density/ Other (specify)

(ii) Location:

a. Distance to the city centre – Long/ Medium/ Short b. Type of surrounding development – residential/commercial/industrial/others

(specify) (iii) Physical characteristic

a. Topography – Flat/undulating/existing natural features/low lying/prone to flooding/earthquake/others (specify)

b. Social Condition- firm/ filled up/ expansive/ rocky/ others (specify) (iv) Services Network linkage

a. Availability of means of access: Adequate/inadequate/economic/costly

b. Availability of source of water: Adequate/inadequate/economic/costly

c. Availability of sewage disposal facility: Adequate/inadequate/economic/costly

d. Availability of electric supply source: Adequate/inadequate/economic/costly

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(v) Community/Social Facility Linkage with surrounding area:

a Availability of schools and other educational facilities -Yes/No b Availability of Health facilities -Yes/No c Availability of Convenient shopping -Yes/No d Availability of recreation facility -Yes/No

3. Dwelling Topology Data in the surrounding area (i) Type of development in the surrounding area

a. Single family – detached/semidetached/row b. Multi family c. Observed land price – type of development interaction – specify d. Average family size – specify

(ii) Materials used in dwelling in surrounding area: a. Wall – brick/stone/mud/others (specify) b. Roof – RCC/RBC/Stone/Tile/others (specify) c. Floor – mosaic/cement/brick/mud/others (specify) d. Finishes in doors/windows – specify

(iii) Type and use of open spaces – specify (iv) Type of grouping patterns of dwellings/open spaces/social facility spaces (v) Any rigid special features regarding – separate WC/ Veranda/others (specify)

4. Socio – Economic Data (i) Income and Housing Expenditure

a. Individual and household income of the target groups – monthly/daily/others

(specify) b. Trend of Household

Expenditure on housing, food, cloth, health, education and others for different groups.

c. Maximum amount household can spend on housing for each group.

(ii) Housing Demand a. Effective demand i.e. what is the range of dwelling space and amount, people

of different categories are willing to pay for housing Category 1- Swelling space range - Amount Range Category 2- Swelling space range - Amount Range Category 3- ……………

b. Potential demand i.e. what is the preferred dwelling space by different categories

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Category 1 – sq.m Category 2 – sq.m Category 3 – sq.m

c. Order of priority of demand: Cost/location/land tenure/plot size/plinth area/dwelling topology/type of development/open space/water supply/sewage disposal/waste disposal/electricity/metalled road/community facilities/materials and finishing in dwelling/others (specify)

d. Special need of ethnic/religious groups/ others (specify)

5. Cost and availability data on labour/builsing materials

(i) Cost of labour of various categories High/low (ii) Cost of different building materials High/low (iii) Availability of labour Adequate/inadequate (iv) Availability of building materials Adequate/inadequate

6. Project Feasibility Is it feasible to design and implement the project:

(i) To achieve objective 1 (a) with minimum subsidy Yes/no/comment (ii) To achieve objective 1 (b) Yes/no/comment (iii) To achieve objective 1 (c) Yes/no/comment (iv) If yes for any of the objectives what are the suggested project parameters

with regards to :

a. Type of development and grouping patterns i.e. layout topology and planning standards.

b. Materials, finishes and specifications of dwelling components. c. Materials specifications and standards of infrastructure services networks and

facilities. d. Dwelling space cost and price range for different categories. e. Any other special features

The above exercise provides a comprehensive list of indicators and parameters to be studied before a housing project is prepared and implemented. Note: On similar lines, with appropriate set of indicators and exercises, any social development projects in the areas of water supply, self employment, Municipal services such as parks, roads, sanitation, swm, etc., can be prepared and implemented

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TEMPLATE (Indicative)

Project Formulation (in General) 1. Introduction

• Project title • Implementing Depts/Agencies • Project location (incl. a map) • Total project cost and Funding mechanism • Project objective (s)

� Short-term Project objectives (s) � Long-term project objective (s)

2. Project Background

� Area covered by the project � Reaction of the affected people / target group (s)

a) Their felt needs and previous activities towards the satisfaction of these needs b) Their participation in project identification process

� Arrangements between executing , funding agencies and the target group (s)

3. Project Justification � Benefits to beneficiaries and when these begin and end?

� Tangible / measurable benefits � Non-tangible / non- measurable benefits

� Expected project impact a. Projected Project Outputs

• Services • Products • Etc.

b. Projected Activities

4. Description of the activities needed to generate the project outputs Physical and Managerial Project Inputs List of all physical and managerial project inputs needed to carry out the project activities such as land, buildings, site works, materials/tools, machinery / equipment, man power requirements, management requirements. briefly explain when, where and from whom these inputs are required.

a. Estimated Project: Costs and Funding Source (S) (for non-remunerative Project) • Project costs (e.g. for personnel, sub-contracts, training, equipment, working capital

for a venture etc.)

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• In –kind contributions (e.g. in terms of land, local materials, local labour etc.) • Running costs costs which will occur upon project execution for maintenance,

depreciation, personnel etc.) • Funding source (s)

b. Estimated Project Budget (for income-generating Projects) • Profit and loss account estimated for the whole project life • Cash flow statement estimated for the whole project life

c. Project Implementation Schedule

Preparation of a detailed time-table for the project’s physical {and financial, if necessary} implementation to be illustrated by gantt chart or by the critical path method.

d. Discussion of critical Implementation Issues

Short discussion of constraints and bottlenecks to be likely faced during projrct implementation and suggestion on how to encounter them.

5. Feasibility analysis (as part of project preparation)

The feasibility analysis examines whether the project can be successfully implemented based on the criteria and assumptions of the project proposal. It also provides a framework for design modifications as well as for monitoring and evaluation. It assists the project implementation process by identifying potential trouble spots and discussing contingency plans. For convenience, the feasibility analysis is classified into seven major feasibility studies. However, they are interdependent and must be integrated in a single feasibility document. Technical stud

Key questions

a) Is there an adequate choice of available technologies for alternative design purposes considering physical layout, engineering design and availability of raw materials?

b) What are the costs for various components and are they appropriate? c) What are the costs for various components and are they locally available?

Key Issues

a) To establish further design criteria; b) To conduct engineering studies to determined physical and technological

alternatives to meet budget c) To outline the form that project execution will take; d) To estimate the scheduling of project inputs and outputs.

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Administrative / Managerial Study

Key questions

a) Which strategy (ies) should the executing agency (ies) adopt in carrying out project activities?

b) What information and guidelines and necessary for the upgrading of project administration?

Key Issues

a) Political acceptability and legality of project operation; b) Organization structure of executing agency (ies) ; c) Availability of supplies, materials, equipment and general logistics; d) Number, qualifications and availability of required man power; e) Elaboration of training and recruitment plans; f) Projections for component management and maintenance during the project life,

Social / political Study Key questions

a) What will be the sociopolitical impact of the project? b) What social and political factors in the project environment will hinder or support

project success?

Key Issues

a. To collect baseline socio-economic data; b. To analyze the political decision making process; c. To conduct social impact assessment studies on demographic, socio economic, institutional, psychological and cultural factors in order to predict likely socio-cultural effects to be considered. Social impact assessment studies could entity needed social services and facilities so as to meet basic social requirements and to minimize social disruption.

Environment Study

Key questions

a. What will be the project’s impact on the environment? b. Is the environment suitable for the success of the project?

Key Issues

a. To conduct environmental impact assessment studies in order to: • Identify environmental dimensions to be likely affected; • Predict and analyse environmental impacts;

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• Display the findings for dissemination to decision makers. • The environmental impact assessment study collects environmental baseline data for periodical checks in order to monitor the project’s environmental impact.

b. To assess the present and long-term environmental needs for project sustainability through the concept of resource Management.

Marketing Study

Key questions

a. Is there a need or demand (purchasing power) for the project’s goods and services? b. Are the marketing strategies appropriate enough to ensure that the project’s outputs will reach the target groups and will be accept by them?

Key Issues

a) To conduct needs assessments, and to analyse market size and preference; b) To analyse delivery and distribution system of the project’s goods and services.

Financial Study

Key question

a. Will the project have a positive cash flow at any time during the project life? b. In the case of income – generating projects: what is the projected net profit and when will project break even?

Key issues:

1. To calculate the incremental net benefit because only the net benefits with the project in excess of those which would have accrued without the project should be taken in to account. If the project results in cost reductions, they should be considered as incremental net benefits.

2. To determine the project life. It is usually the economic life of the major investment item which is shorter than the technical life due to technological obsolescence.

3. To assess the debt-servicing capacity of the project during the entire project life in order to ensure that the project will be capable of meeting its financial obligations at any time. Cash flow analysis calculates the expected net cash flow as the differences between receipts and expenses for each year over the project life. Receipts and expenses for each year over the project life. Receipts and expenses comprise all monetary transactions (cash inflows and out flows)

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irrespective of an impact on real income. A continuous project implementation and later operation requires a positive net cash flow at any time.

In case of an income – generating project, the commercial profitability of the project has to be assessed by estimating all revenue and costs. Revenue and costs comprise all transactions that generate or reduce real income irrespective of cash flows. The commercial profitability is only given, if a net profit is likely to be achieved at the end of the project life or, in the case of a continuous operation, after an respected point in time depending on the project type. Funding assistance is usually required to finance the capital investments needed to get project started. Economic Study Key questions:

1. Is the project responsive to an urgent present or anticipated socio economic need? 2. Will the project’s benefits justify the costs according the societal preferences?

Key issues:

1. To analyse the project’s macroeconomic implications on employment generation foreign exchange earning capacity, use of natural resources etc,;

2. To define the set of development objectives against which project feasibility is to be assessed;

3. To assess the project’s macroeconomic impact by cost – benefit analysis or cost effectiveness analysis.

Definitions of the cost benefit analysis: Project = specific kind of economic reallocation process Cost = use of (decrease in) societal resources Benefits = creation of (increase in) societal resources. Project impact = economy with project compared to economy without project Steps of the cost – benefit analysis:

1. Measurement of all input and output flows in terms of macroeconomic / society costs and benefits for each year of the project life (quantitative effect). Major difference compared to the microeconomic perspective of the financial study. Indirect project effects like externalities and multiplier effects as well as intangible must be considered. Transfers of control over resources within the society are not considered.

2. Discounting the flow of macroeconomic/societal costs and benefits to an index (base

year) by applying a macroeconomic/social discount rate (which reflects the macroeconomic/social time preference).

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3. Comparison of the discounted macroeconomic/societal costs and benefits by calculating a single figure, such as:

• Net present value = present value of benefits minus present value of costs • Benefit-to-cost-ratio = discounted sum of benefits divided by discounted sum

of costs • Internal rate of return = the discount rate that makes present benefits equal to

present costs 4. Recommendation either to accept, reject and modify the project or to prioritize the

project.

In sum, due to its various limitations, the cost-benefit analysis should be considered only as one among other feasibility methods. The scale of measurement applied must be clearly stated. A sensitivity analysis is necessary to assess the project’s vulnerability due to questionable estimates and assumptions. Moreover, long-term dynamic effects, such as linkages and training, should also be considered. The co-effectiveness analysis is another economic feasibility method which compares alternative project proposals of the same project type without the need to measure benefits Preconditions for the cost-effectiveness analysis I. Only projects with the same objectives can be compared;

II. Target group (s) must directly receive the benefits so that the beneficiaries can easily be counted. (e.g. services of health centre or a hospital where the number of patients can easily be recorded).

Procedure of the cost-effectiveness analysis I. The project costs are measured and discounted in the same way as in the cost-benefit

analysis; II. Project outputs (e.g. social services) are quantified in order to calculate the costs per unit

of achieved output; III. Cost-effectiveness can be expressed in two ways;

• Varying cists + fixed output (e.g. rupees per hectare of irrigated land) • Fixed costs + varying output (e.g. land area irrigated per Rs. 10,000 invested)

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QUIZ

Chapter 2

1. Project formulation is about a. Pre investment study b. Determining feasibility of the project c. Deciding on project selection d. a, b & c

2. Project formulation exercise facilitate a. Know various dimensions of the project from a broad angle b. Dropping or going ahead with the project c. Identifying deficiencies & cost benefits of the projects d. All of the above

3. In project formulation stage a. One obtains complete picture of the project b. Get information on Positive & Negative benefits and short & long term benefits c. We commit entire investment in the project d. a & b

4. Project formulation assesses a. Only project idea & objectives b. Investment proposal c. Constraints & opportunities d. All the above

5. Feasibility analysis is done a. To examine whether to go for detailed investment proposal or not b. To examine project idea is feasible or not c. To decide alternative options d. All of the above

6. In government & public agencies, formulation exercise is

a. Is made mandatory & done before project is taken up b. Is ignored in many projects c. Is not practiced at all d. None of the above

7. Project formulation exercise a. Should precede all other steps b. Need not to be done in investment projects c. Done after all other steps d. None of the above