--- title: "Formulation, appraisal, proposal procedure, CBA drawbacks" subject: "Project Engineering" chapter: 2 key: "semester_7/project_engineering:formulation-appraisal-cba-drawbacks" source: https://www.bctengineer.com/q/semester_7/project_engineering/formulation-appraisal-cba-drawbacks site: BCT Engineering --- # Formulation, appraisal, proposal procedure, CBA drawbacks Project Engineering · Chapter 2: Project Appraisal and Project Formulation - Asked in: 2072 Kartik - Video: [Cost benefit analysis](https://www.youtube.com/watch?v=CYY_qs2lDnQ) — EnhanceTuition - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_7/project_engineering/formulation-appraisal-cba-drawbacks - Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-2 ## Question Define project formulation and project appraisal. Write the procedure for developing a project proposal. What are the drawbacks of cost-benefit analysis of project formulation? ## Short answer Project formulation turns an idea into a detailed plan; appraisal independently assesses it. Proposal procedure: identify need, collect data, define scope, compare options, prepare technical/financial parts, analyse risk, draft, review, submit. CBA drawbacks: intangibles hard to value, discount-rate sensitivity, uncertain forecasts, missed externalities, ignores equity, difficult shadow prices, unsuitable for irreversible effects, and needs much data. ## Answer #### Definitions **Project formulation** is the process of developing a project idea into a detailed plan by defining objectives, scope, technical design, cost, benefits and implementation arrangements so that it can be appraised and implemented. **Project appraisal** is the independent assessment of the formulated project to decide whether it should be accepted. #### Procedure for developing a project proposal 1. **Identify the need or problem** and the client's requirement (read the terms of reference). 2. **Collect data and study the site**, background, existing studies and standards. 3. **Define objectives and scope** clearly. 4. **Generate and compare alternatives**; select the best technical option. 5. **Prepare the technical part:** methodology, design approach, work plan, schedule, team and equipment. 6. **Estimate resources and cost:** quantities, rates, manpower, overhead and profit; prepare the financial part. 7. **Analyse feasibility and risk:** economic and financial indicators, environmental and social aspects. 8. **Write the draft proposal** in the required format. 9. **Review internally**, check for completeness and errors, obtain approvals. 10. **Submit** before the deadline with the required security and forms; present or clarify if asked. 11. **Negotiate and revise** after evaluation. #### Drawbacks of cost-benefit analysis - Intangible items (environment, human life, aesthetics, time) are hard to value in money. - Results are sensitive to the discount rate and project life chosen. - Forecasts of costs and benefits are uncertain; costs are often underestimated and benefits overstated. - Externalities and indirect effects may be missed. - It ignores who gains and who loses (income distribution and equity). - Shadow prices are difficult to determine and can be manipulated. - Not suitable alone where the effects are large, irreversible or non-economic. - Needs large data, time and expert skill. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. Why is CBA difficult for items like environment, human life and aesthetics? A. They are intangible and hard to value in money B. They are ignored by law C. They are always zero D. They have fixed market prices Answer: A. Intangibles resist monetary valuation. (Key point: Intangibles) 2. What are CBA results sensitive to? A. The discount rate and project life chosen B. The name of the project C. The colour of drawings D. The contractor Answer: A. Changing discount rate or life can change results. (Key point: Discount rate sensitivity) 3. What does CBA ignore? A. Who gains and who loses (income distribution and equity) B. The total cost C. The total benefit D. The discount rate Answer: A. CBA aggregates and ignores distribution. (Key point: Equity) 4. What is the usual bias of forecasts in CBA? A. Costs underestimated and benefits overstated B. No bias C. Both are exact D. Costs overstated and benefits underestimated Answer: A. Forecasts are uncertain, often optimistic. 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