Concept of Project Appraisal

2.1 Concept of Project Appraisal

Appraisal is the evaluation of the overall ability of the feasible project to succeed. It is done after the feasibility study of the project has been completed. In other words, project appraisal is an overall assessment of the relevancy, feasibility, and sustainability of a project prior to making the decision whether to undertake it or not. Also, it is a technique of evaluating, analyzing the investments and effort of calculating the project’s viability. The aim is to consider and compare the possible feasible project and select the best that meets the objectives. The feasibility study serves as the groundwork for appraisal. The aspects covered in feasibility study are re-examined during project appraisal. Project appraisal is a process of detailed examination of several aspects of a given project before resources are committed.

Project appraisal document generally consists project introduction, objectives, and scope, techniques of implementation, organization description, output, and benefits of project, project monitoring and evaluation etc.

Project appraisal is done two answers following two basic questions:

• Will the project as designed meet the objectives and needs of country and society?
• How does the project compete and compares with other feasible projects in terms of funds and other resources?

Thus the primary function of project appraisal is to determine a feasible projects’ ability to achieve its objectives. The objective of the different project differs, for a private project, the objective is profitability but for a public project objectives are socio-economic growth, employment, poverty reduction etc.

Types of Appraisal:

In project appraisal different factors examined during feasibility study are re-examined. These aspects are technical, economic, marketing, financial, managerial and environmental. These different sectors are explained below:

1. Technical appraisal

It ascertains whether the prerequisites for the successful commissioning of the project with respect to technical solutions, technical specifications, technical risks and uncertainties, local resources availability, size, location, geology etc. So different technical aspect of a project is assessed and summarized in this.

2. Economic appraisal

It is in terms of the worth of the project to the society so it also is known as social cost-benefit analysis. It judges the project form larger social point of view. In this project’s contribution to self-sufficiency, employments generation and social order are assessed and summarized. The criteria for assessment are:

1. Benefit cost ratio (BCR).
2. Internal rate of return (IRR).
3. Net present value (NPV).
4. Payback period (PB).

3. Market appraisal

Marketing analysis is primarily concerned with marketing related issues. Factor such as project capacity, market demand, demand forecasts, estimated revenue, marketing programme, market share, competition and ability to satisfy customers need are summarized and assessed.

4. Management appraisal

It focuses on the different managerial aspect of the project like project organization and management, institutional relationships and management capabilities in planning, organizing, staffing, leading, implementing and controlling. And also the impact of stake holders on the project and institutional viability of the project is examined.

5. Environmental appraisal

Environmental assessment is concerned with positive and adverse environmental impacts of the project. Initial environmental examination (IEE) and Environment Impact Assessment (EIA) is carried out and reexamined. Environmental restoration measures are also suggested.

6. Financial appraisal

It focuses on the financial feasibility of the project. In simple words, whether the project will be able to satisfy the return expectation to capital. Factors such as investment outlay, the cost of capital, means of financing, projected profitability, break-even points, cash flows, investment worth judged in terms of various criteria of merit and risk. Sensitivity analysis and ratio analysis is also done.

Bibliography:

IshwarAdhikari and Santosh Kr. Shrestha, “A text book of Project Engineering” 2011, Chandeshwori Publication, First Edition.

K. Nagarajan, “Project Management”, ISBN: 81-224-1340-4, New Age International (P) Limited, New Delhi, India, 2001.

E.R. Yescombe, “Principles of Project Finance” 2002, Yescombe-Consulting Limited.