PRESENTED BY SUMEET LAL

Project appraisal is the analysis of costs and benefits of a proposed project with a goal of assuring a rational allocation of limited financial resources amongst alternate investment opportunities.

A process of analyzing the technical feasibility and economic viability of a project proposal with a view to financing their costs.

To extract relevant information for determining the success or failure of a project. To apply yardsticks for determining the rate of success or failure of a project. To determine the expected costs and benefits of the project. To arrive at specific conclusions regarding the project.

It helps in arriving at specific and predicted results. It provides information to determine the success or failure of a project.

Expenditures are high.

It has long term effects.

Thus there are 4 key aspects of appraisal activity:Market appraisal Technical appraisal Financial appraisal Economic appraisal

1) 2) 3) 4)

Market appraisal of a project investment relates to finding out the aggregate demand of the proposed product/service in future as well as the market share of the proposal under consideration. To ascertain this a wide variety of information is required.

These data mainly relate to Consumption trends (past, present) Supply position Production possibilities Constraints Cost structure Elasticity of demand Consumer behavior Distribution channels Marketing policies

This is a continuous process in the project evaluation system, especially at the project formulation stage.

This appraisal determines the pre-requisites for the successful commissioning of the project and the choice of location, size and process.

The technical appraisal covers aspects regarding: Preliminary tests and studies Availability of inputs Optimal selection of scale of operations Production process Equipments and machinery Pollution control Factory layout Work schedules

The financial viability of the project i.e., whether the return on capital employed and burden of servicing debts would be satisfactory must be ascertained before taking a decision on investing in the project.

The information required for financial appraisal are total investment required and the sources of finance for the project.

The financial appraisal of a project involves the following:Profitability measurement including aspects like cost of project, cost of capital, profitability projection. Financial analysis including cash flows, means of financing. Financial evolution: discounting and non-discounting methods.

METHODS OF PROJECT APPRAISAL

DISCOUNTING CRITERIA

NON -DISCOUNTING CRITERIA

NET PRESENT VALUE

PROFITABILITY INDEX

INTERNAL RATE OF RETURN

PAYBACK PERIOD

ACCOUNTING RATE OF RETURN

Economic appraisal is a type of decision method applied to a project that takes into account a wide range of costs and benefits denominated in monetary terms. It is a key tool for achieving value for money and satisfying requirements for decision accountability. The main types of economic appraisal are: Cost-benefit analysis Cost-effectiveness analysis

It is the methodology developed to evaluate an investment from the social point of view. One way of improving economic efficiency and social equity is to make investment decisions on the basis of shadow prices. The main reason for doing social cost benefit analysis in projects is to subject a project to a consistent set of general objectives of national policy. The choice of one project rather than another must be viewed in the context of their national impact, and this total impact has to be evaluated in terms of a consistent and appropriate set of objectives.

Social costs and benefits of the project is the primary focus of the SCBA and they tend to vary from the monetary costs and benefits of the project. SCBA is not a technique, but an approach. It provides rational framework for project choice using national objectives and values.

It is developed by the United Nations Industrial Development Organisation (UNIDO). In this analysis the monetary prices are replaced by shadow prices and then the benefits or returns are calculated. In addition to this, adjustment is made for externalities, savings, redistribution of income but taxes are not considered. Then finally, the economic rate of return is calculated.

Books
Project Management Vol.III ICFAI Financial Management Prasanna Chandra

Websites
http://wiki.answers.com/Q/What_is_unido_approach http://en.wikipedia.org/wiki/Economic_appraisal http://www.scribd.com/doc/40201817/Project-Appraisal