Project appraisal is the process of evaluating individual projects or groups of projects, and then

choosing to implement some set of them so that the objectives of the parent organization will be
achieved. This same systematic process can be applied to any area of the organization’s business
in which choices must be made between competing alternatives. Each project will have different
costs, benefits, and risks. Rarely are these known with certainty. In the face of such differences,
the selection of one project out of a set is a difficult task.

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Selecting a Appropriate Project Appraisal Methodology

Selecting any project appraisal method assumes that the decision-making procedure takes place
in a reasonably rational organizational environment. Such is not always the case. In some
organizations, project selection seems to be the result of a political process, and sometimes
involves questionable ethics, complete with winners and losers. In others, the organization is so
rigid in its approach to decision making that it attempts to reduce all decisions to an algorithmic
proceeding in which predetermined programs make choices so that humans have minimal
involvement and responsibility.

Non-Numeric Methods
1. The Sacred Cow
2. The Operating Necessity
3. The Competitive Necessity
4. The Product Line Extension
5. Comparative Benefits
6. Q-Sorting
7. Forced Comparison
8. Peer review
9. Profiles
10. Murder Board

Numeric Methods
There are two major types of methodologies can be identified as scoring and financial methods.

Scoring methods

No Range and Un-weighted Scoring

A set of relevant factors is selected by management and then usually listed in a preprinted form.
One or more raters score the project on each factor, depending on whether or not it qualifies for
an individual criterion. Only binary scorings are used as „1‟ for YES and „0‟ for NO or qualified/
not etc; any project which meets maximum number of criteria may be chosen.

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 1. Range and Un-weighted Scoring

2. Weighted Scoring

Financial Methodologies
1. Payback Period

2. Net Present Value

3. Average Rate of Return
4. Internal Rate of Return
The discount rate often used in capital budgeting that makes the net present value of all cash
flows from a particular project equal to zero. Generally speaking, the higher a project's internal
rate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank
several prospective projects a firm is considering.

5. Cost Benefit Analysis

Cost Benefit Analysis (CBA) is a technique used to evaluate the economics of costs incurred
with benefits achieved. Cost-benefit analysis in other term Benefit Cost Analysis is one
technique of analyzing proposed or previously enacted projects to determine whether doing them
is in the public interest or to choose between two or more mutually exclusive projects. It is
mainly used in the public sector in connection with investment decisions where some account
needs to be taken of those considerations which are not purely financial. Benefits and costs are
often expressed in money terms, and are adjusted for the time value of money, so that all flows
of benefits and flows of project costs over time are expressed on a common basis in terms of
their “present value.” BCA assigns a monetary value to each input into and each output resulting
from a project. Although Cost-benefit analysis provides a protocol for assessing the efficiency
impacts of proposed policies.

2.1 Non – Conscious Methodologies

Some decisions are made without conscious consideration, on the basis that they are perceived
by the decision-maker as being „right‟. These are instinctive in nature and reflect an embedded
belief held by the decision-maker. main advantage of this methodology can be identified as this
Can used with small projects, Can use for projects which have minimum consequences. There is

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however, the danger that the decision environment may have change and that new conditions
could now resulting problems. Hence, these types of decisions are only use with extreme care
and not proactive can be identify as main drawbacks.

Texts:

P. Belli, J.R. Anderson, H.N. Barnum, J.A. Dixon and Jee-Peng Tan, (2001) Economic Analysis
of Investment Operations, World Bank Institute, Development Studies.

D. Potts, (2002) Project Planning and Analysis for Development, Lynne Reinner Publishers.

HM Treasury, (2003) The Green Book - Appraisal and Evaluation in Central Government,
London: TSO, ISBN0115601074.

Ashworth, A., 1999.Cost studies of buildings. 3rd ed. New York: Addison Wesley publishing.

Steve Lumby and Chris Jones, (2003) Corporate Finance, Seventh Edition, Thompson Business
Press.

Copyright © 1999-2010 The University of Monash