3 Project Appraisal

Is a technique that helps in checking whether or not the project undertaken is feasible .It helps in providing early warning signs of problems ,which may occur during the project development within an organization. It also helps in risk management and finding our reasons for the risk when there is a difference in the parameters of the planned project and goals stated in the project objective. Project appraisal involves measuring the difference between the total efforts actually consumed by a project and the planned efforts.
Project Appraisal is divided into three categories:- technical, environmental and managerial appraisals. A good PA in an organization justifies spending money on a project. It ia an important tool in decision making that lays the foundation for delivery and evaluation. The primary purpose of undertaking the design process is to analyze all the possible all solutions and ensure they are examined. The design process includes the following aspects:-

The design process includes the following aspects: Recognizing a problem and need and analyzing it Identify the inputs, outputs ,parameters and criteria for evaluating the system Synthesizing solutions

Evaluating their feasibility in terms of technical, financial and economic practicability

Salient aspects of Project Appraisal

Need:- the new or improved project must be in response to the needs. Realisability:- the project must be possible in terms of cost and should be able to realize the cost in terms of benefits Practicability:-the project must be technically financially and economically viable Optimality:-the project must be the best alternative available. It must be optimal, considering the total system outputs, both the desired and undesired. Implicit in this principle is the need for meaningful design criteria which appropriately considers all outputs and effects on consumer.producer,worker etc. Uncertainty:- most projects are stochastic or probabilistic. at the time of PA, it is relevant to know the limitations of your understanding of the system and the cost of information to achieve greater certainty about it. The cost of information must be balanced against the worth of reducing uncertainty.

 Controllability:- the design process in project appraisal, like any controllable process, needs a feedback loop to update, correct and keep the system on the right track. However, redirection and alteration in the design have costs associated with them , which gradually increases progressively as the design process advances. It implies that the cost of alteration at a later stage of system development is much higher than the initial stage, say during the feasibility study.

Meaning and Overview of Project Appraisal

Appraisal means Assessment and estimation. Project define as: Non routine Involves number of uncertainties. Definite period of time. ( starts to end ). Project is the co ordination of the efforts of persons drawn from different functional areas and contribution to external agencies.

Project Appraisal
When is it done: After preparation and design of the project What is project appraisal: Provides a comprehensive and systematic review of all aspects of the project Why the project Appraisal is Needed: To development and successful completion of projects

Project Appraisal (cont.)

Hard questions are asked and the answers determine whether project proposal is adopted or rejected. The questions raised rotate around: appropriateness of project objectives, size, scope, implementation methods, modalities, time scale, and the project technical, financial, economic, institutional, environmental, social and distributional justification of the project.

What can a Project Appraisal deliver?

Be reliable and objective in choosing projects Make sure their program benefits all sections of the community Provide documentation to meet financial and audit requirements Appraisal justifies spending money on a project. Appraisal is an important decision making tool. Appraisal lays the foundations for delivery.

Good appraisal systems should ensure that:

Project application, appraisal and approval functions are separate All the necessary information is gathered for appraisal Race/tribal equality and other equality issues are given proper consideration Those involved in appraisal have appropriate technical expertise There are realistic allowances for time involved.

Key issues in appraising projects

Need, targeting and objectives Applicants should provide detailed description of project, identifying local needs/ objectives it aims to meet. Context and connections Are there links between the project and other local programmes and projects. Consultation Local consultation determines priorities and secure community consent and ownership.

Key issues in appraising projects

Options This is concerned with establishing whether there are different ways of achieving objectives Inputs Important to ensure all the necessary people and resources are in place to deliver project. Value for money This is one of the key criteria against which projects are appraised .

Key issues in appraising projects

Implementation Appraisal scrutinises the practical plans for implementation, asking whether staffing, timetable and implementers are okay. Risk and uncertainty There should also be contingency plans in place to minimize the estimated risks.

Key issues in appraising projects

Eligibility Regional Development Environmental protection
Legal Frame Work Policies, public acceptance Licensing, safety Environmental compatibility

Key issues in appraising projects

Technology And Design Project Definition Viability and performance Adaptation to technical progress Local-specific requirements Appropriate technical capacity Life expectancy

Key issues in appraising projects

Time Schedule Preparation of feasibility studies Environmental studies Licensing requirements Time needed for procurement Local conditions (climatic, etc)

Key issues in appraising projects

Environmental Compatibility and Social

Impact analysis, mitigation measures Direct, indirect, long-distance effects Compliance with international standards Least-polluting technology

Key issues in appraising projects

Economic + Financial Viability Cost effectiveness Financial international rate of return Economic international rate of return Pay-back period, etc Investment Cost Local and foreign currencies Phasing of expenditure Cost Justification

Key issues in appraising projects

Forward strategies
Appraisal should also consider mainstream links and implications in case the project funds are over

Sustainability
Appraisal should include an assessment of a projects environmental, social and economic impact, its positive and negative effects.

Checklist for project appraisal

Some Questions worth asking:
Are appraisals systematic and disciplined with a clear sequence of activities and operating rules? Is there an independent assessment of the project? Does the appraisal process conclude in clear recommendations that inform approval (or rejection) of the project?

Checklist (cont.)
Is the approval stage clearly separate? Is the appraisal process well documented with key documents signed, showing ownership and agreement, and allowing the appraisal documentation to act as basis for future management, monitoring and evaluation? Does appraisal system comply with relevant government guidance? Are right people involved and, if necessary, how can you widen involvement?

Feasibility Study
Aim of a feasibility study: Development objectives Policy framework and detailed project objectives Technical soundness of the project Administrative feasibility of the project

Feasibility Study - Aims (cont.)

The economic and financial viability of the project proposal The status of demand for the project beneficiaries Other important policy and cross cutting issues (gender, environment)

Practical
Appraise your identified projects in terms of the following: Technical analysis Economic Analysis Financial Analysis Environmental Analysis, and Social Analysis Gender Analysis Ecological Analysis Political

Technical Appraisal
Will the project Work? Availability of the required quality and quantity of raw material. Availability of utilities like power and water etc Follows anti pollution laws

Factors affecting Technical appraisal

Layout:- the layout of the project includes the description of the project in terms of what they represent and when they occur, who has authorized it, no. of people who will handle it, the relevant papers such as department standards to which the project must conform. It shall also state where and when the quality control shall be exercised, for example, management reviews format inspections and walkthroughs are also stated. The method can be used for categorizing the review comments and ensuring that they are cleared is also covered.

Financial Appraisal
Can the project be financed properly? Will there be sufficient funds to cover the expenditure requirements during the life of the project? In financial appraisal, the project analyst performs the following steps 1. Specify the estimate of the funds and amount of resources requires for a project . 2. Specify the working capital requirements which include raw materials and stocks of finished goods , for a project 3. Determine the sources of funds which can be share capital, term loans and debenture capital 4. Determine the cost of production, which includes the cost of raw materials, utilities and labour requirements for a project

The financial appraisal of a project can be performed using the following different methods
Rate of return method:-In this method, the rate of return is estimated for a project to determine whether the project is financially feasible or not. Payback Method:- in this method , the number of years , which is required for payback of the initial investment, is determined for a project to financially evaluate it. Net Present Value Method:-in this method, the investment on project is compared in a quantitative time based manner. This is called the net present value of a project. The net present value of a project is calculated based on a selected rate of interest. Discounted cash flow method: in this method, discounted cash flow rate of return is calculated to financially evaluate a project. The DCF rate of return is the rate of return for which the net present value of a project throughout its life cycle is equal to zero.

Economic Appraisal
Impact of the project one the distribution of income in the society Impact of project on the level savings and investment in the society and socially desirable objectives like self sufficiently, employment etc. Contribution of project

Social Aspects
What will be the effect of the project on different groups? At Individual Household and Community levels How will the project impact on women and men?

Will the social benefits of the project be greater than the social costs over the life of the investment when account is taken of time?

Environmental Appraisal
Will the project have any adverse effect on the environment?

Have remedial measures been included the project design?

Ecological & Political Appraisal

Environmental Damage. Restoration Measures.

Will the project be compatible with government policy, at both central, regional and local level?