ISHWAR ADHIKARI

Associate Professor
 Concept of Project Appraisal


➢ Appraisal is the evaluation of the ability of the
project to succeed.
➢ This is an evaluation report of proposed project that
is prepared before signing the agreement or
memorandum of understanding (MOU).
➢ The objective of the appraisal is to study and
compare the possible feasible project and select the
best one.
➢ Appraisal is done systematically to provide an
overall assessment of the project’s likelihood for
success.
 Project Appraisal Answers two important
Questions

1. Will be project as designed meet its objectives?
2. How does the project compare with other competing
projects? (if more than one project has been found
feasible)
➢ The primary function of appraisal is to evaluate a
project's ability to achieve its objective.
➢ For private project, profitability is the objective.
➢ For Public project, socio economic development is
objective.
 Project Appraisal Document should include
the following:

 Project Introduction
 Project Objective and Scope
 Project Description
 Implementation Plan
 Executing Agency
 Project Organization
 Parties Involved in project
 Project Budget and Schedule
 Benefits and Output of Project
 Project Monitoring and Evaluation.
 Aspects of Appraisal

Market Analysis
Commercial Analysis
Economic Analysis
Technical Analysis
Managerial Analysis
Environmental Analysis
Financial Analysis
Social Analysis
 Market Analysis

 Market potential
 Raw material requirement and source of supply
 Sales forecast and market share
 Market demand levels
 Levels of competition and ability of the project to
satisfy the customers.
 Commercial Analysis

 Arrangement for marketing the output of the project
 Supply of inputs needed to build and operate project
 Analysis of project’s production is essential to ensure
that there will be an effective demand at a
remunerative price.
 It needs to be ensured that adequate input supplies
are available for the profitable operations of the
project.
 Economic Analysis

 Examines the economic viability of the project.
 The impact of the proposed project on national
economy and society is evaluated.
 It looks on social cost and benefits, project savings
and investment.
 Distribution of income and employment potential.
 Contribution of the project to the developmental
objectives of the country.
 Technical Analysis

 Focuses on choice of technology, human resources
requirement, design requirements, size, location
and site, technical risks.
 Technical viability is based on the technical data
and information as well as the experience of
carrying out similar projects.
 Includes project’s input (supplies) and output
(production) of real goods and services.
 Managerial Analysis

 Evaluates institutional strengths, weakness, and
adequacy of information system.
 Also monitors capabilities of the project
management team, project organization,
institutional interface and stakeholder analysis.
 Also it deals with the organizational structure of
the project.
 Financial Analysis

 Determine the requirements of funds and the
expected returns on investment from the viewpoint
of the various stakeholders involved in financing
the project.
 Involves assessment of financial impact,
judgement of efficient resource use, provision of
sound financial plan.
 Cost benefit analysis are calculated using current
market trend.
 Social Analysis

 Evaluate the aspect like employment opportunities
and income distribution.
 The project analyst examines the effect of a project
on particular group or region.
 PROJECT PROPOSAL

 It is simply a document used to bring revenue to
the concerned organization.
 It is extensively used in industrial, governmental
and academic circle.
 From project management viewpoint, proposal
simply means a blue print of project activities.
 It is a set of documents needed to evaluate the
project, which is under consideration.
 The set of documents submitted for evaluation of
project is called proposal.
 Project Proposal Have
Two Parts

1. Technical
 This provides technical details relating to project
work.
2. Financial
 This section contains the analysis of financial
details of project.
 Technical Part

 Problem statement: description of project problem.
 Special requirement: any special requirement as
specified in TOR by client is described.
 Test and inspection
 Logistics: detail of equipment, facilities, skills are
listed.
 Reporting: format, timing and nature of reporting
 CV: CV of key persons are listed.
 Financial Part

 Statement of work
 Cost summary
 Cost of basic materials
 Supporting schedules
 Element of Cost
 Profit Statement
 Sources of Fund : debt, equity, bonds, debentures.
 Cost estimating techniques.
PROCEDURE FOR DEVELOPING
PROJECT PROPOSAL

Project proposal is a blueprint of project and it should
be developed professionally. A project proposal
should start with:
Executive Summary
 It is a short summary statement, which includes fundamental
nature of the project proposal in simple and non-technical
language.
 It should focus on general advantages that can contribute or
obtained from its implementation.
Cover Letter
 It is the main document for selling of project ideas.
 It should be prepared with maximum attention and provide
the total perspectives of project.
Analysis of Technical Issues 
 It covers the technical problems and the approach to tackle
the problem.
 It describes the project to be undertaken. It should highlight
the general method of resolving the key problem.
 It should take note of test and inspection procedures to assure
performance, quality, reliability and compliance with
specification.
Implementation of Project
 It contains the estimate of time, cost and materials.
 It should show the project schedule by preparing Bar chart,
CPM/PERT, periodic review of human resources, equipment’s
and other resources are estimated. Milestones are indicated
on the bar chart.
Managerial Analysis of Project
 The project should include a detailed description of the
ability of the proposer to supply the routine facilities,
equipment and skills needed now and during project
implementation. 
 It should highlight how it will maintain the contact with sub-
contractor, how progress reports, audit and evaluation are
covered, and how the final documentation will be prepared
for the users.
Profile of Proposing Group
 It should contain the past experience of the proposing group
i.e. the list of all key project personnel together with their
titles and qualification.
 A full resume is prepared for each principal for the outside
client.
2.4 TECHNIQUES OF PROJECT
FORMULATION

A project needs to be fully defined in order to provide
terms of reference for the management of project. It
usually involves:
 Identification of Needs
 Project Ideas
 Project Proposal
 Project Formulation
 Most commonly used techniques
are :

Feasibility Analysis
Cost-Benefit Analysis
Input Analysis
Environmental Analysis
 Feasibility Analysis

 It is a process of

determining, if project can be
implemented.
 It requires a team of technician, economist, financial
analyst, managers, environmentalist, sociologist etc.
 If the project is of public nature or development project,
all aspects should be analyzed. Much more emphasis is
given to the social aspect.
 In private sector, technical, market and financial aspects
is given more focus.
 It is usually done to justify the concept of project at
disposal and its further action. It is a backbone of project
planning.
 It Covers Following
Areas

Technical analysis
 It seeks to determine whether the prerequisites for
the successful commissioning of project has been
considered and reasonably good choice have been
made with respect to location, size, process, layout
of site, scale of production, equipment and
machine, human resource requirement, choice of
techniques etc.
 
Marketing analysis
 It examines the aggregate demand and market
share of the product.
 It also focuses on consumption trend, supply
position, production capacity, marketing policies,
distribution channels, cost structure etc.
Economic analysis

 It deals with net impact of proposed project to the economy
and society.
 It judges the project from larger social point of view.
 It examines the social costs and benefits of project. Issues
such as economic direct cost and benefits measured in terms
of investment and distribution of income in society and
contribution of the project towards the fulfillment of
employments etc. are analyzed.
 Cost-Benefit analysis is used to assess the overall
profitability of the project in the private sector as against the
social profitability of the public sector.
 
Financial analysis
 It seek to ascertain whether the proposed project
will be financially viable in the sense of being able
to meet the burden of debt servicing and return
expectation of the funders.
 The aspects such as investment outlay, cost of
project, cost of capital, projected profitability,
breakeven point, project financial position and risk
are taken into consideration while considering
analysis.
 
Managerial analysis
 It examines the institutional viability of project.
 Political and legal acceptability, project
organization, project management, key
stakeholders, relationship of project with funders,
regulatory agencies and support agencies are
analyzed in detail.
 Cost Benefit Analysis

 It is concerned with judging a project from social point
of view.
 In such evaluation, the focus is on the social costs and
benefits of the project, which may often be different
from monetary costs and benefits.
 It is the methodology developed for evaluating public
investment particularly in developing countries, where
government plays a lead role in economic development.
 It examines the profitability of project ability to earn
net profit to investors.
 
 In public project, it focuses on social profitability
expressed in terms of economic growth, social
development, employment generation etc.
 It is used to determine whether or not specific
project should be undertaken, which of the
possible alternative project should be selected and
within time cycle is beneficial to the project.
 Financial Analysis

 It basically aims at examining the project from the
angle of capital cost, operating cost, working
capital requirement, profitability, financing
arrangement etc.
 More over beside servicing social benefits, the
money invested in the project must bring a fair rate
of return.
 Pay back period, average rate of return, discounted
cash flow, debt service coverage ratio, sensitivity
and breakeven analysis are used in financial
analysis.
 Input Analysis

 It makes the analysis of human and non human
resources of the project.
 The human resource analysis focuses on acquisition,
utilization, development and maintenance of workforce
in a project.
 It also includes allocation of responsibilities, job
description and job specification.
 Non human resources include material, their supplies,
quantity and quality, machinery, information,
production technology, plant capacity etc.
 SP112
Environmental Analysis

 It focuses on impact of project on environment.
 Issues such as pollution, soil erosion, resource
depletion, damage to ecology, and other negative
and positive effects of project on environment are
analyzed.
 Environmental suitability i.e. the capacity of
environment to support the project is examined.
 EIA and IEE are major tools of environmental
analysis.