Manual on Project Planning and Programming: Samoa

Contents

Chapter 5: Project Appraisal

Page
5.0 Executive Summary............................................................................................................................................5-1
5.1 General.................................................................................................................................................................5-1
5.2 The Approach......................................................................................................................................................5-2
5.3 The Objectives.....................................................................................................................................................5-2
5.4 The Outputs.........................................................................................................................................................5-2
5.5 Inputs ...................................................................................................................................................................5-2
5.6 Conversion...........................................................................................................................................................5-3
5.7 The Format..........................................................................................................................................................5-3
5.8 Institutional Responsibilities .............................................................................................................................5-3
Annex 5.1.......................................................................................................................................................................5-4
Memorandum on Project Appraisal on Project: ( ) submitted by (Agency) for Cabinet
Development Committee ..................................................................................................................................5-4
Project Appraisal Report on Project: ( ) ..........................................................................................................5-5

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Manual on Project Planning and Programming: Samoa

Chapter 5

Project Appraisal

5.0 Executive Summary

The aim of Project Appraisal is to examine the viability of a project before a decision on project
implementation can be made.

The approach to Project Appraisal is to make a critical analysis of the assumptions made in the Project
Proposal document as regards the:
• inputs
• outputs
and in this context examine the soundness of how the inputs have been converted into outputs.

The institutional responsibility for preparing the Project Appraisal Report (Annex 5.1) rests with EPPD.
The Project Appraisal Report is to be submitted to CDC for consideration as a Memorandum (Annex
2.5b) together with the Project Proposal.

5.1 General
Project appraisal is the process of examining the attractiveness of a project from a market demand and
from a technical, financial, economic, social, political view point before a project implementation
decision can be made. The appraisal of a Project Proposal (PP)49 is the responsibility of EPPD before
the PP is submitted to CDC for consideration.
The appraisal is basically concerned with establishing the realism of the project assumptions, the
accuracy and the absolute level of the information presented in the project formulation document, i.e.
the PP. In line with this approach, a comprehensive project appraisal involves the analysis of not only
the market demand and technical, financial and economic aspects of a project, but also an appraisal of
the contribution of the project to the achievement of national and sectoral objectives and strategies.
These latter issues are addressed at the pre-appraisal stage of the related Project Identification Brief
(PIB) (Chapter 3; Annex 3.1). Furthermore, in executing the appraisal process, it is necessary to apply a
high degree of common sense particularly when assessing how the project design relates to, and is
compatible with, socio-cultural issues.

In case project formulation has been based on cost-effectiveness analysis and not cost-benefit analysis
(Chapter 4; Section 4.2), this should be justified and reflected in the appraisal.

49 Chapter 4; Annex 4.3

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5.2 The Approach

The appraisal must assess whether the project is worthwhile comparing it and its specific objectives,
with those of the sector and the nation as a whole. It should assess whether the design of the project is
such that it will facilitate the achievement of the objectives and an efficient use of resources in an
environmentally friendly and sustainable manner. A well designed and formulated project will be easy
to appraise, implement, monitor and evaluate. In this respect an efficient project is characterised by
converting inputs into outputs in a cost effective manner. As such there are three fundamental processes
in a project which need to be assessed:
• Outputs : is there a requirement for the outputs of the project?
• Inputs : are the inputs likely to be available?
• Conversion : what is the most efficient way of converting inputs to outputs?

The merit of this approach is that it can be applied to all types of projects, e.g., schools have teachers
and materials as inputs and students as outputs. Research projects have resources as inputs which if they
are to be useful, should be converted into probable useful targeted outputs. Factories convert inputs into
marketable outputs at the lowest possible cost. Agricultural projects consist of inputs of seed, labour
and other materials to yield goods which are consumed or sold.
In view of the three fundamental processes in a project, the appraisal process should proceed with the
project assessment in the following logical fashion:

5.3 The Objectives

The project should have clearly defined objectives. The principle purpose of establishing clear
objectives is to avoid the inconsistency and contradictory objectives emerging from projects having been
identified in isolation. By following the procedures adopted for project identification (Chapter 3) and
project formulation (Chapter 4), the risk of implementing projects with inconsistent and contradictory
objectives is minimal.

5.4 The Outputs

If the outputs are saleable products it is necessary to make a judgement as to the effective demand for
the product(s). If the outputs are not saleable it will be necessary to assess whether is a requirement for
them and whether this would be justified on socio-economic grounds (this would normally entail a
judgement of appropriate thoughts of the concerned community). While the principle question relates to
the market or the demand for the product, it can be divided depending on the size and complexity of the
project into the following questions:
• if the quantity added to the market is likely to be very significant, a proper market analysis
would be required - if it is insignificant an intelligent judgement is all that is required
• if a different quality type product is being offered, a market research analysis would probably
also be required
• since the timing of the output coming onto the market could be crucial, care would have to be
taken to assess what the effect would be if the increase envisaged was of an immediate nature.

5.5 Inputs
The principle question is whether inputs will be available. This depends on the size and complexity of
the project. Three questions must be answered:
• will the scale of inputs required be available?
• will the quality be satisfactory?
• will inputs be available at the right time?

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5.6 Conversion
Considering the manner in which inputs are converted into outputs, this requires the following
systematic assessment:
• is the proposed technology appropriate and is it technically feasible?.
• is the management required likely to be available and effective?
• is the institutional and policy framework appropriate?
• is this the most cost effective solution; what options have been considered?
• does it provide acceptable and the best financial and economic rate of returns ?
• are the possible environmental implications acceptable?

Conversion

i. Technology
i. Quantity ii.Management i. Quantity
INPUTS ii. Quality iii.
Cost Effectiveness OUTPUTS ii. Quality
iii. Timing iv.Financial Appraisal iii. Timing
v. Economic Appraisal

The virtue of this approach is that it enables the appraiser to proceed from simple judgement to full
techno-economic appraisal in a logical sequence which may expand with the nature and the scale of the
project. In the majority of cases it would be quite possible to make a quick judgement as to whether the
marketing requirements for the output, the input needs and the system proposed for converting inputs
into outputs are reasonable. Obviously as the scale of the investment increases and it becomes
technologically and managerially more complex much greater care would have to be exercised. In this
case EPPD might consider it advisable to engage an independent consultant50, (a Format for
Consultancy Terms of Reference is given in Annex 2.3 of Chapter 2).

5.7 The Format

The format of the Project Appraisal Report is given in Annex 5.1.

5.8 Institutional Responsibilities

The EPPD is responsible for the preparation of the Project Appraisal Report. As EPPD does not always
have the relevant in house technical expertise to deal with all aspects of the appraisal, EPPD may need
to seek the independent advice and judgement from relevant agencies and organisations in Samoa. If
this advice/judgement is not available, EPPD would need to seek the relevant advice/judgement from
external consultants as appropriate50 (a Format for Consultancy Terms of Reference is given in Annex
2.3 of Chapter 2).

50 If EPPD would require the funding of a foreign consultant, TD would require to approach the ACC along the lines outlined in Chapter 2, Section 2.6.2

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CDC Secretariat use only

Annex 5.1

CDC Paper No.

Memorandum
on
Project Appraisal
on
Project: ( )
submitted by
(Agency)
for
Cabinet Development Committee

Salient Project Features:

Project Objective(s):
Total Cost:
IRR51:
Potential Donor:

EPPD Comments:

Recommendations:

The Memorandum is a Project Appraisal of a related Project Proposal submitted by a line

department/agency for the consideration by CDC. The Memorandum to be prepared by EPPD. A copy
of the Project Appraisal report to be forwarded to the concerned line department/agency and discussed
(as appropriate) before the Memorandum is submitted to CDC for consideration.

The format of the Memorandum to follow the outline given below.

51 if costs and benefits can not be described in financial and/or economic terms, benefits and costs to be elaborated on within the concept of project cost-
effectiveness

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Treasury Department (EPPD) use only

Project Appraisal Report

on
Project: ( )

1. Sector
2. Executing Agency
3. Implementing Agency
4. Summary of Issues
5. Project Appraisal Summary
The summary to be formatted as follows:
• Background
The background of the project to be elaborated on within the following framework:
⇒ Government/sectoral policy
⇒ Features of the sector
⇒ Beneficiaries and parties involved
⇒ Problems to be addressed
• Project Objectives and Strategy
The objectives and strategy of the project to be elaborated on within the following framework:
⇒ Overall objectives
⇒ Project purpose
⇒ Outputs
⇒ Activities
• Project Costs
An elaboration of the project costs to be made within the following headings:
⇒ Capital Cost
∗ Foreign
∗ Local
⇒ Recurrent Costs
• Assumptions
The assumptions to be elaborated on within the following framework:
⇒ Assumptions at different levels
⇒ Risks and flexibility
• Implementation
The implementation of the project to be elaborated on within the following framework:
⇒ Physical and non-physical aspects
⇒ Organisation and implementation procedures
⇒ Timetable
⇒ Cost estimate expressed in capital and recurrent costs (foreign and local)
⇒ Special conditions e.g. measures taken by the Government
• Project Financial and Economic Features
The financial and economic features of the project to be elaborated on within the following
framework:
⇒ Financial rate of return
⇒ Economic rate of return
• Factors ensuring sustainability
The sustainability of the project to be elaborated on within the following framework:
⇒ Policy support

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⇒ Appropriate technology
⇒ Environmental aspects
⇒ Socio-cultural aspects (including gender issues)
⇒ Institutional and management capacity
⇒ Economic and financial analysis
• Monitoring and Evaluation
The monitoring and evaluation of the project to be elaborated on within the following
framework:
⇒ Monitoring indicators
⇒ Reviews/evaluations
6. Proposed Financing Structure
• Project capital costs
⇒ Equity
⇒ Loans/grants
• Project working capital
7. Proposed Funding Source and Conditions
• Equity
• Loans
• Grants
• Working Capital
8. Budgetary Implementations
Enclosed the comments of Treasury Planning and Budget Committee

9. Consultations with other Departments / Agencies

10. EPPD’s Comments
11. Recommendations
12. Signature of AS/ EPPD
13. Date

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