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Project appraisal is a generic term that refers to the process of assessing, in a structured way,
the case for proceeding with a project or proposal. In short, project appraisal is the effort of
calculating a project's viability[1]. It often involves comparing various options, using economic
appraisal or some other decision analysis technique[2][3].

[edit] Process
 Initial Assessment
 Define problem and long-list
 Consult and short-list
 Develop options
 Compare and select Project

[edit] Types of appraisal

 Financial
o Cost-benefit analysis[4][5][6]
 Economic appraisal[7]
o Cost-effectiveness analysis
o Scoring and weighting

Projects

A project is a specific plan or design presented for consideration. UNIDO defines a project as
a proposal for an investment to crate and or develop certain facilities in order to increase
the production of goods/services in a community certain period of time. Burns and Tolbet
define the term projects discrete package of investments, policy measures and institutional
and other actions designed to achieve a specific development objectives. Projects are
common term used by many flexibly to denote specific action plans. There are projects to
develop a new road, new car, new motorbike, marketing plan, construction of buildings,
transport and communication etc. A project can be long term or short term, limited or
comprehensive, single sector concentrated or multi sector concentrated. While all of these
projects have a general goal with macro and micro directives with specific time frame. This
particular article concentrates more on the general project management.

Project: can be defined thus as

* A scientifically evolved work plan

* Devised to achieve a specific objectives

* Within specified time limit

* Consuming planned resources

Project Questions

Before the formulation of project problem, many questions to be asked by the project
initiators. These questions can be summarized as follows:

 What for:  The objectives of the project

 How:        The process, and the internal and external resources
 Who:        For whom, By whom – Project partners, stake holders
 When:      The time factor
 Where:     The location
 What:       The activity

Identifying the Project

The first phase of project management is the concerned with identifying the project to
achieve the desired objectives. The initial task coming under project identification is to find
out the sources of the project. Agencies like government organisations, international
institutions like WHO, World Bank, UNDP, Non Governmental Organisations etc can be
better source of projects.

Project Need Analysis

The factors included under project need analysis are the, problem, solutions, beneficiaries
and decisions. The problem should exhibit an immediate intervention. The focus should be
to identify the beneficiaries. The solutions should be based on the original problem. The
decision to take up the project lies on how these three factors problem, solutions and
beneficiaries are important to project intervention. 

Problem formulation and Statement of the Problem

The crux of the project lies in the problem formulation process. The project team should
have detailed understanding of the problem, scope, intervention areas and the out come of
the project to be hypothesized. Based on a multi phased understanding and analysis,
describe the problem to be addressed and resolved. The macro level objectives and micro
level objectives to be separated and should give differential wastages

Project Planning

Project planning: can be defined as

* A scientific and systematic process, in which

* Logical linkages are clearly established, among

* Various element of projects

Successful implementation of the project lies on effective project plan. Based on the
anticipated goals and objectives the project planning to be made. The project plan is the
blue print of the project. Effective planning gives proper direction in the implementation of
the project and it further helps in adequate monitoring and evaluation. For the
implementation of plan, an activity chart to be prepared. The activity chart consists of all
the proposed activities in the implementation process, including the start date, calendar for
the entire project, dates of monitoring and evaluation periods, finishing stages, series of out
puts, slack time, responsible person to be coordinate the activities etc.

Project Budget

The project budgeting phase is in the project formulation phase. Two types of budgets are
to be made. The prior one is the cost category budget (materials, administration, capital;
expenditures etc) and the later is the activity budget. This project budget is to calculate the
cost of each project out put. Keep in mind the cash flow of the project, considering the
contingencies like, technical shortage, shortage of raw materials, delays in the activity
implementation etc. The estimation of the project cost should be made on fairly realistic
sense of financial values. In the multi year projects the inflation rate also to be anticipated
in advance.

Feasibility of the Projects

1. Management Appraisal

Management appraisal is related to the technical and managerial competence, integrity,

knowledge of the project, managerial competence of the promoters etc. The promoters
should have the knowledge and ability to plan, implement and operate the entire project
effectively. The past record of the promoters is to be appraised to clarify their ability in
handling the projects.

2. Technical Feasibility

Technical feasibility analysis is the systematic gathering and analysis of the data pertaining
to the technical inputs required and formation of conclusion there from. The availability of
the raw materials, power, sanitary and sewerage services, transportation facility, skilled
man power, engineering facilities, maintenance, local people etc are coming under technical
analysis. This feasibility analysis is very important since its significance lies in planning the
exercises, documentation process, risk minimization process and to get approval.

3. Financial feasibility

One of the very important factors that a project team should meticulously prepare is the
financial viability of the entire project. This involves the preparation of cost estimates,
means of financing, financial institutions, financial projections, break-even point, ratio
analysis etc. The cost of project includes the land and sight development, building, plant
and machinery, technical know-how fees, pre-operative expenses, contingency expenses
etc. The means of finance includes the share capital, term loan, special capital assistance,
investment subsidy, margin money loan etc. The financial projections include the
profitability estimates, cash flow and projected balance sheet.  The ratio analysis will be
made on debt equity ration and current ratio.

4. Commercial Appraisal

In the commercial appraisal many factors are coming. The scope of the project in market or
the beneficiaries, customer friendly process and preferences, future demand of the supply,
effectiveness of the selling arrangement, latest information availability an all areas,
government control measures, etc. The appraisal involves the assessment of the current
market scenario, which enables the project to get adequate demand. Estimation,
distribution and advertisement scenario also to be here considered into.

5. Economic Appraisal

How far the project contributes to the development of the sector, industrial development,
social development, maximizing the growth of employment, etc. are kept in view while
evaluating the economic feasibility of the project.

6. Environmental Analysis

Environmental appraisal concerns with the impact of environment on the project. The
factors include the water, air, land, sound, geographical location etc.

Project Implementation

This is the period in which all the activities that are planned in the initial phases of the
project get materialized through operation. Here the role of the project managers comes in
to the picture. It is the task of the project managers to schedule the activities one by one
and establish functional relationship of the project activities in the fulfillment of the project.
The techniques like PERT (Programme Evaluation and Review Technique), CPM (Critical Path
Method) etc are the various network techniques the managers make utilize to implement
the activities planned in the project considering the cost and time.

Monitoring and Evaluation

Monitoring is the process of observing progress and resource utilization and anticipating
deviations from planned performance. (UNIDO, 1993). In the monitoring and controlling
phase the project managers have to monitor the technical performance, time and cost
performance in addition to the organisational performance. Correction, re-planning and
cancellation of the activities are the control actions expected from this phase in order to get
the expected outcome. The monitoring is periodical by fixing milestones in the project
phases.

Evaluation

The final stage is the evaluation of the project. Upon the conclusion of the project success in
attaining the goals, and to determine how future projects could be managed. Here the
effeteness of the degree of the objective achievement, the efficiency of the financial,
human, and time resources to be observed. The impact of the project, the major concern of
the project, i.e. whether the project reach up to the beneficiaries with quality and quantity
is to be measured. Different types of evaluation are there like performance appraisal, work
audit, result evaluation, cost benefit evaluation, impact analysis etc. Evaluation is done to
ensure the effective mutilation of all resources for the accomplishment of the project.

Conclusion

Here the role of the project manager to be analyzed into. From the conception stage to
implementation stage and from periodical monitoring to evaluation stage his role is
inevitable.  He should show his leadership in managing the relationship, motivating the
team, procuring the resources, developing the capabilities, leading all the resources to the
accomplishment of the project. The accountability of the project manager's leadership
comes only when the team members accept the ideas and directions of the leader towards
the accomplishment of the project. A project manager here should be an effective leader.
This article briefs up the conceptual and theoretical understanding of the project
management and project appraisal.  It will be beneficial to those who are inspired to take a
business of socio-economic project in their career.

Element of risk and uncertainty in appraising capital investment proposals:

The whole analysis in the earlier section was on the assumption that cash flows – both inflows and
outflows which accrue as a result to the various capital expenditure proposals can be known with
certainty. This assumption is not realistic in actual circumstances. We must realize that evaluation of
capital expenditure proposals involves projections of future. Future is always uncertain. Nobody can say
with certainty about the quantum and, frequency of the future cash flows. In other words, the assumption
that the cash flow are certain and therefore, deterministic in nature is not a realistic assumption. The
estimates of cash inflows and outflows can only be what may be termed as probability estimates, i.e., they
represent only like happening. We must appreciate that there are too many unknown and uncertain
factors which influence cash flow and, therefore, it is important to recognize that each cash inflow or
outflow is only a probable figure.

The uncertainty about future leads to variations in returns. Risk is perceived to be variability of actual
returns from the estimated returns. For example, if two projects are considered one with NPV of $ 100
with probability I and another project with two possible outcomes.

                                  NPV                            Probability

                                  200                                    .5

                                    0                                      .5

Both the projects have the same E(NPV)= 100. However the risk profile of second project is different from
the first. The returns in the first project do not vary or are certain while in the second project the returns
can vary anywhere between 0 to 200 around its expected mean of 100. Thus the certainty of getting
returns of 100 is much lesser in the second project as compared to the first project making it more risky.

A more realistic approach for capital budgeting would, therefore be to recognize that the cash flows are
generally probabilistic in nature and in most circumstance only random variable i.e. they may happen or
they may not happen. This approach highlights the need for considering the question of risk and
uncertainty while carrying out the capital budgeting exercise.
Actually, if risk and uncertainty factors are not taken into account there is always a danger that the capital
expenditure evaluation may produce misleading results. This is because we know that risk and return
shave a direct relationship. Higher the return from a project, higher would be the risk normally. Similarly,
lower the return, lower would be the risk. Now if we use the net present value method or the IRR method
or any such method which evaluates only the return aspect, there is every possibility that we shall end up
in selecting projects with higher risk. In other word, the tendency to ignore risk and uncertainty factors and
to rely only on measures of profitability-whether time adjusted or not-can result in accepting highly risky
projects. It is, therefore, necessary that the capital budgeting exercise should attempt to optimize both,
the return and risk factors.