What is Project Appraisal?
Project appraisal is the process of transmitting information accumulated through feasibility studies into a comprehensive form in order to enable the decision maker to undertake a comprehensive appraisal of various projects and embark on a specific project or projects by allocating limited resources.
Since risk is involved in all activities associated with the project, project appraisal aims at improving the quality of projects and their long-term profitability, aims at minimizing the risk of lending by rectifying their weaknesses and improving their effectiveness by incorporating into them safeguards missed by the promoters because of their -lack of knowledge or information.
There is a lot of confusion regarding the appraisal and evaluation of a project. Various points of difference are:
- Evaluation is a comparative study whereas appraisal is an independent examination.
- Appraisal is undertaken in the first stage whereas evaluation comes thereafter.
- Appraisal helps in bringing out facts whereas evaluation helps in arriving at a conclusion.
Objectives of Project Appraisal
Project appraisal is undertaken for the exact analysis of a designed scheme. It identifies and estimates the expected costs and benefits of a project. Project appraisal is a conscious scrutiny that helps to design a conceptual framework that aids in monitoring and evaluating future actions.
Various objectives of project appraisal are as under:
- To extract relevant information for determining the success or failure of a project.
- To apply standard yardsticks for determining the rate of success or failure of a project.
- To determine the expected costs and benefits of the project.
- To arrive at specific conclusions regarding the project.
Project appraisal from engineering and technology aspects can cover the following:
Options available regarding appropriate technology.
- Technology collaboration arrangements signed, if any.
- The proposed scale of operation.
- Location and infrastructural aspects.
- Pollution Control, effluent disposal, and utilization of by-products. Selection of plant & equipment.
- Factory building and plant layout.
- Project cost and its comparison with similar projects.
- Appraising project cost estimates and profitability projections.
- Different aspects of a project are not independent entities but in reality, are interrelated and a project appraisal is incomplete without a comprehensive study of different aspects. Banks and other financial institutes are keen to examine the viability of a project before making a decision regarding extending any financial assistance.
These institutes are concerned with the safety of their loans and return on investment. The surplus generated from the project should be enough to repay the principal amount of the loan and interest thereon over a period of time.
Importance of Project Appraisal
The importance of project appraisal is in the following ways:
- It helps in arriving at specific and predicted results.
- It evaluates the desirability of the project.
- It provides information to determine the success or failure of a project,
- It employs existing norms to predict the rate of success or failure of a project.
- It verifies the hypothesis framed for the project.