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Project Appraisal

Project Appraisal

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Published by liano14

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Published by: liano14 on Oct 22, 2010
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 Copyright © 1999-2010
The University of Monash 
 
Project appraisal is the process of evaluating individual projects or groups of projects, and thenchoosing to implement some set of them so that the objectives of the parent organization will be
achieved. This same systematic process can be applied to any area of the organization’s bus
inessin which choices must be made between competing alternatives. Each project will have different costs, benefits, and risks. Rarely are these known with certainty. In the face of such differences,the selection of one project out of a set is a difficult task.
 
 Copyright © 1999-2010
The University of Monash 
 
Selecting a Appropriate Project Appraisal Methodology
Selecting any project appraisal method assumes that the decision-making procedure takes placein a reasonably rational organizational environment. Such is not always the case. In someorganizations, project selection seems to be the result of a political process, and sometimesinvolves questionable ethics, complete with winners and losers. In others, the organization is sorigid in its approach to decision making that it attempts to reduce all decisions to an algorithmicproceeding in which predetermined programs make choices so that humans have minimalinvolvement and responsibility.
Non-Numeric Methods
1.
 
The Sacred Cow2.
 
The Operating Necessity3.
 
The Competitive Necessity4.
 
The Product Line Extension5.
 
Comparative Benefits6.
 
Q-Sorting7.
 
Forced Comparison8.
 
Peer review9.
 
Profiles10.
 
Murder Board
Numeric Methods
There are two major types of methodologies can be identified as scoring and financial methods.
Scoring methodsNo Range and Un-weighted Scoring
A set of relevant factors is selected by management and then usually listed in a preprinted form.One or more raters score the project on each factor, depending on whether or not it qualifies for
an individual criterion. Only binary scorings are used as „1‟ for YES and „0‟ for NO or qualified/
not etc; any project which meets maximum number of criteria may be chosen.
 
 Copyright © 1999-2010
The University of Monash 
 
1.
 
Range and Un-weighted Scoring2.
 
Weighted Scoring
Financial Methodologies
1.
 
 Payback Period  2.
 
 Net Present Value 3.
 
 Average Rate of Return 4.
 
 Internal Rate of Return
The discount rate often used in capital budgeting that makes the net present value of all cashflows from a particular project equal to zero. Generally speaking, the higher a project's internalrate of return, the more desirable it is to undertake the project. As such, IRR can be used to rank several prospective projects a firm is considering.
 5.
 
Cost Benefit Analysis
Cost Benefit Analysis (CBA) is a technique used to evaluate the economics of costs incurredwith benefits achieved. Cost-benefit analysis in other term Benefit Cost Analysis is onetechnique of analyzing proposed or previously enacted projects to determine whether doing themis in the public interest or to choose between two or more mutually exclusive projects. It ismainly used in the public sector in connection with investment decisions where some accountneeds to be taken of those considerations which are not purely financial. Benefits and costs areoften expressed in money terms, and are adjusted for thetime value of money,so that all flowsof benefits and flows of project costs over time are expressed on a common basis in terms of 
their “present value.”
BCA assigns a monetary value to each input into and each output resultingfrom a project. Although Cost-benefit analysis provides a protocol for assessing the efficiencyimpacts of proposed policies.
2.1
 
Non
 – 
Conscious Methodologies
Some decisions are made without conscious consideration, on the basis that they are perceivedby the decision-
maker as being „right‟. These are instinctive in nature and reflect an embedded
belief held by the decision-maker. main advantage of this methodology can be identified as thisCan used with small projects, Can use for projects which have minimum consequences. There is

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