PROJECT APPRAISAL

Herman H. Grant Director The Project Development Institute Caribbean Global Projects Inc. April, 2005.

IMPORTANCE OF POINTOF-VIEW:
HISTORICAL FINANCIAL ANALYSIS

CREDIT-WORTHINESS OF PROJECT SPONSOR PRIVATE DOES THE PROJECT MAKE FINANCIAL SENSE? NATIONAL- DOES THE COUNTRY GAIN BY IMPLEMENTING THIS PROJECT? SOCIAL DO THE MOST DISADVANTAGED PEOPLE GAINS? (WHO EXACTLY REALLY GAINS?)

HISTORICAL FINANCIAL ANALYSIS

AUDITED FINANCIAL STATEMENTS
TIME-SERIES ANALYSIS OVER 5 YEARS:

LIQUIDITY, PROFITABILITY, DEBTSERVICE CAPABILITY; RATIOS V/S INDUSTRY NORMS AND TRENDS OVER TIME; FOCUS: OPERATIONS; INVESTMENT; FINANCING; BEYOND EVERYTNING, CASH IS KING!

CASH-FLOW ANALYSIS OF THE PROJECT

PREPARE FINANCIAL

PROJECTIONS: FINANCIAL ADEQUACY FINANCIAL WORTH RETURNS TO FINANCIAL STAKEHOLDERS LIST THE ASSUMPTIONS SENSITIVITY ANALYSIS

THE MAIN SCHEDULES

1. CAPITAL COST;
2. DEPRECIATION SCHEDULE; 3. CAPITAL REPLACEMENT SCHEDULE;

4. CASH OPERATING EXPENSES;

5. WORKING CAPITAL REQUIREMENTS; 6. LOAN REPAYMENT SCHEDULE;

7. CASH REVENUE SCHEDULE;

8. INCOME STATEMENT;

SCHEDULES (CONTD.)
9. CASH-FLOW STATEMENT;
10. RATE OF RETURN

CALCULATION; 11. SENSITIVITY ANALYSIS.

SELECTION CRITERIA
BENEFIT/COST RATIO;
NET PRESENT VALUE; INTERNAL RATE OF RETURN:
IRR; ERR.

NON-REVENUEGENERATING PROJECTS
WEAK FINANCES, SO WHY DO A

FINANCIAL ANALYSIS?

NEED TO QUANTIFY THE ANNUAL DEFICITS; NEED TO DEVELOP STRATEGIES TO SUSTAIN THE PROJECT IMPACT; POLICY: SUBSIDISE ONLY THOSE WHO NEED IT, BUT NOT FOREVER!

SELECTION CRITERIA: LEAST-COST ANALYSIS:LEAST-COST ANALYSIS.xls COST-EFFECTIVENESS ANALYSIS: COSTEFFECTIVENESS.xls

NON-REVENUE GENERATING PROJECTS (CONTD.)

NEED FOR GRANT FUNDS;
GIFTS; VERY SOFT LOANS; SWEAT-EQUITY GET THE

TARGET GROUP TO CONTRIBUTE WHATEVER THEY CAN, IN SUPPORT OF THE PROJECT.

SENSITIVITY ANALYSIS
WHAT IF?
.SALES DECLINE BY 10% .CAPITAL COST INCREASE BY 10%

.OPERATING COST INCREASE BY 10%

. THERE IS A 10% DELAY IN PROJECT

IMPLEMENTATION WHICH HAS THE GREATEST IMPACT? IS THE PROJECT STILL VIABLE?

ECONOMIC ANALYSIS
WHY THIS ANALYSIS? : MARKET FAILURE;
MONOPOLIES; MERIT/DEMERIT GOODS;

GOVERNMENT FAILURE; DIFFERENCE BETWEEN PRIVATE AND SOCIAL VALUATION OF COSTS AND BENEFITS;

IDENTIFY INTERNAL AND EXTERNAL

COSTS AND BENEFITS: ECONOMIC FOCUS.xls

ECONOMIC ANALYSIS (CONTD.)

DOES THE PROJECT GENERATE

NET BENEFITS FOR THE COUNTRY? VALUING COSTS AND BENEFITS FROM THE NATIONAL PERSPECTIVE; SHADOW-PRICING; RE-CALCULATING PROJECT WORTH

ECONOMIC ANALYSIS (CONTD.)

THE NUMERAIRE USED IN

MEASURING VALUE; CONVERSION FACTOR V/S THE SHADOW FOREIGN EXCHANGE RATE APPROACH; COMPARING THE RESULTS; RATIONALE FOR CHOOSING THE CONVERSION FACTOR APPROACH.

SOCIAL PERSPECTIVES
SO THE COUNTRY GAINS; BIG

DEAL! .WHO EXACTLY GAINS? . .THE POOREST OF THE POOR? . . OTHER DISADVANTAGED GROUPS? WOMEN, YOUTHS, RURAL PEOPLE? ?

BIBLIOGRAPHY
J. PRICE GITTINGER: ECONOMIC

ANALYSIS OF AGRICULTURAL PROJECTS; WARREN C. BAUM AND STOKES M. TOLBERT: INVESTING IN DEVELOPMENT.