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From Wikipedia, the free encyclopedia Jump to: navigation, search 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. It often involves comparing various options, using economic appraisal or some other decision analysis technique.
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Initial Assessment Define problem and long-list Consult and short-list Develop options Compare and select Project
 Types of appraisal
Financial o Cost-benefit analysis Economic appraisal o Cost-effectiveness analysis o Scoring and weighting
Systematic and comprehensive review of the economic, environmental, financial, social, technical and other such aspects of a project to determine if it will meet its objectives.
Key Steps in Project Appraisal
by V S Rama Rao on April 24, 2008 in Finance Management
Apply suitable investment criteria: The stream of costs and benefits of the project has to be converted into a measure indicating how worth while is the Project. and salvage value. the latter does not involve any discounting. costs are incurred in the form of initial cash outlays on fixed assets and net current assets. The cost of a specific source of finance is defined as the rate of discount that equates the present value of the expected post tax payments to that source of finance. There may be a lot of variability characterizing factors like project cost. or post completion audit. Keys Steps in project Appraisal Forecast costs and benefits Select appraisal criteria Assess risk Estimate the cost of capital Value the options Consider the overall corporate perspective While the former calls for discounting the future benefits using an appropriate discount rate. The actual values of these variables often turn out to be different from their forecast values. For this purpose. energy cost. project life. sales quantity. (2) It provides a documented log of experience that is highly valuable for decision making (3) It helps in uncovering judgmental biases (4) It induces a much needed caution amongst project sponsors. several investment criteria are used. A brief description of these steps are as follows: Forecast the costs and benefit: A capital project involves costs and benefits extending over a period of time. you should try to get a handle over how the variability in these factors can affect the attractiveness of the project. They fall into two broad categories: discounted cash flow criteria and non-discounted cash flow criteria. It is a means of comparing actual performance with projected performance. It is conducted most appropriately when the operations of a project have stabilized and is useful in several ways: (1) It throws light on how realistic were the assumptions underlying the project. selling price. is a feedback device. Typically. Assess the risk of the project: Costs and benefits associated with a capital project are almost invariably subject to risk. Under appropriate conditions. material cost. . Benefits are derived in the form of cash inflows from the operations of the project over its economic life. with the net funds received from that source. it is measured as the weighted average cost of different sources of capital employed for financing the project. Estimate the cost of capital: The cost of capital is the discount rate used for evaluating a capital project. plus terminal cash inflow from the liquidation of the project at the end of its economic life.Performance Review: Performance review. Project appraisal involves six broad steps as shown. Hence.
Hence. product development. and so on are tangible expressions of a company’s strategy. obtained by discounting the project cash flow stream using an appropriate cost of capital. and the competitive position and core competencies of the firm. This approach however. due consideration should be given to general economic outlook. facilities. Consider the overall corporate perspective: Capital investments in plant. prospects of industries in which the firm operates. In such an evaluation. Hence. machinery.Value the options: The traditional approach to project appraisal calls for judging a project on the basis of its net present value. the traditional Net Present Value analysis needs to be expanded to include the value of real options inherent in the project. research. capital investment decisions must be evaluated from the overall perspective of the firm. marketing programs. . buildings. is incomplete as it fails to capture the value of real options embedded in the project.