Planning project selection and

appraisal
Learning Outcomes
After studying this module, you shall be able to
Know about the Project planning Process
Learn about the techniques of project Planning and Appraisal
Identify factors affecting project selection
Evaluate various methods of project selection
Analyze projects through various appraisal techniques
Introduction
Project planning and appraisal is very critical for every project since huge funds are involved and
the investments are irreversible. The project appraisal process starts with the planning of project
selection using various techniques proceeding with the analysis and then selection,
implementation and review. As the project sponsor believes in only profit churning projects so
every care should be taken while selecting the project. This module will take care of planning of
project selection and its appraisal. As the project selection is a complex process, it passes
through certain phases as given below
Planning project selection process begins with the allocation of
resources, which in turn starts from capital allocation.
1. Capital Allocation: Capital is one of the expensive and most
critical sources, prudence is required while allocating capital. The
classification, estimation and selection of project proposals are
generally adopted by a capital allocation framework as defined by
core management. It helps in chalking out the strategies and so on.
2. Human Resource Allocation: Human resources are critical to any
project .So while planning about the selection of the project the
measure for the labour usage is man hours ,man days and so on.
3. Material Allocation: Material like machinery, consumables are
required for the successful running of the project. While planning
the project selection the complete plan must be made about
allocation of resources in such a way that both the economy and
efficiency must be met.
Factors Effecting Project Selection
There are certain critical factors which effect the selection of a particular
project proposal. These are:
1. Profitability: It is one of the critical factors influencing the selection of a
project proposal. It reflects the relationship between profit and investment.
Profit After Tax/ Net worth
As shown by the equation, profitability is computed by dividing the profit
after tax with the net worth of the project. The proposal having promising
profits will be selected upon the other having less profit.
2. Risk: It reflects uncertainty with variability .It shows how much the actual
differs from expected. A simple measure of variability is the range and
dispersion.
3. Growth: Growth is inevitable for any business, the proposal which
depicting faster growth than the other will be preferred over the other.
Project Selection Methods
Various project selection methods are used by organizations keeping in view
their resources and goals. Every method has its own distinct feature keeping in
view the objectives one or other method is chosen. Although one method is
different from other in one form or the other but the underlying principle is
same, so there is no question that which method is best .There are two types of
models –
Benefit Measurement Models
Constraint Optimization Models
1. Benefit Measurement Model -
This model is extensively used in the selection of project and is based on the
present value of estimated cash inflows and cash out flows. In this method the
cost and benefits are calculated and compared with the other project proposal
in order to take the decision.
The various benefit measurement methods for project selection are given
below:
Benefit /Cost ratio
Pay Back Period
Net Present Value
Internal Rate of Return
Scoring card Method
a. Benefit/Cost Ratio: As it is clear from the name Benefit /cost ratio method calculates the
benefit from the project as compared to the cost incurred on the project .The ratio shows the
relationship between the present value of inflow and the present value of outflow. The
project with highest Benefit/Cost Ratio is selected.

b. Payback Period Method: This is another method of selecting the project .This method
calculates the time required for the project to recover its cost .The project having the
shortest pay- back period is selected.

c. Net Present Value Method: This is one of the discounted method where time value of money is
considered herein. It is assumed that the dollar earned today is more important than tomorrow.
This method talks about the difference between the present value of cash inflows and the present
value of cash outflows of the project. The project having positive NPV is only considered and the
project highest NPV is selected.

d. Internal Rate of Return Method: This is the rate of return where NPV is zero. In other words this
is the rate where Present value of cash outflows is equal to present value of cash inflows. The
project with higher IRR is selected.

e. Weighted Scoring Model: In this method the key factors required in the project are listed and
then weighed according to their importance and priority and then all weighted values are added.
This criterion is adopted for the entire project proposal and the project having highest weighted
scoring is selected.
2 Constrained Optimization Model:
This is a series of mathematical models used for project selection. Basically these
models are used in the very large projects. The various methods used under this
model are:
1. Linear Programming
2. Non Linear Programming
3. Integer Programming
4. Dynamic Programming
3. Multi objective linear programming
The above methods are used in complex and large projects

Project Analysis and Appraisal

Project appraisal appraises whether the project is feasible in terms of financials and
other resources vis-à-vis its benefits. Appraisal covers four major aspects of the
project: technical, institutional, financial and economic:

1 Technical aspects:
Technical appraisal of the project involves its engineering and design feasibility study
as it is concerned with plant location, layout, technology used cost estimate and their
relation to engineering and design on which they are based, proposed procurement
arrangements the potential impact on human and physical environment and other
resources required.
2 Institutional aspects:

Institutional appraisal is concerned with human capability and institutional framework in which
projects are implemented many projects have limitations at human and institutional level also called
soft inputs therefore project appraisal requires careful and sensitive considerations of institutional
dimension and local conditions.

3 Financial and Economic Aspects:

Financial appraisal deals with the financial adequacy of funds, the financial viability of the project,
borrower’s ability to service debt, procedure for recovering investment and operating cost and
assessing the pay back of the project along with its capability to return a profit whereas economic
appraisal is concerned with whether the project contributes to the aggregate income as well as
towards social welfare through the use of social cost benefit analysis as the appraisal technique

4 Marketing aspects:
Marketing appraisal of the project is concerned with the marketing acceptability of the project by the
consumers for which various researches are conducted in order to check its feasibility.
Project Analysis and Appraisal Techniques
Project analysis and appraisal techniques are used by the project manager in
order to decide whether the project is worth taking or not .All the techniques
are linked in one or other way like Strengths, Weaknesses, Opportunities,
Threat analysis (SWOT), Problem Tree and Logical Framework analysis are
constructed into the progress of project cycle. They are being included in
setting up the project objectives to meet the desired aim and the establishment
of an analytical framework. In the appraisal and evaluation of project life cycle
financial and economic analysis have a role to play. The techniques used in the
operation research like network, critical path analysis, Programme evaluation
and review technique analysis and linear and non linear programming may also
be used project identification and preparation. Once the project is operational
there are other techniques that concentrate on planning and scheduling
individual project components or jobs. One of the basic techniques used on
large engineering, production and physical infrastructure projects is network
analysis or critical path analysis (CPA).
1. Critical Path Analysis:
Critical path analysis is used to planning scheduling and controlling practical
situations wherein many separate jobs which make up the whole task can
happen at a same time in such a way that it is difficult to recognize when the
first phase ends and other one starts. CPA identifies three phases:
Planning Phase: This phase clarifies the aim of the project and the
arrangements of project task into an order of precedence .Some tasks will be
carried out in parallel and other in series.
Schedule Phase: The schedule phase comes out of the planning phase and
convert the plan into feasible actionable schedule which paves a way towards
achieving the project objectives with reference to the optimum use of
available resources such as time, human resources and equipment.
Control Phase: Control phase comes out of schedule phase and allows the
actual progress to be monitored by ensuring that the activities are running
according to the schedule.
2 PERT Analysis (Program Evaluation and Review Technique):

This technique is used to analyze the time involved tasks in completing a given project it is also one of
the technique to plan and schedule the large and complex projects. It differs from critical path
analysis in that it allows for uncertainty by building into the project scheduling time constraints for
each activity including:
Quickest reasonable time
Most likely time
Worst time

3 SWOT Analysis:

It is one of the planning tools .It is an analysis of strength weakness, opportunities and threats of an
organization that it faces. While strength and weakness analyse the internal environment of an
organisation and opportunities and threats analyses the external environment like economic, social,
political legal. SWOT analysis can be used at any point of project life cycle. It is one of the important
tools while considering the competitive position of the company. It is also one of the tools for the
corporate planning. SWOT analysis is useful for both public and private sector project investment
project. For example SWOT analysis project can be used to assess the success of public investment
project of increasing social and economic development. In this kind of a project SWOT analysis is used
at analysis stage in order to find out how the strengths are being used by development programs in
terms of funds, resources etc. and deal with the weaknesses poor infrastructure low skill etc. and will
also takes into accounts the threats (Technology demand, economic shocks etc.), and opportunities
(development of infrastructure etc.)
4. Problem Tree Analysis:
Problem tree analysis is a useful first stage in the development of a
project. Problem tree is a method of mapping out the problems,
showing their interconnections and predicting how a project might
address these problems. The main aim is show cause and effect
relationships between the problems that exists. It involves three
main steps:
Precise definition of the framework and the subject for analysis.
Identification of major problems faced by target group and
beneficiaries.
Visualization of problems and their contributory factors in the
form of diagram and problem
tree.
This problem tree will analyze all the problems which could arise while proceeding with the corridor
project and can be seen how the problems can be interrelated it will in finding out the solution for the
same.
5. Stakeholder Analysis:

Stakeholders are those people who are likely to be influenced by the project and can be responsible
for the success or failure of the project. it is common in case of development projects and in public
sector projects for project planners to commence stakeholder analysis. The analysis takes into account
the various interests of those who are going to be influenced by the project directly or indirectly. The
process followed is first identify your stakeholders, then prioritize your stakeholders understand them
at last assess stakeholders interest and potential impact of project on these interest.

6. Logical Framework Analysis:

It a methodology for planning, managing, evaluating programs and projects. LFA involves stakeholder
analysis, problem analysis, analysis of project objectives activity and resource schedule. Logical use of
Logical framework analysis should ensure that the design of the project is logical, but it does not
ensure that project is best one to implement. The framework provides a clear summary of the basic
features of the project proposal.
 Example

Project Description Indicators Means of Assumptions

Verification

Overall Objective

To contribute to
enhanced access
and quality of
basic education in
The govt Schools
through the
development of a
Whole School
strategy to school
improvement
Project Description Indicators Means of Assumptions
Verification

Purpose (Outcome)
Model of WSD Minutes of Senior Government
Model of Whole endorsed by in Management Team policy is supportive
School Region and Quarterly/Annual of the initiative
Development approved for roll Progress Reports DE keeps staff
successfully piloted out to all other School-based Case turnover to a
in one Region education regions Studies Reports minimum in the
in the country . EFA Assessment region
Education data in Reports for Region
Region is routinely
updated with few
errors and used to
set annual targets
Project Description Indicators Means of Assumptions
Verification

Output 1
1.1 School Minutes of All stakeholders
School Development Management are participants
Development Planning approved Meetings willing
Planning by DE as a core ‘SMART’ school Funding is made
institutionalized in activity of all basic Development plans available to
all schools in cycle schools on file at School, support school
Region 1.2 75% of project Cluster/ Regional plans
target schools levels
developing and Annual Budget
implementing allocation to
gender- sensitive schools
School
Development Plans
by March 2015
Project Description Indicators Means of Assumptions
Verification
Output 2: 2.1 65% of School-based Case
Teaching and teachers trained Study Reports
learning in classes demonstrate child- Classroom
1-9 in Region centered lessons Observation
improved by March 2015 Reports

2.2 Pupil National WAEC has the

assessment scores Assessment Test capacity and time
in pilot schools (NAT) results for to carry out NATs
shows 25% Grades 3 and 5
improvement
against Baseline by
EOP
Project Description Indicators Means of Assumptions
Verification
Output 3 3.1 Standardized SQAD Monitoring All stakeholders are
Monitoring of M&E procedures Handbook committed to
quality assurance and tools agreed to implementing a
in schools and in use by end coordinated M&E
strengthened and of 2007 System
streamlined in 3.2 School SQAD Reports to Cluster Monitors
Region monitoring Region 5 and SMT are in place in the
database in place six main clusters in
at Regional Office EFA Reports to its Region
and data used to stakeholders
generate routine Infrastructure and
QA reports by 2007 resources are in
place to allow
routine monitoring
Sufficient capacity
at SQAD to support
the development
of the Handbook
Project Description Indicators Means of Assumptions
Verification
Output 4 Region Directorate
System of in- 4.1 All clusters in Written plans on is committed to
service Region 5 file at Cluster and improve
professional implementing Regional levels management
development for needs-based systems
teachers in Region annual professional
5 enhanced development Allocation of
programmes by sufficient resources
EOP from EFA FTI and
4.2 75% of Individual Teacher other sources to
teachers in target Records of run professional
schools completed Professional development
in-service training Development programmes
of their choice
Project Description Indicators Means of Assumptions
Verification
Output 5 5.1 Minimum Checklist of School Region Directorate
School Standards is committed to
Safety and security environment improve
of school standards agreed management
environments in to and used for systems
Region 5 enhanced M&E purposes School-based Case
5.2 65% of basic Study Reports
education cycle Allocation of
schools in Region 5 Sample Survey on sufficient resources
meeting minimum teaching and by EFA FTI and
school learning conditions other sources to
environment showed fund development
standards by EOP improvements of school
against baseline environment
Project Description Indicators Means of Assumptions
Verification
Output 6
6.1 75% of basic Sample Survey on
Community cycle schools in teaching/learning Local communities
participation in Region 5 holding conditions are willing to
school monthly PTA Minutes of PTA participate in
management and meetings to Meetings School- school
school governance monitor based Case Study performance
increased implementation of Reports monitoring
School
Development plans

6.2 Evidence of Minutes of SPAM

parents at
participating in each school
annual School
performance
appraisal meeting
and setting new
targets with
schools
Summary
Project selection is a complex process that passes through the phases of planning, analysis,
selection, financing, implementation and review.
Benefit measurement method and constraint optimization method are two methods of
project selection
Project appraisal covers four major aspects of the project, vis-à-vis, technical, institutional,

financial and economic .

• SQAD- SOFTWARE QUALITY ASSURANCE DEPTH

• SMT- SURFACE MOUNT TECHNOLOGY
• EFA- EDUCATION FOR ALL
• WSD- WEB SERVICES FOR DEVICES
• NAD- NETWORK ADD TRANSLATION
• EOP- EDUCATIONAL OPPORTUNITY PROGRAM