Development project appraisal and sd(L6)1Presentation Transcript
LECTURE:06 Development Project Appraisal for sustainable development M. A. Kamal, Ph.D Director General National Academy for Planning and Development
Definition of a Project
Types of Project
Objectives of Project Appraisal
Scope of Project Appraisal
Methods of Calculating Profit Worthiness
The basic difference between Financial Appraisal &Economic Appraisal
Types of Project Appraisal
1. Introduction: 1.1 Development projects impose a series of costs and benefits on recipient communities or countries. 1.2 Those costs and benefits can be social, environmental, or economic in nature, but may often involve all three. 1.3 Irrigation projects may facilitate the growing of cash crops in one locality, but cause water shortages, and hence economic, social and environmental pressures in another locality.
2. Definition: Project
2.1 A Project is a set of interrelated investment activities to attain certain specific objectives by utilizing limited resources within a particular period of time.
A particular Period of time
3. Projects types: Projects are: 3.1 Type ‘x’ : Self financing projects i.e. projects which earn revenue through sale of output (goods & services). These are called directly productive projects, i.e.. Industrial Projects. 3.2 Type “y” : In directly productive but non-revenue earning projects, i.e., projects which give rise to tangible output, benefit of which do not accrue directly to projects themselves but to other parties Example: Irrigation Projects, Roads, Bridge etc. 3.3 Type “z ” : Service Sector Projects Projects which do not give rise to tangible output but provide service benefits to the society. Example: School, College, Hospital, Training Institute.
4. Projects Cycle
4.1 There tends to be a natural sequence in the way projects are planned and carried out and this sequence has come to be known as ‘ the Project Cycle’.
4.2 Project Cycle Covers following stages:
Project Preparation & Analysis
Project Approval / Negotiation
Project Implementation & Monitoring
Project Evaluation & Follow-up Analysis.
4.3 A Project generally goes through all these phases sequentially from identification to evaluation & follow-up. This sequence has come to be termed or referred to as “Project Cycle”
5. Project Appraisal 5.1 Project Appraisal involves the comparison of costs and benefits. If benefits exceeds costs, the project could be considered for acceptance Otherwise, it is not. 5.2 The basic principle in appraisal / CBA is for potential acceptance of a project. 5.3 Project Appraisal means a pre-investment analysis of a project to determine whether the project should be implemented or not.
6. Objectives of Project Appraisal 6.1 Project Appraisal is necessitated because the resources or means are limited as compared to the needs of the society. 6.2 As a result, any investment undertaken implies depriving other projects resources. 6.3 Hence, it is very important to appraise each project before investment decision so that scarce resources are utilized in the best possible ways. 6.4 In other words, before allocation of resources for a particular project, the decision making authority must convince itself that the proposed project is the best and most economical way of achieving the desired objective (in terms of socio-economic benefits). 6.5 For this and for ensuring economic use of resources, we have to appraise each project very minutely from different angles.
6. Objectives of Project Appraisal 6.6 A Project Appraisal involves detailed pre-investment analysis of market & technical feasibility, financial soundness, economic desirability and, finally, measuring its investment worth. 6.7 The task aims mainly at ensuring that scarce resources are put to most effective use. 6.8 It requires the combined efforts of a team of persons from various disciplines such as engineers, financial analysts , economists, etc . working in close co-ordination .
10.3 IRR (Internal Rate of Return) if IRR > r ACCEPT
if IRR < r REJECT
if IRR = r AMBIGUOUS
r = MARKET RATE OF INTEREST
11. The basic difference between Financial Appraisal &Economic Appraisal
12. Types of Project Appraisal 12.1 Financial / Commercial Appraisal 12.2 Economic Appraisal 12.3 Technical Appraisal 12.4 Social Appraisal.
13.1 It involves comparison of costs and benefits.
13.2 Objectives of a project Appraisal are needed because of limited resources, allocation of resources, investment analysis, etc.
13.3 It involves Market, Technical, Financial, Management, Economic and Environment Feasibilities.
13.4 It entails measurement of investment worthiness.
13.5 Methods of calculation of profit worthiness is highly essential.
13.6 Acceptability criteria are needed.
13.7 Differences between Financial and Economic Analysis's and required.
13.8 Finally, a project is appraised for investment.
14. Farewell Call:
14.1 There is a widespread concern that adverse environmental effects of economic activities will seriously affect both the present and the future welfare of people in less developed countries, and that the present project appraisal practices do not adequately address the issues.
14.2 It is necessary to use the idea of sustainable development in project appraisal with the help of cost-benefit analysis methodology.