Project appraisal is an as" ASSESSMENT of the project in seven steps. Project appraisal is carried out in two main steps namely internal and external appraisal. The other steps a technical,economical ,social ,political, environmental,financial commercial ,administrative

1. Project Appraisal 1
Critical examination of the project from all aspects is
called appraisal.
Analysis of prospective costs and benefits that leads to
desirability for committing resources.
It is carried out at two stages:
■ Internal Appraisal
■ External Appraisal

2. ASPECTS OF PROJECT APPRAISAL 2
Social Aspects
Economic Aspects
Environmental Aspects
Financial Aspects
Administrative/Management Aspects
Commercial Aspects
Technical Aspects

3. Preliminary Steps 3
Read the document thoroughly
Check the completeness of the document
Are the PC-I & PC-II prepared on prescribed format
Cost estimates are attached?
Accompanied by drawings, maps etc.
Are the PC-I/PC-II provided in sufficient numbers
Check Signatures of concerned officers
Determine the sector to which the scheme will contribute
Determine the project’s contribution to the sector objectives
Mark problems mentioned in the document
Mark objectives mentioned in the document
Compare marked problems with the objectives for
establishing cause and effect relationship

4. TECHNICAL ASPECTS 4
The technical aspects related to the following sectors as
well as the social aspects have already been covered
under the project document.
Engineering;
Agriculture
Forestry
Fisheries;
Health;
Education;
I.T Infrastructure
Social
Administrative/Management

5. COMMERCIAL ASPECTS
•Arrangements for
supply projects output.
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of inputs and marketing the
• Effective demand at a reasonable price.
• Where will the products be sold?
• Is the market large enough to absorb the new production
without affecting the price?
• If the price is likely to be affected, by how much? Will the
project still be financially viable at the new price?
• Is the product for domestic consumption or for export?

6. FINANCIAL ASPECTS
• Analysis encompass the financial effects of the
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proposed project.
•Relates purely
generation.
with finances and revenue
• Based on internal rate of return (IRR)

7. ECONOMIC ASPECTS
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• Determination of the projects contribution
to the development of economy.
• Justification of investing scarce resources
to the project.

8. ENVIRONMENTAL ASPECT
•A specific concern is that those who enjoy
the fruits of economic development today may
be making future generations worse off by
excessively degrading the earth’s resources and
polluting the earth’s environment.
•A general principal of sustainable
development is that current generations
should meet their needs without compromising
the ability of future generations to do the
same.
•Common applications include valuation of
damage due to soil erosion, deforestation ,air
and water pollution. For environmentally
related health risks, income foregone because
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9. Concept of Time Value of
Money
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• The cost & benefits of a project occur at different points
of time depending upon the life of the project.
• The value of money changes over time, as such value of
costs & benefits would depend upon the time of their
occurrence.
• To compare the value of resources at different points of
time, apply the compounding and discounting techniques.

10. Presentation of Results
Discounted Analysis:
1. Benefits Cost Ratio (BCR)
The ratio of the present value (at an appropriate discount
rate) of benefits and costs. A project is accepted if BCR>1.
2. Net Present Value (NPV)
The difference between the present value(at an appropriate
discount rate) of benefits and present value of costs. A
project is accept if NPV>0 and rejected if NPV<0.
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11. 3. Internal Rate of Return (IRR)
That IRR is a discount rate which just equates discounted
benefits to discounted costs. If IRR exceeds from the discount
rate, the project is accepted (otherwise rejected).
IRR = Lower + Difference x ( NPV at Lower Discount Rate)
discount
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between two (Sum of NPVs at two Discount Rates (signs
ignored)
rate discount rates

12. UNDISCOUNTED ANALYSIS
Break-Even Analysis:
The break even point is the minimum capacity
utilization beyond which a firm starts making profit from its
operation.
PAY-BACK PERIOD
The pay back period is the length of time required to recover the
investment.
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13. LIMITATIONS OF THE PROJECT APPRAISAL
-Quality of project analysis depends on the quality of data
and forecast made about costs and benefits. Over-
estimation of benefits and underestimation of costs is quite
common to get the project approved.
-In view of the uncertainty about the future it is impossible to
quantify completely the risks.
-Project analysis is a partial analysis where it is assumed
that project will not change the macro economic variables.
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- It is a useful device where benefits can be quantified.
- Project analysis is useful when there is a definite starting
and finishing points.

14. - Project analysis is a useful tool only if major part of
benefits are quantifiable. In cases where non quantifiable
externalities (e.g. job creation, regional development,
development of skill, transfer of technology) are
substantial, project analysis becomes less formal.
- There is a conflict of evaluation in project analysis.
Political, social, economic, financial valuation, most often
are conflicting.
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