Project Appraisal in PM

1. PROJECT SELECTION CRITERIA
By,
Prof. D. C. Dharwad
Asst. Prof., Civil Engg. Dept.
Sanjivani College of Engg. Kopargaon

2. Project Selection
 Project selection is the act of choosing a project from
among commentating proposals.
 Project selection is the process of evaluating individual
projects or groups of projects, and then choosing to
implement some set of them so that the objectives of
the parent organization will be achieved.
 Managers often use decision-aiding models to extract
the relevant issues of a problem from the details in
which problem is embedded.
 Models represent the problem’s structure and can be
useful in selecting and evaluating projects.

3. Criteria
1. Cost / Benefit ratio
2. Net Present Value or NPV
3. Internal Rate of Return
4. Payback Period
5. Break Even Analysis

4. 1. Cost / Benefit ratio
This is ratio between the Present Inflow value
and Present Outflow value.
Present Inflow value is the cost invested in any
project while the out flow value is the project’s
value returns.
Preferred projects are those which have more
Benefit/Cost ratio or lower cost/ Benefit Ratio.

5. 2. Net Present Value or NPV
 This is the difference between the cash
inflow’s present value and cash out flow’s
present value.
This NPV must be positive at all the times.
If there are multiple projects, choose one with
higher NPV.

6. 3. Internal Rate of Return
This is the rate of interest where NPV is zero.
The state gets attained when present out flow
value equals present inflow value.

7. 4. Payback Period
This is the ratio of total cash per period.
In other words, it is the time required to
recover the project’s investment.

8. 5. Break Even Analysis
 It is a financial tool that helps determine at
what stage a company , or a new service or a
product, will be profitable.
It is a financial calculation for determining the
number of products or services a company
should sell to cover its costs.
It is a situation where you are neither making
money nor losing money, but all your costs
have been covered.

9. Cost Benefit Analysis
It is a process by which organizations can
analyze decisions , systems or projects or
determine a value for intangible assets.
It is one more tool in PM. This is devised to
evaluate the cost versus the benefits in your
project proposal.

10. Objectives
 To have a systematic approach to figure out the
pluses and minuses of various paths through a
project, including transactions, tasks, business
requirements and investments.
 To determine if the project is sound, justifiable,
and feasible by figuring out if its benefits
outweigh costs.
To offer a baseline for comparing projects by
determining which project’s benefits are greater
than its costs.

11. Uses
To determine whether the project is in positive
zone, the cost and benefits are identified and
discounted to present value to ascertain the
viability.
To provide a basis for comparing the projects.
Cost- Benefit Analysis model helps business to
rank the projects according to their order of merit
and go for most viable one.
It is a useful tool for comparing and selecting the
best option.

12. Process
1. Define framework for analysis
2. Identify and classify costs and benefits
3. Drawing a Timeline for expected costs and
revenue
4. Monetize costs and benefits
5. Discount costs and benefits to obtain present
values
6. Compute net present values.

13. Thank
You