PROJECT APPRAISAL

• PROJECT APPRAISAL
  PROJECT MANAGEMENT
  ENTREPRENEURSHIP
  DR SHASHI AGGARWAL
• MEANING OF PROJECT APPRAISAL

1. PROJECT APPRAISAL IS A PROCESS OF DETAILED EXAMINATION OF SEVERAL ASPECTS OF A GIVEN PROJECT BEFORE RECOMMENDING THE SAME
2. IS THE STRUCTURED PROCESS OF ASSESSING THE VIABILITY OF A PROJECT OR PROPOSAL BEFORE COMMITTING RESOURCES TO IT
3. IT IS A TOOL THAT COMPANY’S USE FOR CHOOSING THE BEST PROJECT
4. THE INSTITUTION THAT IS GOING TO FUND THE PROJECT HAS TO SATISFY ITSELF BEFORE PROVIDING FINANCIAL ASSISTANCE FOR THE PROJECT’
5. THE LENDING INSTITUTION HAS TO ENSURE THAT THE INVESTMENT ON THE PROPOSED PROJECT WILL GENERATE SUFFICIENT RETURN ON THE INVESTMENT MADE AND THAT LOAN AMOUNT DISBURSED FOR THE IMPLEMENTATION OF THE PROJECT WILL BE RECOVERED ALONG WITH THE INTEREST WITH IN REASONABLE PERIOD OF TIME.

• DEFINITION
• PRE INVESTMENT ANALYSIS OF PROJECT WITH A VIEW TO DETERMINING THE OVERALL FEASIBILITY AND MEASURES ITS INVESTMENT WORTH WHICH PROVIDES A COMPREHENSIVE REVIEW/ASSESSMENT OF ALL ASPECTS OF PROJECT THAT LAYS THE FOUNDATION FOR IMPLEMENTATION AND EVALUATION WHEN IT IS COMPLETED.
• OBJECTIVES OF PROJECT APPRAISAL

1.     ASSESSMENT OF PROJECT IN TEMRS OF ITS ECONOMIC,SOCIAL AND FINANCIAL VIABILITY

2.     DECIDE TO ACCEPT OR REJECT A PROJECT

3.     IT IS A TOOL TO CHECK THE VIABILITY OF PROJECT PROPOSAL

• PROJECT APPRAISAL

1. ECONOMIC APPRAISAL :- INDICATE PRIORITY USE
2. TECHNICAL : INVOLVE SCALE OF THE PROJECT AND THE PROCESS ADOPTED
3. ORGANIZATION : SUITABILITY IS EXAMINED
4. MANAGERIAL : ADEQUACY AND COMPETENCY ARE CRITICALLY SCRUTINIZED
5. OPERATIONAL CAPABILITY OF THE PROJECT
6. FINANCIAL : DETERMINES OF THE FINANCIAL VIABILITY FOR SOUND IMPLEMENTATION AND EFFICIENT OPERATION

• ECONOMIC ASPECT
• FUNDAMENTAL AS THEY LOGICALLY PRECEDE ALL THE ASPECTS
• BANK WILL NOT FINANCE A PROJECT UNLESS IT  STANDS ASSURED THAT PROJECT REPRESENTS HIGH PRIORITY USE IF REGION’S RESOURCES.
• ECONOMIC ASPECTS:

1.     INCREASED OUTPUT

2.     ENHANCED SERVICES

3.     INCREASED EMPLOYMENT

4.     LARGER GOVERNMENT REVENUES

5.     HIGHER EARNING

6.     HIGHER STANDARD OF LIVING

7.     INCREASED NATIONAL INCOME

8.     IMPROVED INCOME DISTRIBUTION

• ORGANIZATION ASPECTS
• THE FINANCIAL INSTITUTION PLACES PARTICULAR STRESS ON THE NEED FOR AN EFFICIENT ORGANIZATION AND RESPONSIBLE MANAGEMENT FOR THE  EXECUTION OF THE PROJECT.
• THE OBJECTIVE IS THIS ASPECT OF APPRAISAL IS TO MAKE SURE THAT THE PROJECT IS ADEQUATELY CARRIED OUT AND THAT A LOCALLY STAFFED INSTITUTIONS,CAPABLE OF CONTRIBUTING EFFECTIVELY TO THE DEVELOPMENT
• ORGANIZATIONAL ASPECT
• MANAGERIAL ASPECTS
• MANAGEMENT IS THE MOST IMPORTANT FACTOR THAT CAN EITHER MAKES A PROJECT A SUCCESS OR FAILURE
• A GOOD PROJECT MAY FAIL IN THE HANDS OF A POOR MANAGEMENT
• THE AMERICAN INSTITUTE OF MANAGEMENT WHICH CONDUCTED AN APPRAISAL OF MANAGEMENT AS  METHOD OF ASCERTAINING A COMPANY’S HEALTH AND PROSPECTS HAS ASSIGNED A WEIGHT OF ONLY 6% OF TH TOTAL EARNINGS AND GREATER WEIGHT 22% ASSIGNED TO QUALITY OF THE EXECUTIVE AND THE BOARD OF DIRECTORS OF A COMPANY AND ITS CORPORATE STRUCTURE GETS A WEIGHT OF 13%
• MORE EMPHASIS ON MANAGEMENT APPRAISAL
• MANAGERIAL ASPECTS
• TWO THINGS ARE EXAMINED :

1. CAPACITY OF THE PROJECT TO REPAY THE LOAN WITH INTEREST WITH IN THE STIPULATED PERIOD OF TIME
2. ALSO OBSERVE THE WILLINGNESS OF THE BORROWER TO REPAY THE LOAN

·         CAPACITY TO REPAY IS ASSESSED BY TECHNICAL,COMMERCIAL AND FINANCIAL APPRAISAL

·         WILLINGNESS TO PAY IS ASSESSED BY WAY OF MANAGEMENT APPRAISAL

·         MANAGEMENT APPRAISAL IS PURELY QUALITATIVELY AND SUBJECTIVE IN NATURE.

·         MANAGEMENT APPRAISAL DEPENDS UPON THE CONSTITUTION OF THE ENTERPRISE

·         INTEGRITY,FORESIGHTEDNESS,LEADERSHIP QUALITIES,INTERPERSONAL RELATIONSHIP,TECHNICAL AND FINANCIAL SKILL,COMMITMENT,PRESERVEANCE ARE THE PARAMETERS ARE TO BE STUDIED.

• TECHNICAL APPRAISAL

1. SELECTION OF PROCESS /TECHNOLOGY :THE CHOICE OF TECHNOLOGY DEPENDS UPON THE QUALITY AND QUANTITY OF THE PRODUCT PROPOSED TO BE MANUFACTURED. IF THE QUANTITY IS REQUIRED TO BE PRODUCED ON LARGE SCALE,MASS PRODUCTION TECHNIQUE. IF POSSIBLE LATEST TECHNOLOGY.
2. SCALE OF OPERATION: SIZE OF THE PLANT AND DEPENDS ON THE MARKET FOR THE OUTPUT OF THE PROJECT
3. SELECTION OF RAW MATERIALS
4. TECHNICAL KNOW HOW
5. COLLABORATION AGREEMENT
6. PRODUCT MIX: IF CUSTOMERS DIFFER IN THEIR NEEDS AND PREFERENCES. VARIATION IS SIZE AND QUALITY OF PRODUCTS ARE NECESSARY TO SATISFY THE VARYING NEEDS AND PREFERENCES OF CUSTOMERS
7. TECHNICAL APPRAISAL
8. SELECTION OF PLANT AND MACHINERY
9. PLANT LAYOUT
10. LOCATION OF THE PROJECT
11. PROJECT SCHEDULING AND IMPLEMENTATION : LAND ACQUISITION,SITE DEVELOPMENT,CONSTRUCTION OF BUILDING ETC,PLACING ORDER AND ERECTION OF MACHINERY AND COMMISSIONING OF PLANTS AND TRIAL RUNS

• MARKET /COMMERCIAL ASPECTS

1. OCCUPIES A PRIME PLACE IN PROJECT APPRAISAL
2. DEMAND FOR THE PRODUCT
3. SUPPLY POSITION FOR THE PRODUCT
4. DISTRIBUTION CHANNEL
5. PRICING OF THE PRODUCT
6. GOVERNMENT POLICIES

• FINANCIAL ASPECTS
• GENERALLY TO ENSURE ITS INITIATION OF THE FINANCIAL CONDITION FOR THE SOUND IMPLEMENTATION AND EFFICIENT OPERATION
• EVALUATES THE CAPACITY OF REVENUE PRODUCING INVESTMENT FROM THE STANDPOINT OF THE ENTITY,
• THE FINANCIAL ASPECT OF THE PROJECT APPRAISAL COVERS THE FOLLOWING AREAS :

1. COST  OF THE PROJECT AND MEANS OF FINANCING
2. CASH FLOW ESTIMATES
3. PROJECTED BALANCE SHEET

• FINANCIAL APPRAISAL
• COST OF THE PROJECT AND MEANS OF FINANCING :-

1. LAND AND SITE DEVELOPMENT
2. PLANT AND MACHINERY
3. TECHNICAL KNOW HOW FEES
4. MISCELLANEOUS FIXED ASSETS
5. PRELIMINARY EXPENSES
6. PROVISION FOR CONTINGENCIES
7. INTEREST DURING CONSTRUCTION
8. MARGIN MONEY FOR WORKING CAPITAL

• AFTER ESTIMATING THE COST OF THE PROJECT ,SOURCES OF FINANCE THAT IS IN FORM OF OWNED FUNDS AND BORROWED FUNDS
• CASH FLOW ESTIMATES: PROFIT IS THE MOST IMPORTANT SOURCE OF INFLOW AND PROFIT DEPENDS UPON HOW ACCURATE THE COST OF PRODUCTION AND SALES ESTIMATES
• PROJECTED BALANCE SHEET: REPORT THE EFFECT OF THE PLAN OF OPERATIONS ON THE ASSETS.LIABILITIES AND CAPITAL. MORE ATTENTION IS TO BE FOCUSED ON THE MOVEMENT OF THE FUNDS AND ALSO AN ALYSE THE IMPACT OF THE LOAN GRANTED BY THE FINANCIAL INSTITUTION ON THE ASSETS AND LIABILITIES OF THE BUSINESS UNIT.