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Project Appraisal
Unit 4
Sunjay Lutchman
June2012
Resource /ProjectOptions
Assessment
Project
FeasibilityAnalysis
ProjectDevelopment
ProjectProjectFinancingFinancing
ProjectPlanning
Pre-Development Development Construction/Operations
ProjectOperations
2
2- to 5- year period
ProjectConstruction
Project Development Process
The purpose of Project Appraisal is to ascertain whetherthe
project will be sound technically, economically,financially and
managerially and ultimately viable as acommercial proposition.
The appraisal of a project will involve the examination of:
a) Technical Feasibility - To determine the suitabilityof the
technology selected and the adequacy of the
technical investigation, and design.
Project Appraisal
b) Economic Feasibility - To determine theconduciveness of
economic parameters to setting upthe project and their impact on
the scale ofoperations.
c) Financial Feasibility - To determine the accuracy ofcost
estimates, suitability of the envisaged patternof financing and
general soundness of the capitalstructure.
d) Commercial Viability - To ascertain the extent
ofprofitability of the project and its sufficiency inrelation to
the repayment obligations pertaining toterm finance.
Project Appraisal
e) Managerial Competency - To ascertain that
competent men are behind the project to ensure itssuccessful
implementation and efficient managementafter commencement of
commercial production.
A project should also be examined, whereverappropriate, from the
point of view of its value to thenational economy in terms of
socio-economic benefitslike generation of employment opportunities,
foreignexchange earnings, the quantum of import
substitution,etc.
Project Appraisal
The first step in Project Appraisal is to find out
whether the project is prima facie acceptable byexamining
salient features such as:
The background and experience of the applicants,particularly in
the proposed line of activity
The potential demand for the product
The availability of the required inputs, utilities andother
infrastructural facilities
Whether the project is in keeping with the priorities,if any,
laid down by the Government.
Project Appraisal
7/27/2019 6. Unit 5 Handouts - Appraisal of Projects
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The original application may not contain all the basicdata /
information. In such cases, it may benecessary to interview the
applicants and elicit all thenecessary data / information with a
view to formingan overall idea about the general feasibility of
theproject.
After satisfying itself about the prima facieacceptability of
the project, the Branch should callfor from the promoters, an
Application, containingthe following essential data / information,
such as:
a) Particulars of the project - Report furnishingdetails of the
technology, manufacturing process,availability of construction /
production facilities,etc.
Project Appraisalb) Estimates of cost of the project detailing
the
itemised assets acquired / to be acquired, and WCmargin
requirements.
c) Details of financing promoters contribution,Share Capital to
be raised by public issue, thecomposition of the capital, Term
Loans, DPGs,Foreign, etc.
d) Working Capital requirements at the peak level.
e) Project Implementation Schedule.
f) Organisation - Board of Directors and the keypersonnel to be
used.
Project Appraisal
g) Demand Projections - based on the market surveyreport.
h) Estimates of Sales, CoP and profitability.
i) Projected Annual Financial Statements (I/S andB/S).
j) Projected Cash Flow Statement.
k) Proposed Amortisation schedule - repaymentprogramme.
l) Other material documentations e.g. consents fromthe
Government, etc.
Project Appraisal
An inspection of the project site (or factory in thecase of
existing units) is a must.
Each project has to be examined in properperspective having due
regard to its nature, size andscope.
Although the basic techniques employed forappraising the
viability of various projects are moreor less the same, there could
be no standard or
uniform approach for appraising all projects.
Project Appraisal
The ultimate objective of the appraisal exercise is to
ascertain the viability of a project with a view toensuring the
repayment of the borrowers obligationsunder the Banks term
assistance.
Therefore, it is not so much the quantum of theproposed term
assistance as the prospects of itsrepayment that should weigh with
the Branch whileappraising a project.
Project Appraisal
In project appraisal, nothing should be assumed or
taken for granted. All the data / information should be checked
and,
wherever possible, counter-checked through inter-firm and
inter-industry comparisons.
It should be borne in mind that Healthy scepticismis a cardinal
virtue in project appraisal.
Project Appraisal
