PROJECT APPRAISAL

• Simply speaking, project appraisal means assessment of a project.

• Project appraisal is made for both proposed and executed projects. In case of former, project appraisal is called ‘ex-ante analysis’ and in case of latter ‘post-ante analysis’.

• Here project appraisal relates to a proposed project.

• Project appraisal is a cost and benefit analysis of different aspects of proposed project with an objective to adjudge its viability.

• A project involves employment of scarce resources.

• An entrepreneur needs to apprise various alternative projects before allocating the scarce resources for the best project.

• Project appraisal helps to select the best project among available alternative projects.

• For apprising a project, its economic, financial, technical, market, managerial and social aspects are analyzed.

• Financial institutions do project appraisal to assess its credit worthiness before extending finance to a project.

ECONOMIC ANALYSIS• Under economic analysis, the aspects highlighted include Requirements for raw material Level of capacity utilization Anticipated sales Anticipated expenses Probable profits• Business should have always a volume of profit clearly in view which will

govern other economic variables like sales, purchases, expenses and alike.

• The entrepreneur should calculate how much sales would be necessary to earn the targeted profit.

• Demand for the product will be estimated for anticipating sales volume.• Therefore, demand for the product needs to be carefully spelled out as

it is, to a great extent, deciding factor of feasibility of the project concern.

FINANCIAL ANALYSIS• Finance is one of the most important pre-

requisites to establish an enterprise.• It is finance only that facilitates an

entrepreneur to bring together the labour of one, machine of another and raw material of yet another to combine them to produce goods.

• In order adjudge the financial viability of the project, the following aspects need to be carefully anlysed:

Assessment of the financial requirement both fixed capital and working capital.

The level of activity of an enterprise expressed as capacity utilization need to be well spelled out.

MARKET ANALYSIS• Before the production actually starts the entrepreneur needs to

anticipate the possible market for the product.• Identify the target customers.• This is because production has no value for producer unless it is sold.• Knowing the anticipated market for the product to be produced

becomes an important element in every business plan.• The various methods used to anticipate the potential market. The

commonly used methods to estimate the demand for a product are Opinion polling method

Complete enumeration survey Sample survey Sales Experience method Life cycle segmentation analysis : The sales of the product will be anticipated on

the bases of the product at different stages of a product life cycle.

TECHNICAL FEASIBILITY• Technical feasibility implies to mean the adequacy

of the proposed plant and equipment to produce the product within the prescribed norms.

• Availability of technical knowhow• If project requires any collaboration, then the

terms and conditions of the collaboration should also be spelt out comprehensively and carefully.

• Entrepreneur should aware of changing rules and regulations regarding technical collaboration.

• While assessing the technical feasibility of the project, the following inputs covered in the project

• Availability of land • Availability of inputs like water, power, transport,

communication facilities etc.• Availability of servicing facilities like machine shops,

electric repair shop etc.• Coping with anti pollution law.• Availability of workforce as per required skill and

arrangements proposed for training in-plant and outside.• Availability of required raw material as per quantity and

quality.

MANAGEMENT COMPETENCE

• Management ability or competency plays an important role in making an enterprise a success or otherwise.

• Strictly speaking, in absence of managerial competence, the projects which are otherwise feasible may fail. On the contrary, even a poor project may become successful one with good managerial ability.

Financial needs of an enterprise

Financial Needs

Based on Permanence

Fixed Capital

Working Capital

Based on Period of use

Long term Capital

Short term Capital

SOURCES OF FINANCE• INTERANL SOURCES: Under this source funds

are raised from within the enterprise. Owners capital Deposits and loans given by the owner , the

partners, the directors. Personal loan taken by entrepreneur on his

personal assets. Retention of profits. Conversion of some assets in to funds.

• External sources: Funds raised from other than internal sources are from external sources.

Deposits or borrowings from relatives and friends and others.

Borrowings from the banks for working capital purpose.

Term loans from financial institutions. Hire purchase or leasing facility fro NSIC AND State

small industries corporation.

• If we combine both the sources together these can be broadly classified as

Personal funds or Equity capital Loans from relatives and friends Mortgage loans Term loans Subsidies

INDUSTRIAL ESTATES• Industrial estate is a place where all the requisite

facilities like land, factory sheds, electricity, transport, post office, bank etc. are provided by the government to the entrepreneurs, to establish their enterprises there.

• Industrial estate programme was initiated by the government in 1955 to remove the difficulties of small scale industries in acquiring suitable factory accommodation and other infrastructural facilities.

OBJECTIVES• To provide infrastructural facilities to the entrepreneurs.• To assist in the setting up and development of small

scale industries.• To facilitate the process of dispersal of industries to the

rural and backward areas.• To assist the ancillary industries in the townships

surrounding major industrial undertakings, both in public and private sectors.

• To assist in the development of entrepreneurship by creating healthy conditions for the smooth working of various enterprises.