Chapter 3 Project Appraisal Although, we are familiar with tools such as Gantt chart, PERT, CPM, IRR, NPV and others associated with project management. Yet when it comes to real project scenario, we find practical problems which could bring deviations. ‘This is not to suggest that the tools and techniques are inadequate, but assumptions on which the project reports are prepared are either invalid or unrealistic. A review of the Ministry of Programme Implementation has shown that about 70% of project time or cost overruns are due to unrealistic assumptions at the project formulation stage. herefore necessary to pay attention to this, often overlooked, but vital aspect of project formulation. Project appraisal is the process of analy. ofa project proposal with a view to financing their costs. Project appraisal enables to take a decision on investment with long (erm effects. During the appraisal stage, measurement of costs and benefits are difficult as these are spread over a long term with high degree of "uncertainty. The figure below shows types of appraisal generally required for a project ing the technical feasibility and economic viability Technical Economical Social PROJECT APPRAISAL Financial Legal Institutional Commercial 66Meanings of Project Appr: Technical Appraisal Determines whether the technical parameters are soundly conceived, realistic and technically feasible. Technical feasibility analysis is the systematic gathering and analysis of the data Pertaining to the technical inputs required and formation of conclusion there from, ‘The availability of the raw materials, equipment, hard/software, power, sanitary and sewerage services, transportation facility, skilled man power, engincering facilities, maintenance, local People etc., depending on the type of project are coming under technical analysis. TI feasibility analysis is very important since its significance lies in planning the exercises, documentation process, risk minimization process and to get approval. Checklist + Physical scale + Technology used & Type of equipments & Suitability conditions + How realistic is the implementation schedule - Labour intensive method or others + Cost estimates of Enginecring Data + _Bscalation are taken care of or not + Procurement arrangement - Cost of operation & Maintenance ~ Necessary raw material & Inputs Potential impact of project on human & physical Environment nelal Appraisal To determine whether the financial costs and returns are properly estimated and whether the project is financially viable. Following minimum details are determined in the financial appraisal 1, Total Cost 2, O&M Expenditure 3. Opportunity costs 4. Other costs 5. Retums on Investment over project life 6. NPV 7. CBR 8. IRR Institutional Appraisal To determine whether the implementing agencies as identified in the report are capable for cffective implementation, monitoring, and evaluation of the scheme. Managerial competence, integrity, knowledge of the project, the promoters should have the knowledge and ability to plan, implement and operate the entire project effectively. The past record of the promoter {o be appraised to clarify their ability in handling the projects. Chee 67+ Whether the entity is properly organised do the job + Strength to use capability and take initiatives to reach the objectives + Openness to new ideas and willingness to adopt long term approach to extend over several projects The demand and scope of the project among the beneficiaries, customer friendly process and preferences, future demand of the supply, effectiveness of the selling arrangement, latest information availability on all areas, government control measures, etc. The appraisal involves the assessnient of the current demand/market scenario, which enables the project to get adequate demand, Estimation, distribution and advertiscment scenario also to be here Environmental Appraisal To sce any detrimental environmental impacts and how o minimise the impacts. [Link] appraisal concerns with the impact of environment on the project. The factors include the water, air, land, sound, geographical location etc, Economie Appraisal How far the project contributes to the development of the seetor, industrial development, social development, maximizing the growth of employment, etc. are kept in view while evaluating the economic feasibility of the project, Legal Appraisal tion, title To [Link] whether the project satisfies the legal issues related to land acq deed, environmental clearance ete. Project Appraisal - A Methodology Approach. The cost and returns, estimated after discussions with concemed Engineers, are projected for its life period of ten to fifteen years for which the loan is taken, ‘The Net Present Value (NPV) shows the percentage recovery of the capital cost within its project life period. ‘The Internal Rate of Return (HR) indicates the percentage returns of the individual projects over a fixed period for town. Once the cost estimate is made and the cost of construction is known, the annual returns are assessed. With the expenditure, construction period and the returns per annum are known, the financial appraisal of the project-including the annuity of loan repayment is assessed. Depending on the financial viability of the project. Appraisal involves a carefull checking of the basic data, assumptions and methodology used in Project preparation, an in-depth review of the work plan, cost estimates and proposed financing, an assessment of the project's organizational and management aspects, and finally the viability of project, It is mandatory for the Project Authorities to undertake project 68