considerations in appraising a project


In the project cycle, preliminary establishment precedes the project appraisal proposed to be achieved through implementation of a project. The appraisal of an investment proposal needs to examine the following aspects:

v     Demand and supply analysis to determine the gap and whether product specifications, market plan and delivery system are soundly conceived, for preferably through market surveys and/or other reliable forecasts of demand and supply of products/services proposed to be produced by project under consideration. In the case of an export oriented pr4oject export potential of products/services would need to be assessed.

v     Technical analysis to determine whether the specifications of technical parameters chosen realistic and optimal.

v     Organisational and managerial aspects to determine whether the Organisation has the managerial capability to implement and operate the project, The preparedness to execute the project including implementation plans, “ PERT/CPM” chart/activity taking in to account the projects that are already being implemented by the concerned agency and resources required for implementing the project.

v     Environmental aspects to ensure that the environment related issues such as protective measures, rehabilitation, resettlement etc as may be required as per environmental guidelines have been fully covered in the project cost estimates.

v     Financial analysis to determine whether financial costs are properly estimated, funding is assure and the project is financially viable.

v     Economic analysis to determine whether the project is worthwhile from the point of view of the economy as a whole.

v     Sensitivity / Risk analysis to assess the impact of different variables of input and output on the viability of the project is carried out which can suggest potential management activity to reduce overall project risk.



 

    Capital investment decisions are a firm’s decisions to acquire long term assets. They involve large capital expenditure, and have considerable effect on the firm’s growth and profitability. The firm’s investment decisions would generally include expansion, acquisition, modernization and replacement of the long-term assets.

    

The three steps involved in the evaluation of an investment or project.

1.      Estimation of cash flows.

2.      Estimation of required rate of return.

3.      Application of a decision rule for making the choice.

An analysis of cash flows is useful for short run planning firm needs sufficient cash to pay debts maturing in the near future, to pay interest and other expenses and to pay dividends to shareholders. The firm can make projections of cash inflows and outflows for the near future to determine the availability of cash. This balance can be matched with the firm’s need for cash during the period and accordingly arrangements can be made to meet the deficit or invest the surplus cash.






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