Appraisal- 1

Project and Environmental Analysis - Some Basic

Points
The new era of GLOBALISATION AND ECONOMIC
LIBERALISATION provides ample opportunities for
growth which may be encashed through prudent
investment strategy. A firm must take timely actions for
adapting itself to the changed environment.
A capital project needs to be launched by:

 Analysing past environment

 Studying existing environment

 Forecasting future environment

An environment is defined to mean the conditions,
prevailing at a particular point of time, which influence
the process of initiation and development of a capital
project.
 Business Environment
Which is reflected by:
- State of technology
- Availability of resources
- Rate of inflation
- Economic policies of Government
- Commercial laws
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 Social Environment
Which is reflected by:
- Awareness of Social responsibility
- Status of consumers' preferences
- Increased customers/investors protection
- Status of education
- Growth in population and it's distribution
 Political Environment
Which is reflected by:
- Attitude of Government towards liberalisation
- Political stability
- Security
The inherent characteristic of an environment is:
CHANGE
The environmental Changes:
Provide -
Opportunities
Create -
Complexities
Pose
-
Threats
Add
-
Risk
The complexity and risk in a particular project is
reflected in:
 Resource constraint
 Longer time period involved (i.e. Longer
Gestation
period)
 Increased dependence
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 In order to meet objectives in a situation of violet
and rapid changes in the socio-economic-political
environment, an organisation needs to build up
strengths and capability to convert threats into
opportunities. It needs to be vigilant, analytical in
approach, and initiative- taking to meet challenges
posed by dynamic environment. An analysis of external
environment would throw light on:

 The strategies and plans of growth of

competitors.

 Existing government policy.

 The scope for growth and an improvement in

the
market position.
An in depth analysis would show the financial,
technological, marketing and managerial strengths of
the company, and this would help in formulation of
suitable investment strategy to meet objectives of the
organisation. The impact of government plans and
policies on the environment should be ascertained, and
the inter-linkage between government plans and
business plans of the company should be established.
This is shown in he Figure I below:
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