Project Analysis and Selection-PPM 8122-All Notes

PROJECT ANALYSIS AND SELECTION
COURSE CODE: PPM 8122
INTRODUCTION
When a project idea has been identified, it should be examined. This examination of the idea should
start with a preliminary project analysis. This preliminary analysis is a stepping stone towards a more
emphatic or full-blown feasibility study. This exercise is meant to assess the following
i. Whether the project is prima facie worthwhile to justify a feasibility study
ii. Whether the aspects of the project are critical to its viability and hence an in-depth
investigation.
Definitions:
Analysis
If the preliminary examination that the project is prima facie worthwhile, a detailed analysis of the
marketing, technical financial, economic and environmental aspects is done. In this case therefore,
project analysis is the gathering, preparing and summarizing of relevant information about
various project proposals or ideas which are being considered for further processing and
implementation. Based on the information generated through this analysis, it is easy to identify
various sets and types of costs and the benefits which are likely to be associated with the project
should it be selected for further planning and implementation.
Prima Facie
Prima facie viability Prima facie comes from a Latin expression that means “on its first encounter or
at first sight” or "at first appearance". In projects prima facie thus implies the possibility that the
project idea has been found to be a promising one but one that has not yet been subjected to some
testing, examination to establish its true worth, the viability and possibility that it will solve the
existing problems.
Selection
This follows and sometimes overlaps the analysis. It has to do with a wide variety of
appraisal/review/judgment techniques to address how worthwhile a project is. It involves discounting
and non-discounting methods such as payback period methods and the discounting methods such as
Net Present Value, cost benefit analysis among other appraisal techniques.
Sources of viable project ideas
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Viable project ideas can emanate from different sources. A business idea may start from the
technological advancement or willingness to provide diverse products and services for the already
identified market. This may also be due to the need to apply acquired competence to offer a product
or service which can satisfy unmet needs and serve a market where there is demand of the goods and
services. It could also come from the analysis of the existing industries as well as their inputs and
outputs, trade fairs, among others.
Development or community project ideas may also emanate from diverse sources. These may
include: unmet community or social needs, through research, new ways in technology, innovation,
sacred cow projects (where leaders may just decide to come up with project in their own areas) among
other sources.
Examples of useful project analysis and selection techniques are enlisted and discussed in the
subsequent section in this course. It is important to note that this course is structured in a manner that
details the various preliminary project analysis, the in-depth analysis and then the selection
techniques.
PRELIMINARY ANALYSIS OF PROJECT IDEAS

This is the initial testing of the generated project idea to establish whether it actually has prima facie
worth. It is not advisable to engage in any further analysis of a project idea before its initial and basic
worth has been identified. This examination of the idea may be conducted on a number of ideas to
establish their worth. Then the most suitable ones will be subjected to further analysis and the
most promising one is then selected for further processing. This should involve the following
assessments:
1. Compatibility with the organization focus areas
The project idea must be compatible with the focus areas of the organization that intends to do the
project. This must involve the interests, capacity and willingness to venture into the area that the idea
points to. E.g. education, water and sanitation, supporting small and medium enterprise (SMEs) etc.
The training and abilities of the staff or the vision bearer is important to ensure. The project idea must
also offer a good opportunity for the growth and high returns on the invested capital.
2. Availability of inputs
The required resources and inputs must be available. It is important to assure availability of such
resources at meaningful levels. The project owner must ask questions which must assure
him/her/them of constant flow of needed resources. It is necessary to ask questions on whether the
Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so
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required capital is within accessible and manageable levels, whether it is easy to acquire the necessary
technology, whether raw materials can be acquired locally and at reasonable price. If raw materials
have to be imported, it is important to know whether there would be problems in the importation. It
is also advisable to answer questions related to available sources of power, its reliability and cost.
3. Compatibility with government priorities and regulations
The project idea must be feasible as far as national goals and regulations are concerned. Questions
to be asked are such as: Are there negative environmental effects contrary to national
environmental laws? Is the project compatible with the national goals and priorities? Is it difficult
to get licenses and permits for the project to operate?
4. Adequate market
A project is meant to produce goods or services. Therefore, it is imperative to understand how readily
acceptable the goods or the services are in the available market. To judge the adequacy of the market,
the following aspects must be examined.
- Total present domestic market
- Available competitors and their market shares
- Entrants of new products and competitors in the market
- Price of the goods and services in relation to those of the competitors’ products
- Market entry barriers
- Customer/user satisfaction with the products etc.
5. Reasonable cost
The price of a product must enable the organization to gain profit and sustainability. It should not be
too low or too high. High price of the products pushes the consumers/users away to cheaper goods
and services from the competitors. The cost of a product must be determined by:
- Cost of raw materials
- Labour input costs
- General administration costs
- Selling and distribution cost
- Purchasing power of the targeted market segment etc
6. Acceptability of levels of risk

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Every organization must be capable of accepting certain levels of risks associated with the intended
project ideas. Every project has different categories of risk associated with it. Therefore, the
organization must establish whether it is possible to accept that type of risk. It must also strive to
establish whether it would tolerate certain levels of associated risks in the intended projects. This
calls for assessment of associated risk. The following aspects should be looked into:
- Technology changes
- Competition from substitutes
- Vulnerability to business cycles
- Government controls
- Changes in user specifications and preferences
PROJECT RATING INDEX

When the organization is evaluating a several project ideas, it is important to rate them to
ascertain that the project idea to be implemented-which is simply the best rational choice.
In this case the preliminary evaluation may be translated into a project rating index. The
steps to be followed as such as:
- Identify factors/aspects relevant for project rating
- Assign weights to these factors (the weights are supposed to reflect their relative
importance)
- Rate the project proposal/idea on various factors using a suitable rating scale (a 5-
point or 7-point scale)
- For each factor multiply the factor rating with the factor weight to get the factor
score
- Add all the factor scores to get the overall project rating index
Once the project rating index is determined, it is compared with a pre-determined hurdle value to
judge whether the project is prima facie worthwhile or not.

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Construction of a Rating Index

Factor Factor Rating Factor
Weight Score
VG G N P VP
5 4 3 2 1
Input availability 0.25 √ 0.75
Technical know-how 0.10 √ 0.40
Reasonableness of cost 0.05 √ 0.20
Adequacy of market 0.15 √ 0.75
Complementarity with other products 0.05 √ 0.20
Stability 0.10 √ 0.40
Consistency with government 0.10 √ 0.50
priorities
Rating Index 3.2
PROJECT ANALYSIS
Project analysis entails a number of assessment or studies to determine the worth of a given project
idea. It is important to note that each of the assessment is meant to determine a given aspect of the
viability of the project idea. In many instances, these assessments are referred to as Feasibility
Studies.
These studies assume such categories of analysis such as Market and demand analysis, Technical
analysis, financial analysis, economic analysis, environmental analysis, cultural feasibility, social
feasibility, managerial feasibility, safety feasibility, political feasibility among many others.
Project Feasibility Studies

Introduction and definition
A feasibility study is part of the process of project identification, preparation and selection. This
process involves the evaluating projects or several projects and then choosing the most promising
ones for further processing and implementation. In this case, therefore, project feasibility study is a
test where the viability or the worth of a project is determined.
A feasibility study can also be defined as the study of a proposed project to indicate whether
the proposal is enough to justify more detailed preparation. Why? Not all of the generated or
suggested project ideas should be subjected to feasibility studies. This is because it is a very

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expensive and a time-consuming exercise. Therefore, it becomes very necessary to just conduct
preliminary screening of project ideas. If the preliminary screening indicates that a given project
idea is not favourable, then it should be eliminated from the list of viable projects.
Feasibility studies in developing countries

In many developing countries, it is common to find that only a few project ideas are sufficiently
prepared and carefully selected. This happens due to a number of factors, such as:
- As noted above, feasibility studies or the preliminary analysis of project ideas is an expensive
set of activities.
- Some unwillingness to spend money on this process. It is believed that this process is
wasteful since many projects are likely to be assessed and then abandoned.
- There is lack of enough skilled people to perform these studies.
- Corruption

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Feasibility Study Schematic Diagram
WHY DO WE CONDUCT FEASIBILITY STUDIES?

Project feasibility are conducted with several intentions in mind. These are:
- To find out whether the project is justified or possible to be done.
- To suggest possible alternative solutions
- It pushes an organization to put its ideas on paper and to assess whether or not these ideas
are realistic/genuine
- To provide the management with enough information about whether the project will be
beneficial to the intended users and what the alternatives are so as that a selection can be
made in future from such alternatives

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- It provides information that is required by the decision makers. Informed decisions must be
made to ensure that the organization does not lose money on non-viable, non-feasible
projects.
- It leads to credible project selection.
The following are the aspects to be studied in the feasibility studies and reported in the project
feasibility report:
Market and Demand Analysis:

Market and demand analysis have the intention of establishing credible information about
administrative, technical and legal constraints if the proposed project. It is also intended to give
information about the distribution channels and marketing policies which are being used. It should
also show the consumer behaviour, specifications, motivations, attitude, preferences and
requirements. Consumption trends must also be established as well as the structure of competition,
cost and elasticity of demand among other aspects.
Mostly, market analysis is concerned with two questions: These are:
- What would be the aggregate demand for the proposed product/service in future?
- What would be the market share of the proposed project under the feasibility studies?
Technical Analysis:
The analysis of technical and the engineering aspects of the project should be done continuously
when a project is being formulated. Technical analysis is meant to determine whether the
prerequisites for the successful commissioning of the project have been considered and reasonably
good choices have been made with respect to location, size, process, etc. the most important questions
to be asked at this point are such as:
- Whether the preliminary test and studies have been done or provided for?
- Whether the availability of raw materials, electricity and other inputs has been established?
- Whether the selected scale of operation is the finest?
- Whether provisions have been made for the treatment of both solid and liquid waste?
- Whether the proposed site of the project is good enough?
- Whether the work schedules have been realistically drawn/done?
- Whether the chosen machines or equipment are suitable for the work? etc
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Economic Analysis:
This is also referred to as the social cost benefit analysis. It is concerned with judging a project from
the larger social point of view. In this evaluation/analysis, the focus is on the social costs and benefits
of a project which may often be different from its monetary costs and benefits. Questions to be asked
should include the following:
- What would be the contribution of the project towards the fulfilment of certain merits such
as self-sufficiency, employment and social order?
- What would be the impact of the project on the distribution of income in the society?
- What would be the impact of the project on the level of savings and investment in the
society?
- What are the direct economic benefits and costs of the project measured in terms of shadow
(efficiency) prices and not in terms of market prices?
Financial Analysis:
This type of analysis seeks to establish whether the proposed project would be financially viable in
being able to meet the burden of paying debt. It also seeks to know whether the proposed project will
satisfy the return expectations of those who provide capital. The issue of financial sustainability
could be addressed too though not mandatory at this point in time.
The financial aspects to be analyzed are:
- Means of financing the project
- Cost of capital
- Capital outlay
- Projected cash-inflows
- Projected profit
- Breakeven point
- Levels of risk
Environmental Analysis:
This has to do with testing the compatibility of the project with the environment where it is going to
be implemented. Currently, environmental concerns have achieved a great level of significance.
Environmental analysis should be done especially for big projects which might have big negative

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influence on the environment. These are such a big power stations, dams, irrigation projects,
manufacturing industries etc. These projects are likely to produce a lot of pollutants such as waste
water and solid waste, chemicals, dust etc.
The main questions which are necessary to be asked here are:
- What would be the cost of restoration of the environment to its original state or to some
acceptable limits?
- What is likely to be the damage caused by the project on the environment?
- What are the legal implications of any environmental damage to the project organization?
Legal Feasibility:
All projects must face legal scrutiny. This determines whether the proposed project conflicts with
arrangements of the law. All documents which have to do with registration, association and permits
must be attained. All these documents and exercises must legitimize the project. Documents such as
certificates of registration and operation permits etc must be achieved.
Schedule Feasibility
Sketch the major events in the life of the project by listing the timetable and deadlines for
completion of the various phases of the project. Demonstrate and assess the relationship of the
events/milestones and to keep the milestones and resources consistent.
……………………….
Social Feasibility
This should address the influence the proposed project might have on the social system in the
project location. The effect of the proposed project on the social status of the project participants
must be assessed to ensure compatibility.
Safety Feasibility
This refers to the analysis on whether the project is capable of being implemented and operated
with minimal adverse effects on the environment. Environmental Impact Assessment may be used
to determine safety of the feasibility of the projects.
Political Feasibility

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Political considerations dictate directions for proposed project. This is much more so in large
projects which have national outlooks/visibility with significant government inputs and political
consequences. Political factors may favour or oppose projects which are viable.
Political feasibility analysis requires an evaluation of the compatibility of the project goals with the
prevailing goals of the political system. Politicians must be seen to be favouring existence and
operation of a given project. Political goodwill must be assured if the project would survive
within a given political location.
Cultural Feasibility
Cultural feasibility deals with the compatibility of the proposed project with the cultural setup of
the project environment/location. The project alternatives are evaluated for the impacts it is likely to
have on the local and the general culture of the people. In labour intensive projects, planned
activities must be integrated with the cultural practices of the people. For example, the belief
systems and faith of the people must be seen to be respected and upheld by the project team and
the general participants in the project activities.
Managerial Feasibility
Managerial feasibility involves the capability of the infrastructure of a process to achieve and
sustain the process improvement. Management support, employee involvement and commitments
are key elements required to ensure managerial feasibility. The project team must assess the
project proposal and ascertain that the idea is likely to get full support and commitment of
the senior management. Should there be indications that the management does not fully
support the idea through staffing or other resources, then it is advisable to discard the idea
and adopt a different one.
Needs Analysis
Needs analysis is generally considered as the first undertaking of a feasibility study. It defines
the project outline and the client’s requirements. The project needs definition would provide the
desirables of the project, the purpose of the environmental requirements, rules and
regulations, standards, quality requirements including minimum quality requirements
allowed, expected sustainability, penalty clauses among others. The project feasibility should
also be able to identify the possibility that it would solve the client’s problems.
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SCOPE OF FEASIBILITY ANALYSIS

In general terms, the elements of a feasibility analysis for a project should cover the following:
Needs Analysis: This indicates recognition of the need for the project. The need may be affecting
the organization itself, another organization, the public users or the government. A preliminary
analysis/study is conducted to confirm and evaluate the need. This needs analysis may involve
asking such questions like:
- Is the need sufficient enough to justify the proposed project?
- Will the need still exist by the time the project is completed?
- What are the alternative means of satisfying the need?
- What are the economic, social, environmental and political impacts of the need?
Process Work: This has to do with the preliminary work itself, the steps, the procedure that is
followed/done to determine viability and also what may be required to satisfy the need.
Engineering and Design: This involves a detailed technical study of the proposed project. Written
quotations are obtained from suppliers and subcontractors as needed. Technology capabilities are
evaluated as they are needed. The product design should be done at this time. It is also a required
that we evaluate our production processes and capabilities as far as certain products or results are
concerned.
Technical analysis/study is meant to determine whether the prerequisites for the successful
commissioning of the project have been considered and reasonably good choices have been made
with respect to location, size, process, etc. the most important questions to be asked at this point are
such as:
- Whether the preliminary test and studies have been done or provided for?
- Whether the availability of raw materials, electricity and other inputs has been established?
- Whether the selected scale of operation is the finest?
(see page 9 for the Technical feasibility notes)
Cost Estimate: This has to do with estimating the cost of doing the project to an acceptable level of
accuracy. Levels around -5% to +15% are common at this level of the project plan. Both the initial
and the operating costs are included in the cost estimation. Estimates of capital investment and
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recurring costs should also be shown in the cost estimate document. Sensitivity analysis should be
done on the estimated cost to establish how sensitive the project plan is to the estimated cost
values.
Financial Analysis: This involves an analysis of the cash flow in the project. The analysis should
consider rates of return, inflation, sources of capital, payback periods, breakeven point and
sensitivity. This is critical analysis since it determines whether or not and when funds will be
available to the project. The project cash flow profile helps to support the economic and
financial feasibility of the project.
Project Impacts: This portion of the feasibility study provides an assessment of the impact of the
proposed project. Environmental, social, cultural, economic etc impacts may be some of the
factors that would determine how the public/users perceives/views the project.
All these factors would help to identify both the viability and the acceptability of the project.
Conclusion and Recommendations:

This feasibility study should end with the overall result of the project analysis. This may indicate
an endorsement/approval or disapproval of the project.
Recommendations on what should be included in this section of the feasibility report should
also be written. These may include recommended alternatives, changes or total rejection of the
proposed project.
PROJECT PROPOSAL WRITING AND FUNDRAISING

What is a proposal?
An action proposal is summary about one’s ideas about a project that one, a group of people or an
organization intends to do. It is a systematic documentation of one’s intention for an intervention.
It is a statement for establishing significance for a proposed activity.
Who can write a proposal?
Proposals are written by organizations since a lot of projects or research happen in their contexts.
Individuals also write proposals but they need organizational affiliation/relationship for them to be
considered credible.
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To whom do we write proposals?

The first target is the writer himself/herself so as to see the systemization of his/her thoughts.
Individuals or organizations also write proposals to the international and even local
donors/financiers. Donors are interested in particular areas of focus depending on the prevailing
socio-economic and political interests and needs.
Approaches in writing Action Proposals

There are two (2) approaches that guide proposal writing:
(a) Demand Approach
It is the kind of proposal written in response to a felt need/problem at grassroot level. Mostly, such
proposal writing disregards the donor priorities. This is a challenging approach especially when the
organization does not have enough resources to address needs that may not attract donor funding.
(b) Supply Approach
In this approach, proposals are written in view of a donor’s area of focus. It is not written in view of
situational or felt needs unless there is a coincidence between your needs and area of focus of the
donors.
NB: Writing a proposal is time consuming and tedious/monotonous. It takes time to get a good
proposal-about 3 weeks.
CONTENT OF A GOOD PROPOSAL (FORMAT)

There is no single format which is acceptable to everybody. Then its up to the writer to seek format
from the potential donors. However, in the absence of such format/guidelines, one can follow the
following generic format:
1. Cover Letter:
Realistically, it is not part of the proposal but it is an important part. It clearly states the central
issue in the project and what is going to be achieved. It is a summary of the whole proposal in
about 3 paragraphs. It should be written by the person who was key in writing the proposal.
It can take the form of an appeal for support and should indicate enormity of resources required by
the project and any cost sharing anticipated.
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While writing the cover letter, it is assumed that you have had prior communication with the reader
of the letter through other means.
2. Title Page:
It contains:
(a) Title of the proposal which should tell about
- The problem and the region/location of the project. The title should help the reader to
locate/see issues being addressed in the proposal.
(b) Agency i.e. donor that the proposal is being submitted to e.g. Submitted to…
(c) Name and address/contacts of the organization that is writing the proposal.
(d) Project duration e.g. 2 years, 3years etc.
(e) Total amount of money requested for (It excludes amounts from other sources). Ensure that
your amount does not go beyond the donor’s ceiling.
(f) Proposed starting date for the project.
(g) Date of the submission of the proposal (Date of dispatch).
Arrangement or the order of the above items may change depending on the financier/donor of the
proposal.
3. Executive Summary
This is a concise summary of the overall proposal in one page. It is therefore written just like the
cover page.
It contains:
- Goal of the project
- Beneficiaries of the project and procedures to be used to achieve the objectives (state the
methodologies) i.e. what activities will match to these objectives and the participation of
these communities.
- Importantly, it should include the expected benefit to the target (how the community will
benefit e.g. distances in being reduced when looking for water, to lead to the reduction of
water borne diseases etc. This acts as justification of your proposal.
The importance of executive summary is that it allows the reader to understand your point
without reading the whole proposal.

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4. Table of Contents
This is the listing of all the headings and sub-headings. This also shows respective pages for each
heading/sub-heading. It is important to limit the system to two levels for the readers convenience
when locating a every heading.
Page
e.g. 1.0 Introduction………………………… 1
1.1 Statement of the Problem……………4
1.2 Objectives……………………………5 etc.
5. Introduction
It puts the reader of the proposal into the context by giving general information about the problem
or the issue which is central in the project. It shows the background information to the project.
Once can also give statistics or quote authorities in trying to develop a good background.
It may also contain something brief about the organization and its area of focus. It is then important
to link that organizational background with the core issue of the project.
In articulating the issue, start with generalities before narrowing down to specific areas of your
choice.
One can also locate issues historically by discussing and linking past to the present events about
the situation.
6. Statement of the Problem

It is a clear declaration of the phenomenon/issue for which the intervention/project is going to be
undertaken. The writer must be clear about the problem to be solved or the conditions that
need to be changed.
It is important to remain sensitive about felt needs. The identified problem must be examined
against the possibility of successful accomplishment i.e. look at the problem within the
possibility of solving it in terms of time, resources, human capacity and viability of the project.
NB: Avoid being over ambitious.

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Sources of a Statement of the Problem

Choice of a project’s statement of the problem can be influenced by:
- Statistics
One can make a case for the project from statistics that appears in various reports including
research reports.
- Creativity
An individual can think of something practical which can realistically be done (one’s own ideas)
- Ones own experience with ana organization, people, community etc, out of which he/she
can make a case for intervention (professional or personal experience).
- Desire to challenge dominant ideas
One can decide to challenge existing thought by presenting an alternative way of doing
something e.g. challenging the feeling that widows can only be assured of their socio-economic
security through remarriage or inheritance.
- In an existing project
From an ongoing project, one can make a subject for a project proposal.
NB: Whichever source you get your project statement of the problem from, it is important to
observe the following principle:
(a) Understand the environment of the problem in terms of 3 variables (underlying root causes,
effects and existing institutional capacities).
(b) The problem must be practical i.e. it must be amenable to action (e.g. you cannot address a
problem about where ghosts are terrorizing people.
(c) It must relate to a wide population. It is only then it becomes a social and not a personal
problem. You must be seen to be acting in the public interest.
(d) Be futuristic: Should show that the intervention shall provide a solution for a long time in
future. However, some interventions may be addressing a very critical need whereby the
best approach is for short relief operation-such an intervention focuses on the welfare,
recovery, rather than development e.g. malnutrition or recovery from a disaster.
(e) Willingness to undertake the project
(f) Conformance to peoples existing problem.
(g) It should have a policy dimension. The intervention should have a lasting impact in some
policy direction (we should address issues of policy in our interventions). i.e. government or
institutional policies-rules.
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7. Objectives
There are three types of objectives. These are:
i. Broad Objective-Developmental Goal
It reflects what the project proposes to contribute to. The goal does not point to the use of specific
strategies or methodologies. It borders on matters of policy. Therefore, to come up with a good
project goal, it is good to consider what other organizations and institutions are doing. This is
because you want to locate your project within the wider policy framework.
The broad objective is high level and long term. It is the impact of the project.
ii. Intermediate Objective
These are lower level objectives. They communicate the end product of the project. Then they
determine whether the project will be funded or not. This relate to the purpose of doing the project
which details the expected effects of the project, the outcomes.
iii. Specific Objectives
These are the most specific achievements for the proposed project. They involve specific future
solutions from the project.
NB: - All objectives must be SMART and logical. They are the reasons why proposals can be
rejected.
- Where objectives do not point to the methodology, they are of little significance to the
project.
8. Justification
It indicates why the project is important in terms of:
- Benefits to the stakeholders
- Impacts on policy (how it will be supported by the institutions even at the grassroot level).
- Impact on the environment
- Contribution of the project to the alternative approaches in the area of project e.g. can show
that you want to give a more impacting approach than other organization-projects.
- If there is a potential contribution to the knowledge and understanding, you may also
highlight it.

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9. Target Group/Beneficiaries/constituents
The above terms are used interchangeably to imply the group that is intended to benefit from a
project. However, the use of terms, target or beneficiary implies a top down or directed approaches
i.e. the beneficiaries or targets just sit waiting for results of the project. In many instances,
beneficiaries are active participants in the formulation of the project. Then the most
appropriate term to use is the Constituents.
The term constituents imply that they are people who have capacity and system that work for them.
It is always better to start with small constituents for ease of management and possibility of
better impact.
In order to have a clear constituency, the following must be done:
- There must be a clear understanding of socio-economic, cultural and political structures of

the population concerned. i.e. cultural homogeneity, socio-economic classes, centres of
powers such as chiefs, elders, councilors etc.
10. Methodology
This includes the activities, outputs and inputs that are implied by the project.
(a) Activities
These are the tasks which must be performed in order to realize the project objectives. They must
be goal oriented.
In writing this section, revisit the objectives section. Find the specific tasks that need to be
undertaken to fulfill the respective objectives.
NB:
i) Activities should follow each other sequentially.
ii) Do not include activities about fundraising and mobilizing of resources on the proposal.
iii) Ignore minute details such as looking for a venue for workshops and concentrate on
substantive issues.
iv) Activities should not be disjointed but should look to be more related, interconnected.
(b) Outputs

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These are the results of the activities which must be accomplished in order to arrive at objectives. In
most cases outputs are written quantitatively/numerically e.g. 20 groups of small scale famers have
been trained. Ensure that each activity has its own output which can be tested.
(c) Inputs
These are the resources required to carry out activities and generate outputs. There therefore the
raw materials of the project. The main issue is to reflect on the activities and their outputs then
determine what is required in terms of staff, machinery, training etc.
Identify all inputs regardless of the source and then isolate the inputs which can be
realistically provided by potential donors. Listing of inputs entail:
i) Type of input e.g. type of staff needed
ii) Quantity – How many of each type and what size
Provide explanatory notes so as to justify appropriateness of each input to your project. Establish
appropriateness of each input by linking it to a corresponding/matching activity.
Provide detailed information of inputs in an annex section. E.g. in the annex section you can
explain technical requirements of a high tech computer, attach information about a particular
training program etc.
11. Work plan

It is a schedule showing what activities will be done by whom and when. A good plan must
indicate the length of time for each activity and those responsible in a chronological order. It should
show the interdependency of those activities.
Be realistic in terms of time allocated to each activity. Provide adequate time for communication
about the project progress.
Design the project in phases such that success in the 1st phase is a motivating factor for continued
donor support during the other phases
12. Monitoring and Evaluation

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This entails gathering of data bout the project with the view of measuring progress and predicting
the potential of the project to achieve its objectives.
Monitoring focuses on project components such as inputs, activities and specific objectives. It is
therefore a continuous process of gathering data to ensure that project resources are being spent as
budgeted, its activities are occurring as planned and thus the project os meeting its specific
objectives.
Evaluation measures outputs and the broad objectives of the project. While monitoring is a
continuous process, evaluation id periodic happening at certain times in the project lifetime (at
implementation, at the end or after 1 to 10 years after the completion of the project.
In the proposal detail your plan for monitoring and evaluation in terms of:
i) Type of information to be collected
ii) When it will be collected
iii) How it will be collected e.g. focus group discussions surveys etc.
iv) Who will collect the data e.g. donor representatives, independent experts or internal
personnel within the project.
v) The reporting and storage of information e.g. CDs, hard copies. Also show the staff
responsible for this information and also for the dissemination of the information.
The key to monitoring and evaluation is preparation and use of a logframe which is a summary of
the objectives, outputs, activities and inputs against the set indicators, means of verification of those
indicators and the assumptions made in the project.
13. Budget
It involves the cost of doing the project. While writing this section, reference is made to inputs and
activities.
Cost Sharing
It is important to show the contribution of the organization and the constituents towards the total
project cost. This shows the willingness and the commitment of the organization and the
constituents to undertake implementation even before securing donor funding.
22
Such contribution should involve:

- Office space and some facilities, staff, materials etc. if the project is to last for more than an
year, remember to make provisions for salary increments, increase in cost of travelling-
including fuel cost, incrase in cost of materials, depreciation of currency etc. however, these
are taken care of by provision for contingencies.
- Acknowledge funds received from other sources. This increases your credibility e.g.
funds from the government, other stakeholders etc.
- If the project is in phases, let the expenditure reflect that as much.
- Avoid incomplete budget as they show poor preparation of the project (omission of major
budget items).
- Budgets which are very low bring about doubt on your planning abilities and on quality
of what you can deliver.
14. Sustainability
Increasingly, donors want to know how the project will continue once grant is expended.
Three types of sustainability can be addressed:
(a) Financial Sustainability
It indicates how the project can continue/be sustained after the donor funds have been stopped. i.e.
through locally generated funds, government funding etc
(b) Technical Sustainability
This indicates that the constituents can provide technical inputs to the project after donor funding
ends. This should show that they have the training, skills and materials to continue to sustain the
project.
(c) Managerial Sustainability
The proposal should show that constituents will continue to provide organizational or
managerial inputs after donor funding (train people in managerial skills more so during
participatory project definition, planning and implementation).

23
PROJECT SELECTION
As noted in our early learning, this follows and sometimes overlaps the analysis phase. It includes
several appraisal/review/judgment techniques to address how worthwhile a project idea is. These
are discounting and non-discounting methods such as payback period methods and the discounting
methods such as Net Present Value, Cost Benefit analysis among other appraisal techniques. All
these are numeric models of selection. There are also valid non-numeric selection
models/methods which could also judge or determine the suitability of a given project idea for
more processing or planning.
Selection of project is an important phase in a project or business. If the wrong project is chosen, it
is a big loss of capital/the invested money. In this case, learning and understanding the various
project selection models is of utmost importance.
Here below are the utmost important types of project selection models.
NON-NUMERIC AND NUMERIC PROJECT SELECTION MODELS

1. Non-Numeric Project Selection Models
Non – Numeric project selection models have further 6 types. These are:
• The Sacred Cow

• The Operating Necessity
• The Competitive Necessity
• The Product Line Extension
• Comparative Benefit Model
• Q-Sort Model
1. The Sacred Cow

The senior and the powerful official in the company/organization or political leader suggests the
project in this case. Mostly, the project is simply initiated from an apparent opportunity or chance
which follows an un-established idea for a new product, for the adoption of the latest information

24
system, for creation of new market or for some other category of project that demands the
investment of the resources of the organization. The project is created as an immediate result of
the weak approach for investigating about whatever the senior manager has proposed.
The sacredness of the project reflects the fact that it will be continued until the superior himself
announces the failure of the idea and then declares its end.
2. The Operating Necessity (survival)

If a company/organization is threatened with extinction, then, it is important to start a project
for developing some protection. This is an operating necessity. Potential projects are evaluated
by using this criterion/method of project selection. Certain questions come about such as: If the
project is needed in order to keep the system functioning? If the estimated cost of the project is
effective for the system? If the answer of such important questions is yes, then the project costs should
be analyzed and maintained as minimum and compatible with the success of the project.
3. The Competitive Necessity (Competitiveness)

The project/organization has modern planning process and the desire to keep the competitive
position of the company in the market. These aspects provide the basis for making a decision to
carry out a project.
Precedence is taken by the operating necessity projects over competitive necessity projects
regarding investment. But both of these types of project selection models are considered much
useful & effective as compared to other selection models.
4. The Product Line Extension

In case of the product line extension, a project that is considered for development & distribution
of new products will be evaluated on the basis of the extent to which it suits the company’s
current product lines, fortify a weak line, fills a gap, or enhance the line in a new & desirable
direction.
Sometimes, careful evaluations of profitability is not needed. Decision makers can do their actions
on the basis of their belief about the probable influence of the addition of the new product to the line
over the entire performance of system.
5. Comparative Benefit Model (several projects being considered)

25
In this selection model, there are several projects that are being considered by the organization.
Those projects are selected by the senior management of the organization to provide most benefits
to the company. E.g. some projects are related to the new products, some are related to the
computerization of particular records, others are related to make alteration in the method of
production-production process etc.
There is no formal method of selection of projects in the organization but it is perceived by the
selection committee members that certain projects will benefit the company more than the
others even if they lack the suitable way to specify or measure the proposed benefit.
The concept of comparative benefits is mostly used for selection decision making. All the
considered projects with positive recommendations are examined by the senior management of the
organization in order to make effort to develop a set of them that can effectively suit the objectives
& budgets of the organization.
6. Q-Sort Model
The Q-Sort model is one of the most straightforward techniques for ordering projects
according to their relative merits. The projects are first divided into three groups which are
Good, Fair and Poor. The main group is further subdivided into the two types of fair-minus
and fair-plus. The projects in each type are ranked from best to worst. Then relative merit
provides the basis for determining the order. Specific criterion is used by the people rating
them to rank each project or they may just use general personal judgment.
One person has the responsibility to carry out the process for evaluation & selection of the project.
Sometimes, there is a selection committee for performing such process. If the work is done by the
committee, individual ranking can be done anonymously and the committee examines the set of
anonymous ranking for consensus.
Finally, the projects are thus selected based on sequence of preference, though they are generally
assessed on financial basis before final selection.

26
2. Numeric Project Selection Models

Numeric Project Selection Models (Profit/Profitability)
The profitability is used as the only measure of acceptability by majority of organizations using
different types of project selection models. Following are some of numeric models for project
selection.
• Payback Period
• Average Rate of Return
• Net Present Value (NPV)
• Internal Rate of Return (IRR) etc
When dealing with numeric project selection models, we mainly think about the capital expenditure
and the cash inflows or the profitability of the ventures. Capital expenditure may be defined as the
initial expenditure whose benefits are expected to be received over a period of time exceeding
one year. The main characteristic of the capital expenditure is that it is incurred only once/at one
point in time whereas the benefits of that expenditure are realized at different points in time. Examples
may include:
- Buildings
- Machines and equipment
- Land
- Expansion or alteration of fixed assets
- Vehicles etc
Other characteristics of capital expenditure include:
- Long term commitment of the funds
- Irreversible nature of the decision-the Sank cost
Budgeting Process for Capital Expenditure

1. Identify investment proposals/ideas
2. Screen the proposals
3. Fix priorities
4. Seek final approval e.g. from the board/senior management
5. Implement

27
6. Review the performance and reporting

Colin Drully suggested that the following should be the steps taken in budgeting for capital
expenditure:
- Identify objectives
- Search for investment opportunities e.g. the best opportunities
- Identify the status risks
- Measure the payoffs (i.e. the alternatives you forgo)
- Select the investments projects (i.e. select the best project)
- Obtain authorization and approval
- Implement the projects
- Review the investment decisions
1. Payback Period Method

Payback period is defined as the length of time that is required for a string of cash proceeds from
an investment to recover the original cash outlay required by the investment. It is sometimes referred
to as Pay Out or Pay Off Period Method.
Various projects are ranked according to the length of their payback period in such a manner that
the project with the shortest payback period is preferred over the ones which have longer payback
periods. In case of a single project, it is adopted if it pays back for itself within a period specified by
the management.
Payback Period Calculations

1. Calculate the annual net earnings (profits before depreciation but after taxes-the Annual
Cash inflows).
2. Decide the initial cash outlay (the cost of the project)
Therefore, where the project generates constant cash inflows, the payback period would be:
Payback Period = Cash Outlay Capital

Annual Cash Inflows

28
3. Where the cash inflow (profits before depreciation and after tax) are unequal, the payback
period can be found by adding the cash inflows until the total is equal to the initial cash
outlay/capital used.
Example 1:
A project costs $100,000 and yields an annual cash inflow of $ 20,000. Calculate its payback
period.
Solution: 5
Payback Period = Cash Outlay = 100,000 = 5 Years
Annual Cash Inflows 20,000
1
Example 2:
A project costs $ 100,000 to implement and has annual net cash inflows of $ 25,000. Calculate its
Payback period.
Solution:
4
Payback Period = Cash Outlay = 100,000 = 4 Years
Annual Cash Inflows 25,000
1
Example 3:
Determine the payback period for a project which requires cash outlay of $10,000 and generates cash
inflows of $2,000, $ 4,000, $ 3,000 and $ 2,000.
Solution:
Payback Period = 2,000 + 4,000 + 3,000 + 2,000 = 31/2 Years
1 2
i.e. 2,000 + 4,000 + 3,000 + 1,000 X 12 months = 3 Years + 6 Months = 31/2 Years
Yr1 Yr2 Yr3 2,000
2
NB:
Cash Outlay = $10,000
Total cash inflow = $ 9,000 up to 3rd year. Then total cost/cash outlay is not covered. However,
$9,000 + $ 2,000 = $11,000 i.e. $1,000 more than the cost of the project.
29
Therefore, payback period lies somewhere in between the 3rd and 4th Years. Assuming that the
cash inflows occur evenly throughout the year, the time required to recover $ 1,000 would be
1,000 X 12 months = 6 months. Hence the payback period is 3 years and 6 months.
2000
Advantages of Payback Method

1. It is simple to understand and easy to calculate.
2. It is cost saving since it requires less time and labour.
3. It is suitable to an organization whose liquidity position is not good.
Disadvantages of Payback Method
1. This method does not take into account the earnings beyond the payback period hence the
profitability of the project cannot be assessed.
2. It does not take into account the value of money which is a very important factor in making
sound decision. As far as money is concerned it has a value which is usually affected by
inflation, interest rates etc.
2. Improved Payback Period Approach

Discounted Payback Method
Under this method the present values of all cash inflows are calculated at an appropriate discount
rates. That is the rate which equates the present value cash outlays with the present value cash
inflows.
Discounted Payback = Cash Outlay

Discounted annual cash inflows
Example 1
Calculate the discounted payback period from the following information:
- Cost of the project $600,000
- Life of the project 5 years
- Annual cash inflows $200,000
- Discount rate 10%

30
Solution:
Years Cash Present value at Present Value Cumulative
Inflows discount rate Present Value
of 10%
1 200,000 .909 181,800 181,800
2 200,000 .826 165,200 347,000
3 200,000 .751 150,200 497,200
4 200,000 .683 136,600 633,800
5 200,000 .621 124,200 758,000
Cumulative present value of cash inflows at the end of 3rd year is $497,200 and $633,800 at the end
of 4th year. Hence the discounted payback period lies between 3rd and 4th Year. Therefore, the payback
period is:
Discounted Payback = 3 years + (600,000-497,200) X 12 months

Period 136,600 (i.e. present value of 4th year)
Discounted Payback = 3 years + 102,800 X 12 months = 9 months

period 136,600 (i.e. present value of 4th year)
= 3 years and 9 months
NB:
The project that shows the shortest discounted payback period is the one should be selected for
further processing.
3. Average Rate of Return Method (ARR)

This method takes into account the earnings from investment over the whole life of the project. The
accounting concept of the profit after tax and depreciation is used other than the cash inflows. Various
projects are ranked in order of rate of earnings or rate of return. The project with higher rate of return
is selected.
Average Rate of Return (ARR) = Average Annual Profits X 100

Net Investment in the Project

31
NB: Net investment is the residual value after the depreciation, the scrap value.
Example:
A project requires an investment of $500,000 and a has a scrap value of $20,000. After 5 years it is
expected to yield profits after depreciation and taxes during the 5 years which amounts to $40,000,
$60,000, $70,000, $50,000 and $20,000. Calculate the Average Rate of Return on the investment.
Solution:
ARR = Average Annual profits X 100
Net investment in the project
Average Annual Profits =

48,000
40,000 + 60,000 + 70,000 + 50,000+ 20,000 = 240,000 = 48,000
5 5
1
Net Investment = 500,000 - 20,000 = 480,000
Then,
1 10
ARR = 48,000 X 100 = 10%
480,000
10
1
The Average Rate of Return on this investment/project is 10 percent.
Advantages of ARR
1. Simple to understand and easy to compute
2. Uses entire earnings on the life of the project
3. Can be easily calculated from accounting data since it uses the residual or salvage which is
an accounting concept.
Disadvantages of the ARR

- It ignores the time value of money

32
4. Net Present Value Model (NPV)

This model takes into account the time value of returns on investment by introducing the time
element/factor. It recognizes that a shilling/dollar earned today is worthy more than a shilling/dollar
earned one year later. Then, NPV of all cash inflows and cash outflows occurring throughout the life
of the project is determined separately for each year. This is done by discounting these flows by the
organizations cost of capital or a predetermined rate.
Steps taken to calculate NPV:

1. Determine the appropriate rate of interest that should be selected as the minimum required
rate of return could called Cutoff Rate or Discount Rate.
The discount rate should either be the actual rate of interests in the market on long term loans
or it should reflect the investors opportunity cost (loss accrued by choosing one rate or
investment type and not others).
2. Calculate the Net Present Value of all cash inflows for every duration (year) at the
predetermined rate of discount.
3. Calculate the Total Net Present value of total investment profits-cash inflows
(profits/proceeds) (i.e. profit before depreciation and after tax) at the predetermined discount
rate for each period.
4. Calculate the Total NPV Net Cash inflows.
5. Subtract the Initial Capital Outlay from the Total present value (NPV) of cash inflows.
6. If the Present Net Value is positive or equal to zero (0) (where the present value of cash
inflows exceeds or equals the present values of cash outflows, the project proposal/idea may
be accepted and selected. If it is negative the project proposal/idea should not be
accepted/selected.
i.e. if NPV>0, Accept the project, else reject it.
For example,
A project X has NPV of 4300, project Y has NPV of 4227 and project Z has NPV of 3900. Which
project should be selected?
X Y Z
NPV 4,300 4,227 3,900
Project X with NPV 4,300 should be selected.

33
Example:
You have been provided with information about two (2) projects, i.e. Project X and Project Y.
Calculate the NPV of the two projects and suggest which of the two projects should be selected.
Assume a Discount Rate of 10%. All values are in US dollars.
Project X Project Z
Initial Investment 20,000 30,000
Estimated life 5 years 5 years
Scrap Value 1,000 2,000
1 5,000 20,000
2 10,000 10,000
3 10,000 5,000
4 3,000 2,000
5 2,000 2,000
Scrap Value 1,000 2,000
Solution:
Project X (Initial Capital= 20,000 US dollars)
Years Cash Present Value Total NPV Net
Inflows (10%) Cash Inflows
1 5,000 .909 4,545
2 10,000 .826 8,260
3 10,000 .751 7,510
4 3,000 .683 2,049
5 2,000 .621 1,242
Scrap (5th Yr) 1,000 .621 621
Total NPV 24,227
Total Present Value of Net Cash Inflows = 24,227

Less Initial Capital Outlay 20,000
Net Present Value 4,227

34
Project Y (Initial Capital= 30,000 US dollars)

Years Cash Present Value Total NPV Net
Inflows (10%) Cash Inflows
1 20,000 .909 18,180
2 10,000 .826 8,260
3 5,000 .751 3,755
4 3,000 .683 2,049
5 2,000 .621 1,242
Scrap (5th Yr) 2,000 .621 1,242
Total NPV 34,728
Total Present Value of Net Cash Inflows = 34,728

Less Initial Capital Outlay 30,000
Net Present Value 4,728
Decision:
Project Y which has NPV of 4,728 should be selected instead of project X which has NPV of 4227.
Advantages of NPV
1. It recognizes the time value of money. It takes into account the basic idea that a future dollar
is worth less than a dollar today.
2. Earnings over the entire life of the project are considered.
3. It shows whether an investment will create value for the organization the investor and by how
much it is likely to be.
4. NPV method takes into consideration the cost of capital and the risk associated with
projections/predictions about the future.
Disadvantages of NPV
1. A projection of cash flows 10 years in future is much less certain than cash flows projected
next year or two years in future. This long-term projection may not have any impact on the
NPV compared to those projections for short durations in future (1 to 2 years etc).

35
2. NPV method is not useful in comparing two projects of different sizes. The method gives its
answers in the host countries currency (dollars, shillings etc). The size of the net present value
output is determined mostly by the size of the capital/input.
3. It requires some guesswork about the firm's cost of capital-discount rates. Assuming a cost of
capital that is too low will result in making less optimum investments and beneficial
investments. Projecting a cost of capital that is too high will enable rejection of too many
good projects/investments.
5. Internal Rate of Return (IRR)

The IRR of a project is the discount rate that makes the NPV to be equal to zero (0). i.e. it is the
discount rate which equates the present value of future cash flows with the initial investment.
In the NPV calculation we assume that the discount rate (cost of capital) is known and determine
the NPV. In the IRR calculation, we set the NPV to be equal to zero and determine the discount rate
that satisfies this condition.
Investment = Ct + Ct +…. Cn
(1+r)t
Where
C is the cash inflow at the end of year t,
r is the internal rate of return
t is the respective year when the cash inflow is received.
n is the nth year.
Example:
A project costs $100,000 to start. It has 4 years lifespan and projected annual cash inflows of
$30,000, $30,000, $40,000 and $45,000. Calculate its Internal Rate of Return.
Solution:
Calculation of IRR is a trial and error process. We must try different values of r till we find that the
values on the right-hand side of the equation equals to $100,000 (investment amount-capital).
The IRR is the value of r which satisfies the following equation:

36
100,000 = 30,000 + 30,000 + 40,000 + 45,000

(1+r)1 (1+r)2 (1+r)3 (1+r)4
We start by trying r = 15%. This makes our formula to be as follows:

100,000 = 30,000 + 30,000 + 40,000 + 45,000
(1+0.15)1 (1+0.15)2 (1+0.15)3 (1+0.15)4
Then the right side of the formula now equals:

100,802 = 30,000 + 30,000 + 40,000 + 45,000
(1.15)1 (1.15)2 (1.15)3 (1.15)4
This is $802 more than the capital of $100,000.

A higher value of r lowers the value of the right-hand side. Then we try r = 16%.
98,641 = 30,000 + 30,000 + 40,000 + 45,000
(1.16)1 (1.16)2 (1.16)3 (1.16)4
The value of $98,641 is now less than the capital of $100,000. Then we conclude that the value of
the r lies between 15% and 16%.
To get the actual value of r do the following:
1. Establish the NPV of each of the two percentages (15% and 16%)
(The value of the 15% is higher by 802) i.e. 802
(The value of the 16% is less by 1,359) i.e -1,359
2. Add the absolute values of these two figures to get their total value
802 + 1,359 = 2,161
3. Calculate the ratio of the NPV of the smaller discount rate as obtained in step 1 above, to
the sum of the two values owe got in step 2 above.
802 = 0.37
2,161
4. Add the number obtained in step 3 to the smaller discount rate
15 + 0.37 = 15.37%
Therefore, the IRR for this project should be 15.37%.

37
6. Benefit Cost Ratio (BCR)-the profitability Index

Benefit–cost ratio is an indicator, used in cost–benefit analysis, that summarizes the overall
value for money of a project. BCR is the ratio of the benefits of a project, in monetary terms,
This is calculated following two ways:
Benefit-Cost Ratio (BCR) = Present Value of Benefits (PVB)
Initial investment (I)
Net Benefit-Cost Ratio (NBCR) = Present Value of Benefits (PVB) - 1

(NBCR) = BCR – 1
Example:
A project costs $100,000 to start. For 4 years it is projected to have annual cash inflows of
$25,000, $40,000, $40,000 and $50,000 with a discount rate of 12%. Calculate its Benefit-Cost
Ratio (BCR).
Solution:
Benefit-Cost Ratio (BCR) = Present Value of Benefits (PVB)
Net Benefit-Cost Ratio (NBCR) = Present Value of Benefits (PVB) - 1
(NBCR) = BCR – 1
Therefore,
BCR = 25,000 + 40,000 + 40,000 + 50,000
(1.12)1 (1.12)2 (1.12)3 (1.12)4 = 1.145
100,000
NBCR = BCR – 1 = 0.145
Interpretation and Decision:

When
BCR or NBCR Decision
>1 >0 Accept the project
=1 =0 Indifferent
<1 <0 Reject the project

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PROJECT ANALYSIS AND SELECTION

COURSE CODE: PPM 8122

PRELIMINARY ANALYSIS OF PROJECT IDEAS

6. Acceptability of levels of risk

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

PROJECT RATING INDEX

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Construction of a Rating Index

Project Feasibility Studies

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Feasibility studies in developing countries

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Feasibility Study Schematic Diagram

WHY DO WE CONDUCT FEASIBILITY STUDIES?

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Market and Demand Analysis:

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

SCOPE OF FEASIBILITY ANALYSIS

Conclusion and Recommendations:

PROJECT PROPOSAL WRITING AND FUNDRAISING

To whom do we write proposals?

Approaches in writing Action Proposals

CONTENT OF A GOOD PROPOSAL (FORMAT)

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

6. Statement of the Problem

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Sources of a Statement of the Problem

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

In order to have a clear constituency, the following must be done:

- There must be a clear understanding of socio-economic, cultural and political structures of

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

11. Work plan

12. Monitoring and Evaluation

Such contribution should involve:

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

NON-NUMERIC AND NUMERIC PROJECT SELECTION MODELS

• The Sacred Cow

1. The Sacred Cow

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

2. The Operating Necessity (survival)

3. The Competitive Necessity (Competitiveness)

4. The Product Line Extension

5. Comparative Benefit Model (several projects being considered)

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

2. Numeric Project Selection Models

Budgeting Process for Capital Expenditure

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

6. Review the performance and reporting

1. Payback Period Method

Payback Period Calculations

Payback Period = Cash Outlay Capital

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Advantages of Payback Method

2. Improved Payback Period Approach

Discounted Payback = Cash Outlay

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so

Discounted Payback = 3 years + (600,000-497,200) X 12 months

Discounted Payback = 3 years + 102,800 X 12 months = 9 months

= 3 years and 9 months

3. Average Rate of Return Method (ARR)

Average Rate of Return (ARR) = Average Annual Profits X 100

Course Instructor: Charles W. Gathano, Email: charleswachira62@gmail.com /wachira@amoud.edu.so