Project Management and

Appraisal
Project Appraisal
 Technical Appraisal
(1) Selection of process/technology
• The choice of technology depends upon the quality and quantity of the product proposed to
be manufactured
• Latest technology should be chosen
• Appropriate Technology- suitable for the local economies, social and cultural conditions
• Locally available raw materials
• Used and maintained by local manpower
• Ecological balance maintenance

(2) Scale of operation

• Depends on plant size
• Plant size depends on the market for the output of the project
• Economic size = f(capital expenditure, operating cost)
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(3) Raw material
• Alternative raw materials- the raw materials that is locally available may be
chosen
• Factors- cost of raw materials, transportation cost, continuous availability
• The investment on plant and machinery will depend upon the raw material
chosen

(4) Technical know-how

• Expert opinion
• Enough experienced
• Relevant field of study
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(5) Collaboration Agreements
• Competence and reputation of the collaborators
• Necessary approval of government
• Should not impose any restrictions on the export
• Profit-loss proportion
• Debatable issues to be solved in the court of domestic country

(6) Product Mix

• Varying needs and preferences of customers
• Flexible production facilities
• Cost-benefit analysis
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(7) Selection and procurement of plant and machinery
• Output planned to produce
• Capacity of machine
• Machine hours required
• No compromise on the quality of machineries

(8) Plant Layout

• Arrangement of the various production facilities within the production area
• Need to ensure steady flow of production and overall cost minimization
• Avoid equipment producing air and sound pollution
• Proper lighting and ventilation
• Space and utilities availability
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(9) Location of projects
 Regional Factors
-Raw materials
-Proximity to market
-Availability of labour
-Availability of supporting industries
-Availability of infrastructure facilities (power, water, transport)
-Locating industries in backward, growth center areas
-Climate factors

 Site factors
-Tangible Factors (financial factors)
-Intangible factors (non-financial factors)
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Dimensional Analysis (DA): Used for comparing two locations and deciding the
better of the two locations, keeping in view both tangible and intangible factors.
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(10) Project Scheduling
Arrangement of activities in the order of time
Indicates the logical sequence of events
- Land acquisition
- Site development
- Building plans, estimates, designs, approval and entrusting construction work
- Construction of building, machinery and others
- Placing order for machinery and receipt the same
- Erection of machinery
- Commissioning of plant and trial runs
- Commencement of operation
Economic Appraisal
 Whether the project is economically feasible or not
 Measures the effect of the project on the whole economy
 Concerned with macro level factors (cost and benefits to the society, income
distribution in the society, employment generation, best possible use of available
resources, level of savings and investment etc. )
Shadow Price: A shadow price is an estimated price for something that is not normally
priced or sold in the market.
• Shadow pricing can provide businesses with a better understanding of the costs and
benefits associated with a project.
• However, shadow pricing is inexact as it relies on subjective assumptions and lacks
reliable data to fall back on.
Shadow pricing is an incredibly useful tool when evaluating a project. Even though
shadow pricing only provides a rough estimate, it helps management assess the value
of certain operations and attempts to place a monetary value on the different tasks
associated with the project.
Financial Appraisal
 Consists of two major areas:
-Arriving at the cost of the project
-Arriving at the appropriate means of financing the project (debt + equity)
-Depends upon the revenue earning capacity of the project

 Financial appraisal deals with profitability of the project, break-even point, cash flows
over time, IRR/payback period, risk-return characteristics etc. )
Management Appraisal
 Most important factor that can either make a project a success or a failure
 Banks and FIs emphasis on management appraisal while lending money
 Management appraisal is qualitative and subjective in nature
Commercial/Market Appraisal
 Studying the commercial successfulness of the product/service offered by the
project from the following angles:
(a) Demand for the product
(b) Supply position for the product
(c) Market share
(d) Distribution channels
(e) Pricing of the product
(f) Location and demographic factors of customers
(g) Government policies
Demand Forecasting Techniques
 Survey Method- Obtain information about the intentions of customers through
collecting views and opinions of experts.
-Jury of expert’s opinion method
-Delphi techniques
-Sales forecast composite
-Consumer’s survey method

 Statistical Approach- To use the past experience as a guide and to arrive at the
future demand by exploiting the past ‘Statistical Data’.
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 Statistical Approach- To use the past experience as a guide and to
arrive at the future demand by exploiting the past ‘Statistical Data’.
(1) Trend Analysis
(a) Curve Fitting:
(b) Moving Average Method
(c) Exponential Smoothing Method
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2. Regression Analysis