Project Appraisal of city level projects - Printable Version

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Project Appraisal of city level projects - Manish Jain - 07-29-2016

Project appraisal is the process of assessing and questioning proposals before resources are committed. It is an essential tool for effective action in community renewal.  It’s a means by which partnerships can choose the best projects to help them achieve what they want for their community.   

 
The projects appraisal document is structured in following primary steps:
1. Project identification;
2. Definition of objectives;
3. Feasibility and option analysis;
4. Financial analysis;
5. Socio-economic costs and benefits;
6. Other evaluation criteria; and,
7. Sensitivity and risk analysis.
 
1. Project Identification
The project must be a clearly defined (specific) unit of analysis. In other words, the project’s inputs and outputs should be identified, quantified and valued. For deciding on whether a project is a ‘go’ or ‘no go’ the analysts generally use a net present value means of analysis.
 
The net present value (NPV) of a project is the present value of the benefits minus the present value of the costs
2. Definition of Objectives
The objectives of the project should clearly state the key socio-economic objectives that this project intends to influence. Social welfare is a multi-dimensional concept with components
·         linked to income (i.e., consumption, investment, and employment)
·         less strongly linked to income (i.e., equity, health, education).
These values may be fully reflected by prices to buy the project outputs (i.e. water tariff, garbage collection tariff).
Therefore, the key question is: do the overall welfare gains arising from the project exceed the costs?
3. Feasibility and Option Analysis
Provide evidence that the project that they have selected is the best option among other feasible projects.  A typical feasibility report may contain
a.       information about the economic and institutional environment,
b.      forecasted demand,
c.       available technology,
d.      production plan (including the utilization of an infrastructure),
e.      personnel requirements,
f.        scale of the project,
g.       location,
h.      physical inputs,
i.         timing and implementation,
j.        phasing of the project (expansion),
k.       financial planning,
l.         Environmental aspects.
4. Financial Analysis
Financial planning analysis should show that the project does not risk running out of money, the timing of the inflow and outflow of funds, the sources of financing (including all revenues and cash transfers) must match disbursements on an annual basis.  Finally, output of this section is  best estimate of the financial internal rate of return (FIRR) or the project or of its financial net present value (NPV)
·         IRR (internal rate of return) is the rate of discount that results in a zero NPV for the project.
·         NPV net present value of a project is defined as the difference between the present values of a projects future cash inflow and outflows.
5. Socio-Economic Benefits and Costs
Economic viability of a project is to identify, quantify and value the economic costs and benefits. This is an analysis by which the impacts on the society can be measured in terms of factors like
·         increase in property rates in that locality
·         migration of people from other places due to better living conditions
·         Cost savings and other similar factors
Sometimes valuing all external costs and benefits may be difficult, even though identifying them may be rather simple
7. Sensitivity Analysis
The effective sensitivity of the outcome to a particular variable is determined by several factors, including:

•  The responsiveness of net present value (NPV) to changes in a variable;
  
• The magnitude of the variable’s range of plausible values,
  
• The volatility of the value of the variable. In other words, the probability that the value of the variable will move within a range of plausible values. 
  
• And,The degree to which the range of the volatility of the values of the variable can be controlled. 
  

Aspects of appraisal 


Technical appraisal

•        Will the project Work?
•        Availability of the required quality and quantity of raw material.
•        Availability of utilities like power and water etc
•        Follows anti-pollution laws
Financial appraisal
•        Can the project be financed properly?
•        Will there be sufficient funds to cover the expenditure requirements during the life of the project?
•        Means of financing
Economic appraisal
•        Impact of the project one the distribution of income in the society
•        Impact of project on the level savings and investment in the society and socially desirable objectives like self-sufficiently, employment etc.
•        Contribution of project
Social Aspect
•        What will be the effect of the project on different groups? At
o   Individual
o   Household and
o   Community levels
•        How will the project impact on women and men?
•        Will the social benefits of the project be greater than the social costs over the life of the investment when account is taken of time?
Environmental appraisal
•        Will the project have any adverse effect on the environment?
•        Have remedial measures been included the project design?
Ecological & Political Appraisal
•        Environmental Damage.
•        Restoration Measures.
•        Will the project be compatible with government policy, at central, regional and local level?

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