P ROJECT APPRAISAL Bhupendra Deshmukh

C ONCEPT OF PROJECT APPRAISAL Project appraisal means the assessment of project. Project appraisal is made for both proposed and executed project. Project appraisal is a costs and benefits analysis of different aspects of proposed project with an objective to adjudge its viability.

M ETHODS OF PROJECT APPRAISAL 1. Economic analysis 2. Financial analysis 3. Market analysis 4. Technical feasibility 5. Managerial competence

E CONOMIC ANALYSIS Under economic analysis the aspect highlighted include requirements of raw material, level of capacity utilization, anticipated(forcast) sales, anticipated expenses and the overall profits. It is said that a business should have always a volume of profit clearly in view which will govern other economic variable like sales, purchases, expenses. It will have to be calculated how much sale would be necessary to earned the targeted profit. Undoubtedly, demand for the product will be estimated for anticipating sales volume. Hence, demand for the product needs to be carefully spelled out as it is, to a great extent, deciding factor of feasibility of project concern.

F INANCIAL ANALYSIS It is finance only that facilitate an entrepreneur to bring together labour of one, machine of another and raw material of another to combine them to produce goods. In order to adjudge the financial viabilities of the project, the following aspect need to be carefully analyzed. 1. Assessment of the financial requirement of fixed capital. 2. Assessment of the financial requirement of working capital.

A SSESSMENT OF FIXED CAPITAL Fixed capital normally called fixed ‘assets’ are those tangible and material facilities which purchased once are used again and again. Land and buildings, land and machinery are the familiar example of fixed assets/capital. The requirement for fixed assets / capital will vary from to enterprise to enterprise depending upon the type of operation, scale of operation and time when the investment is made. But, while assessing the fixed capital requirement, all items related to assets like the cost of the assets, architect and engineer fees, electrification and installation charges(which normally come to 10percent of the value of machinery), it depreciation, free operation expense of trial run, etc., should be duly taken into consideration.

A SSESSMENT OF WORKING CAPITAL In short, working capital is that amount of funds which is needed in day today’s business operations. In other words, it is like a circulating money changing from cash to inventories and from inventories to receivable and again converted to cash. This circles goes on and on. Thus working capita works as lubricants in for any enterprise,

M ARKET ANALYSIS Before the production actually starts, the entrepreneur needs to anticipate the possible market for the product. He/ she has to anticipate who will be the possible customers for his product and where and when his product will be sold. The commonly used methods to estimate the demand for a product are as follows: 1. Opinion polling method: In this method the opinion of ultimate customers of the product is estimated. This may be attempted with the help of complete survey of all customers(complete enumeration) or by selecting a few consuming unit out of the relevant population(sample survey.)

2. Life cycle segmentation analysis: a) Introduction b) Growth c) Maturity d) Saturation e) Decline

T ECHNICAL FEASIBILITY In the simplest sense, technical feasibility implies to mean the adequacy of the proposed plant and equipment to produce the product within specified prescribed norms. In case of foreign technical collaboration, one needs to be aware of the legal provision in force time to time specifying the list of product for which only such collaboration is allowed under specific terms and condition. The entrepreneur, therefore, contemplating for foreign collaboration should check these legal provision with reference to their projects.

M ANAGEMENT COMPETENCE Management ability or competence plays an important role in making an enterprise a success or otherwise. In the absence of managerial competence the project which are otherwise feasible may fail. On the contrary, even a poor project may become a successful one with good managerial ability. Hence, while doing project appraisal, the managerial competence or talent of the promoter should be taken into the consideration. Research studies report that most of the enterprise fall sick because of lack of managerial competence.

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