lecture project appraisal 78954

8/3/2019 Lecture Project Appraisal 78954

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Project AppraisalProject Appraisal


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What is a ProjectWhat is a Project

A project is a set of activities coordinatedA project is a set of activities coordinatedto achieve a unique outcome withto achieve a unique outcome withresources which are constraints and haveresources which are constraints and have

costs associated with them.costs associated with them.

Types of ProjectsTypes of Projects

SmallSmall MediumMedium

Large ScaleLarge Scale


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Objectives of Business ProjectObjectives of Business Project

Timely CompletionTimely Completion

No Cost OverrunsNo Cost OverrunsTechnical PerfectionTechnical Perfection

Successful OperationsSuccessful Operations

ProfitsProfitsSustainable GrowthSustainable Growth


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Timely Completionimely Completion A project implementation schedule is an effective tool to identifyA project implementation schedule is an effective tool to identify

the project activitiesthe project activities

control the project activities starting and completion times.control the project activities starting and completion times.

It concludes with total time required for the projectIt concludes with total time required for the project Point out the activities to be started simultaneously or inPoint out the activities to be started simultaneously or in

sequencesequence

Estimates of date of physical completion and date of commercialEstimates of date of physical completion and date of commercialoperation are worked.operation are worked.

Determining cost of various project activities andDetermining cost of various project activities and Planning funding/financing of these activitiesPlanning funding/financing of these activities

Help specifying timing for investment/disbursement of fundsHelp specifying timing for investment/disbursement of fundsand calculating interest during constructionand calculating interest during construction


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No Cost Overrunso Cost Overruns Cost estimates are required for land, building, plant &Cost estimates are required for land, building, plant &

machinery , initial working capital and other incidentalmachinery , initial working capital and other incidentalwith in depth analysis of economic and businesswith in depth analysis of economic and business

conditionsconditions Adequate amount of contingencies are to be provided.Adequate amount of contingencies are to be provided.

Adherence to Implementation schedule helps avoidAdherence to Implementation schedule helps avoidtime delays and subsequent costs like interest ontime delays and subsequent costs like interest on

disbursed loans etc.disbursed loans etc. Financial plan identifies amount of funds required soFinancial plan identifies amount of funds required so

no delays are caused for financial arrangements.no delays are caused for financial arrangements.


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Technical PerfectionTechnical Perfection The success of business project hinges uponThe success of business project hinges upon

their technical perfectiontheir technical perfection

Teething problems can be thereTeething problems can be there But there should not be an major technicalBut there should not be an major technical

imbalances, technological drawbacks,imbalances, technological drawbacks,machinery performance, production problemsmachinery performance, production problems

pertaining to process or raw materials etc.pertaining to process or raw materials etc. Erection & Installation, commissioning,Erection & Installation, commissioning,

availability of parts and after sales serviceavailability of parts and after sales service


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Successful Operationsuccessful Operations ProductionProduction

SalesSales

Operating costsOperating costs Availability of raw materialsAvailability of raw materials

Availability of skilled manpowerAvailability of skilled manpower

Accessibility to marketsAccessibility to markets

Market by itself 4 PsMarket by itself 4 Ps

CompetitorsCompetitors

Capacity UtilizationCapacity Utilization


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Profits the bottom lineProfits the bottom line

Profit = Sales cost of sales and operatingProfit = Sales cost of sales and operating

expensesexpensesHow much profits Adequate to recoverHow much profits Adequate to recover InvestmentsInvestments

Return to investors Shareholders and LendersReturn to investors Shareholders and Lenders

(Weighted Average Cost of Capital)(Weighted Average Cost of Capital)PluslusEconomic Value added i.e. Return over and aboveconomic Value added i.e. Return over and aboveWACCACC


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Sustainable GrowthSustainable Growth

Sales and Earning should growSales and Earning should grow

Enhancement in capacity utilizactionEnhancement in capacity utilizaction

Attaining Economies of scaleAttaining Economies of scale Wider customer and product rangeWider customer and product range

Technological advancementsTechnological advancements

Management capacity buildingManagement capacity building Growth in assets with adequate capitalGrowth in assets with adequate capital

structurestructure


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An objective assessment or evaluation ofAn objective assessment or evaluation of

key parameters of proposed project i.e.key parameters of proposed project i.e.

management, marketing, technical andmanagement, marketing, technical and

financial to ascertain the viability of thefinancial to ascertain the viability of theproject.project.

A project is viable if it is managerially,A project is viable if it is managerially,

commercially, technically and financiallycommercially, technically and financiallyfeasible.feasible.


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Investment Evaluation ToolsInvestment Evaluation Tools

International Financial Rate of ReturnInternational Financial Rate of Return Payback PeriodPayback Period

Net Present ValueNet Present Value

Comparing IFRR with WACCComparing IFRR with WACC

Breakeven AnalysisBreakeven Analysis

Sensitivity AnalysisSensitivity Analysis


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Project Appraisal - UserProject Appraisal - User

InvestorsInvestors

Sponsors/ShareholdersSponsors/Shareholders

Lenders/Financial InstitutionsLenders/Financial Institutions

Regulatory AgenciesRegulatory Agencies

Environment Protection AgenciesEnvironment Protection Agencies

Specialized InstitutionsSpecialized Institutions


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Projects - Contribution to EconomyProjects - Contribution to Economy

Addition to Gross Domestic ProductAddition to Gross Domestic Product EmploymentEmployment Foreign Exchange EarningForeign Exchange Earning Infrastructure DevelopmentInfrastructure Development State RevenueState Revenue Resource Allocation land, labor, capital & entrepreneurResource Allocation land, labor, capital & entrepreneur Savings and InvestmentsSavings and Investments Regional DevelopmentRegional Development Poverty AlleviationPoverty Alleviation Political stabilityPolitical stability

lecture project appraisal 78954

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