Project planning

Project planning tài liệu, giáo án, bài giảng , luận văn, luận án, đồ án, bài tập lớn về tất cả các lĩnh vực kinh tế, ki...

Lecture-4

1 Introduction

2 Objectives of Project Appraisal

3 Scope of Project Appraisal

4 Methods of Calculating Profit Worthiness

5 Formula for

6 Acceptability Criteria

7 The basic Difference between Financial

Appraisal & Economic Appraisal

8 Types of Project Appraisal

9 Conclusion

1.1 Project Appraisal: Pre-Investment

Analysis/Ex-ante Analysis.

1.2 Project Evaluation: Post-Implementation

Analysis/ Ex-post Analysis.

1 Introduction:

Project Appraisal

1.3 Project Appraisal involves comparison of costs and

benefits If benefits exceeds costs, the project could be considered for acceptance.

1.4 The basic principle in appraisal / CBA is for potential

acceptance of a project

1.5 Project Appraisal means a pre-investment analysis of a

project to determine whether the project should be implemented or not.

resources or means are Limited as compared to the needs of the society

depriving other projects resources

decision so that scarce resources are utilized in the best possible ways.

project, the decision making authority must convince itself that the proposed project is the best and most economical way of achieving the desired objective (socio-economic benefits).

to appraise each project very minutely from different angles

(Cont.)

2.6 Project Appraisal involves detailed

pre-investment analysis of market & technical feasibility, financial soundness, economic desirability and, finally, measuring its investment worth.

2.7 The task aims mainly at ensuring that

scarce resources are put to most effective use

2.8 It requires the combined efforts of a team

of persons from various disciplines (engineers, financial analysts, economists etc.) working in close, co-ordination.

3 Scope of Project Appraisal

3.1 Market Feasibility study.

3.2 Technical Feasibility / viability.

3.3 Financial Soundness.

3.4 Management and Organizational

Aspects / Managerial Soundness 3.5 Economic viability / Appraisal.

3.6 Environmental Appraisal /

Viability

3.1 Market Feasibility

a) Whether sufficient demand does exist?

b) In case of import substitution whether domestic cost of

production is less than cost of import.

3.2 Technical Appraisal

a Availability of inputs at reasonable cost.

b Consistency & soundness of engineering

design.

c Economics of scale in production.

d Appropriate technology & alternative

ways of production.

e Advantageous Location of the project.

f Maintenance & Repairs.

g Provision for expansion.

h Balancing of equipment

3.3 Financial Soundness

b Sound capital structure: Fund Source

d Generation of sufficient cash flow to cover

debt-service Liability

g Break- Even Point

h Pay back period.

of Project’s Capital recovery It is defined as the

Length of time it takes to recover the initial

3.4 Managerial Soundness

a Experience of the top managerial

personnel in the line.

b Expertise and ability of

supervisory staff members.

c Balance between supervisory

staff and work forces

d Clarity of job description,

responsibility and

accountability

3.5 Environmental Aspects

The environmental impacts include –

a Ecological : Fisheries, Tree Plantation,

Wet Land / Wet Land Habitat, Forest.

b Physico- Chemical : Flood Control &

Drainage Erosion, Drainage, Congestion / Water Logging, Obstruction to waste water Flow, Soil Fertility, Early Flooding.

c Human Interest : Areas of Settlements,

Agricultural Lands, Navigation / Boat

3.6 Measurement of Investment Worthiness

a What benefit does the project promise for its sponsors or

owners?

a What benefit does the project promise for the national economy?

The satisfactory answers to these questions provide the prime test of a project’s acceptability.

4 Methods of Calculating Profit Worthiness.

4.1 Net Present Value = NPV

4.2 Benefit Cost Ratio = B/C Ratio

4.3 Internal Rate of Return = IRR

5 Formula for:

5.1 NPV = Discounted Total Benefits – Discounted Total

costs.

5.2 B/C Ratio = Discounted Total Benefits

Discounted Total costs

5.3 Formula for IRR:

NPV

3 IRR = LRD + LRD x ( HRD – LRD )

NPV - NPV LRD HRD

Where,

LRD = Lower Rate of Discount at which NPV is positive;

HRD = Higher Rate of Discount at which NPV is negative;

NPV = Net Present value at the Lower Rate of Discount;

LRD NPV = Net Present value at the Higher Rate of Discount.

HRD

What is IRR?

IRR = Internal Rate of Return is that rate of discount that

makes/ reduces the Net Present Value (NPV) of a project

337.04 = 1.08

NPV at 25% = 312.32 – 317.12

= - 4.8 IRR = 15 + 28.4 × (25 -15)

28.4 – (- 4.8)

= 15 + 28.4 × 10

28.4 + 4.8

= 15 + 28.4× 10 33.2 = 15 + 8.55 = 23.55

 IRR = 23.55%

7 The basic difference between Financial

Appraisal &Economic Appraisal

8 Types of Project Appraisal

8.1 Financial / commercial Appraisal

8.2 Economic Appraisal

8.3 Technical Appraisal

8.4 Social Appraisal

9 Conclusion:

selecting a project.

measure the different worthiness of a project

implementation.

principal decision making tools.

selection of a project