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Project Development Process

Project Appraisal
Unit 4 Sunjay Lutchman June 2012

Pre-Development
Resource /Project Options Assessment

Development

Construction/Operations

Project Development Project Planning Project Financing Project Construction Project Operations

Project Feasibility Analysis

2- to 5- year period
2

Project Appraisal
The purpose of Project Appraisal is to ascertain whether the project will be sound technically, economically, financially and managerially and ultimately viable as a commercial proposition. The appraisal of a project will involve the examination of: a) Technical Feasibility - To determine the suitability of the technology selected and the adequacy of the technical investigation, and design.

Project Appraisal
b) Economic Feasibility To determine the conduciveness of economic parameters to setting up the project and their impact on the scale of operations. c) Financial Feasibility - To determine the accuracy of cost estimates, suitability of the envisaged pattern of financing and general soundness of the capital structure. d) Commercial Viability - To ascertain the extent of profitability of the project and its sufficiency in relation to the repayment obligations pertaining to term finance.

Project Appraisal
e) Managerial Competency - To ascertain that competent men are behind the project to ensure its successful implementation and efficient management after commencement of commercial production. A project should also be examined, wherever appropriate, from the point of view of its value to the national economy in terms of socio-economic benefits like generation of employment opportunities, foreign exchange earnings, the quantum of import substitution, etc.

Project Appraisal
The first step in Project Appraisal is to find out whether the project is prima facie acceptable by examining salient features such as: The background and experience of the applicants, particularly in the proposed line of activity The potential demand for the product The availability of the required inputs, utilities and other infrastructural facilities Whether the project is in keeping with the priorities, if any, laid down by the Government.

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Project Appraisal
The original application may not contain all the basic data / information. In such cases, it may be necessary to interview the applicants and elicit all the necessary data / information with a view to forming an overall idea about the general feasibility of the project. After satisfying itself about the prima facie acceptability of the project, the Branch should call for from the promoters, an Application, containing the following essential data / information, such as: a) Particulars of the project - Report furnishing details of the technology, manufacturing process, availability of construction / production facilities, etc.

Project Appraisal
b) Estimates of cost of the project detailing the itemised assets acquired / to be acquired, and WC margin requirements. c) Details of financing promoters contribution, Share Capital to be raised by public issue, the composition of the capital, Term Loans, DPGs, Foreign, etc. d) Working Capital requirements at the peak level. e) Project Implementation Schedule. f) Organisation - Board of Directors and the key personnel to be used.

Project Appraisal
g) Demand Projections - based on the market survey report. h) Estimates of Sales, CoP and profitability. i) Projected Annual Financial Statements (I/S and B/S). j) Projected Cash Flow Statement. k) Proposed Amortisation schedule - repayment programme. l) Other material documentations e.g. consents from the Government, etc.

Project Appraisal
An inspection of the project site (or factory in the case of existing units) is a must. Each project has to be examined in proper perspective having due regard to its nature, size and scope. Although the basic techniques employed for appraising the viability of various projects are more or less the same, there could be no standard or uniform approach for appraising all projects.

Project Appraisal
The ultimate objective of the appraisal exercise is to ascertain the viability of a project with a view to ensuring the repayment of the borrowers obligations under the Banks term assistance. Therefore, it is not so much the quantum of the proposed term assistance as the prospects of its repayment that should weigh with the Branch while appraising a project.

Project Appraisal
In project appraisal, nothing should be assumed or taken for granted. All the data / information should be checked and, wherever possible, counter-checked through interfirm and inter-industry comparisons. It should be borne in mind that Healthy scepticism is a cardinal virtue in project appraisal.

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