The purpose
of project appraisal is to establish whether a project is worthwhile in the
light of its costs in terms of resource commitments and the projects expected
benefits. That is, appraisal is an ex-ante
assessment of a project and is the key element in the decision as to whether or
not to proceed with a project. This will involve the consideration of
alternative projects, or alternatively, by comparison with the status quo. In
practice, this is an intricate and sophisticated process of enquiry, with
substantial data requirements. Examination of the viability of the project may
require the specialized services of appraisal missions and appointed
consultants. Appraisal covers four major aspects of the project: technical, institutional, financial and
economic.
Technical aspects:
This is
mainly concerned with issues related to physical scale, layout, location of facilities, technology used, cost
estimates and their relation to engineering or other data on which they are
based, the potential impact on the human and physical environment, and a range
of other similar concerns related to the technical adequacy and soundness of
the project.
Institutional aspects:
The
objective of many projects is not merely to add to physical assets and capital,
but also to create and enlarge human and institutional capabilities to manage
and maintain development undertakings.
This is possibly the most challenging aspect of the project’s overall
success. There may be no shortage of technically well-designed and well-endowed
projects. However, many projects have limitations at the human and
institutional level. Therefore project appraisal requires careful and sensitive
consideration of the institutional dimension and local conditions.
Financial and economic aspects:
Financial
appraisal (investment appraisal) is concerned with such questions as the
adequacy of funds, the financial viability of the project, the borrower’s
ability to service debt, procedures for recovering investment and operating
costs, etc, This is different from economic appraisal which addresses the issue
of whether a project is worthwhile from the broader point of view of its
contribution to aggregate or national economic and social welfare through the
use of social cost-benefit analysis as the appraisal technique.