Various areas as aspects are covered for appraisal of project proposals, so that its feasibility may be assessed.
The foremost consideration in the appraisal of the project proposal is of technical feasibility.
Various aspects, like – position of the Enterprise, building, plant layout, plant localization, manufacturing process, quality control, control process, etc. which are to be optimally utilized are covered in it.
Different Aspects of Project Appraisal
Following are the different aspects of project appraisal:
1. Location and Site
The location and site selected for the establishment of the enterprise are quite important for its success.
The selection of location and size of the enterprise are affected by several factors, like – raw materials, the supply of labor, sources of power, natural conditions, the situation of the markets, etc.
Hence, the entrepreneur should consider the advantage of proper location and site.
2. Plant Capacity
The size of the plant or capacity of the plant is an important aspect of technical feasibility.
Uneconomic size tends to increase the costs of production and the capital-output ratio remains high.
Hence, advantages related to plant capacity should be considered.
3. Tools and Equipment of Technology
In technical feasibility, tools and equipment and suitability, adequacy and government policies of the mechanization, etc. should also be considered.
Not only that, but required Technology for a specific project should also be explained and thrust should be on the selection of the suitable technology by considering various alternatives.
4. Building and Layout
Building and plant layout should also be accessed, to see that these are suitable to meet the functional requirements, according to the specified criteria.
It should also be seen that they may encourage the efficient operation and security of the Enterprise.
5. Availability of Important Resources
The availability of important resources, like raw materials, transport facilities, water, sources of energy, and land for future expansion, is important for the successful operation of the Enterprise.
In project appraisal, the entrepreneur should analyze the available sources of skilled And unskilled Labour and should determine their optimum number also.
Besides, attention is also paid to the ability and number of managerial staff.
7. Project Planning and Scheduling
The project should be well planned and Scheduled, so that the time and costs may be saved.
For that, the project schedule should be prepared, by keeping additional buildings and plants, time for handing over of tools and equipment, the period of availability of various factors and services, in view.
8. Effluent Treatment
In several Industries, disposal of effluent, residual and waste materials is a big problem.
Hence, arrangements should be made for effluent treatment in the industries and factories, to reduce industrial pollution.
Feasibility report should also incorporate a plan for effluent treatment.
9. Foreign Collaboration
In respect of projects with foreign collaboration, their terms and conditions and period, etc. should be very clearly mentioned.
Besides, the policies of the government in this regard should also be sincerely followed.
10. Commercial Feasibility
The Appraisal of the project proposal may be done based on commercial feasibility also.
For that, testing of marketing capabilities of the final product is essential.
The following points should be considered for the appraisal of commercial feasibility.
- The position of demand-supply of the product in the markets.
- Size of the market and possibilities of future development.
- Nature of competition.
- Marketing strategy.
- Price policy and future prices in comparison to types of products.
- The position of imports and their prices in the country, if the product is the imported substitute.
- Sale arrangements for the product ability of sales staff.
- Marketing surveys may be conducted to forecast future demands.
11. Financial Feasibility
The main objective of financial appraisal of any project proposal is to see, whether the industrial unit is capable to gain sufficient profits.
To test the financial feasibility, suitability and adequacy of estimated project costs should be ascertained, proper sources for financing should be well decided, repaying capacity of the entrepreneur should be well assessed.
It should also be evaluated, whether the estimates of income and Costs are realistic, according to the circumstances.
Various other details, like capital structure, dividend on shares capital, debt-equity ratio, future profitability estimates and internal rate of returns should also be carefully examined.
Information, data, and analysis required for appraisal of project proposal may be divided into the following categories:
12. Cost of the Project
Costs of land buildings, plants, and machinery various fixed assets, fees of various parties, preliminary expenses, margin money for working capital are the constituents of the project cost.
13. Production Cost and Profitability Analysis
For this analysis, the earning capacity of the project is assessed.
The average rate of returns, net present value and internal rate of returns may be used for investment profitability analysis.
14. Analysis of Financial Statements
Several financial statements are used to estimate the financial requirements of new and developing Enterprises.
These are cash flow forecasts, accounts, and income statements, etc.
15. Financial Ratio Analysis
Ratio analysis is an important aspect of financial analysis and appraisal.
Financial viability may be measured by assessing the liquidity of the project, redemption capacity, capital structure, and profitability, by using this analysis.
16. Break-Even Analysis
The position of profits at various levels is studied, by this technique, by studying the inputs and costs in respect of the financial volume of the Enterprise.
17. Evaluation of Managerial Skills
The managerial skills of its promoters should be adequately evaluated, before sanctioning financial assistance to any entrepreneur.
18. Statutory Provisions
The internal and external arrangements of the enterprise should be by statutory provisions.
Besides, the provisions of company act and industrial (development and Regulation), Act should also be complied with, for better management of the enterprise or else government May exercise its rights conferred by these acts to check the mismanagement.
19. Management Skills and Evaluation
Management skills of the enterprise should be evaluated by observing the background experience, ability, organizational capability and qualities of the promoters.
For assessing managerial feasibility, the level of Industrial Relations, facilities, and benefits provided to the employees, etc. should be also be observed, in case of existing Enterprises and the case of new Enterprises, the reputation of the board of directors and foreign entrepreneurs should be suitably reviewed.
21. Evaluation of Ability of Promoters
The ability of the promoters may be evaluated by their character, capacity, and reliability.
22. Socio-Economic Feasibility
Assessment of any project is also necessary with socio-economic viewpoints, so that it may be ensured that the social interests are being safeguarded and not neglected.
The following points Deserve consideration for evolution evaluation of the socio-economic feasibility of the project.
- The element of national profitability should be inbuilt in each project.
- Some additional costs and benefits of the business from the view of society should be evaluated.
- The scarce national resources should be utilized in the interests of the society, to the maximum possible extent.
- The project should be such that it may become participatory to fulfill the socio-economic targets of the nation.
- Real costs and benefits of the project for the nation should be analyzed, and only the direct monetary results should not be taken into consideration.
Evaluation economic socio feasibility of any project may be done based on its contribution towards the nation, like – contribution towards equitable distribution of income and wealth, earning and savings of foreign currency, Employment generation, development of backward areas, improvements in quality and productivity, contribution towards the creation of infrastructural facilities, and industrial structure, helps in upliftment of rural areas and backward sections of the society.