Project appraisal is the structured process of assessing the viability of a project or proposal. It involves calculating the feasibility of the project before committing resources to it. It is a tool that company’s use for choosing the best project that would help them to attain their goal. Project appraisal often involves making comparison between various options and this done by making use of any decision technique or economic appraisal technique.
Project appraisal is a tool which is also used by companies to review the projects completed by it. This is done to know the effect of each project on the company. This means that the project appraisal is done to know, how much the company has invested on the project and in return how much it is gaining from it.
Process of project appraisal
The process of project appraisal consists of five steps and they are – initial assessment, defining problem and long-list, consulting and short-list, developing options, and comparing and selecting project. The process of appraisal generally starts from the initial phase of the project. If the appraisal process starts from an early stage, then the company will be in a better position to decide how capital should be spend in the project and also it will help them to make the decision of not spending too much or stopping a project that is not economically viable.
Types of project appraisal
Appraisal of projects can be done by many ways, but the most common of them are financial and economic appraisal. In case of financial project appraisal, the company reviews the cost of the project and the expected revenues that will be generated by the project. This type of appraisal helps the company to prevent overspending on a project. It also helps in finding certain areas where alterations can be done for generating higher revenues. Under economic appraisal, the company mainly focuses on the total benefit of the project and less on the costs spent on the project. Other than these two types of appraisal, there are also other types of project appraisal which include technical appraisal, management or organizational appraisal and marketing and commercial appraisal.