Project appraisal is a costs and benefits analysis of a proposed project with an objective to adjudge is feasibility. It involves calculating the feasibility of the project before committing resources to it. Thus, it helps to select the best project. For appraising a project, its economic, financial, technical, market, managerial and social aspects are analyzed.
There are different methods or techniques for project appraisal. These are as follows:
(1) Economic analysis: Economic cost and benefit analysis deal with costs and benefits from the point of view of the country as a whole. Economic analysis includes the analysis for the following aspects:
- Requirements for raw material,
- Level of capacity utilization,
- Anticipated sales,
- Anticipated expenses, and,
- Probability of profits
(2) Financial analysis: Assessment of the financial requirements both-fixed capital and working capital falls under financial analysis.
(3) Market analysis: Before the production actually starts the entrepreneur needs to anticipate the possible market for the product. He/she has to anticipate who will be the possible customers for his product and where, when and how his product will be sold.
(4) Technical feasibility: Technical feasibility means the adequacy of the proposed plant and equipment to the product. It includes the availability of land, building, water, power, transport, communication facilities, raw materials etc.
(5) Management: Management’s ability or competence plays an important role in making an enterprise successful. Hence, while doing project the managerial competence or talent of the promoter should be taken into consideration.
So, these are the different methods or techniques of project appraisal.