Project Appraisal

Topics: Net present value, Cash flow, Discounted cash flow Pages: 54 (10740 words) Published: August 24, 2011


Every organisation has to examine the viability of each project before it provides financial assistance. It has to ensure that the project will generate sufficient funds on the resources invested in it. With the opening of new factory outlet, the study of viability of a project has become more vital for financing a project. Project appraisal the process of critical evaluation of all the six faces of the project appraisal namely: 1. Technical analysis

2. Financial analysis

3. Legal analysis

4. Market analysis

5. Management appraisal

6. Ecological appraisal.

1 Technical Analysis:
Technical analysis of a project is essential to ensure that necessary physical facilities required for production are available and the best possible alternative is selected to procure them. Technical analysis considers following aspects. o Manufacturing process/technology

o Product mix

o Plant capacity

o Location and site

o Machineries and equipments

o Plant layout

o Work schedule

o Structure and civil works.

Raw materials:
The potential availability of raw materials cost of collection and quality of raw materials. Utilities (Power, Water, Fuel, etc):
These are essential to run a company. The availability of power, water, fuel, etc. should be considered whether sufficient utilities are available or not. Manufacturing process/technology:
The selection of manufacturing process/technology depends on quality of the product required, its end use, latest developments and principal inputs. Product Mix:
Product mix is dependent on market requirements. Product mix holds quality, performance, or innovative features. While planning the production facilities of the firm, some flexibility with respect to the product mix mist is sought. Plant capacity:

Plant capacity refers to the volume of number of units that can be manufactured during a given period. The following factors have an influence on the plant capacity. o Technology requirement

o Input constraints

o Investment costs

o Market conditions

o Resources of the firm

o Government policies

Location and site:
Location refers to a fairly broad area like a city, and industrial zone, or a coastal area. Site refers to a specific piece if land where the project would be set up. Location of the project depends on the land availability of raw materials, market, labor, water, power, effluent disposal, good infrastructure, communication facilities etc. Procurement of plant and machinery:

For procuring the plant and machinery, orders with different reputed machinery suppliers are on turnkey basis. The factors to be considered in selecting the suppliers of plant and machinery are the quality of machinery, the level of technology sophistication, the expected delivery schedules, and the required performance guarantees. Plant layout:

Should consider factors as flows of materials, storage, inter linked storage yards, utility service systems, future expansion alternatives, disposal of industrial effluent, etc. Work schedule:
The purpose of work schedule is:
o To anticipate problems likely to arise during the installation phases and suggest possible solutions.

o To develop a plan of operations covering the initial period.

o To establish the phasing of investments taking into accounts the availability of finance.

Civil work
o Site preparation and development:

o Cost of land

o Legal charges for registration

o Cost of levelling

o Cost of roads formation

Building and structures:
o Main factory buildings

o Other civil works for auxiliary services

o Administrative buildings

o Quality control laboratory and R&D building

o Go downs and drying yards

o Security and time office

o Pump and pump house

o Compound wall/fencing etc

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