SMALL BUSINESS MANAGEMENT
• Scope of appraisal
• Steps followed in project appraisal
Project appraisal can be defined as the promoter taking a second look critically and carefully at a project as presented by the promoter person who is in way involved in or connected with its preparation and who is as such able to take an independent,
dispassionate and objective view of the project in its totality as also in respect of its various components. The person who carries out appraisal of a project is usually an official from the financial institutions or team of institutional officials. Since all ending activities involve risk in a smaller or larger measure, project appraisal aims at sizing up the quality of projects and their ling term profitability aims at minimising the risk of lending by rectifying their weaknesses and improving their quality by
incorporating into them features/ safeguards missed by the
promoters either because of lack of knowledge or information,
Project appraisal an exercise whereby a lending financial
institution makes an independent and objective assessment of various aspects of an investment proposition to arrive at the financing decision. Appraisal exercises are basically aimed at determining the viability of a project and sometimes, also in reshaping the project so as to upgrade its viability. This is done by allocating the term finance sought by a promoter.
The factors generally considered by institutions while appraising a project included technical, financial, commercial, economic, ecological, social and managerial aspects. This makes it necessary to recognise the inter-relationship underlying the various aspects of a project. For example, the size of the initial market and the estimates for demand build-up would determine the profitability, which, in turn, would determine the means of financing.
Location also has an important bearing on project cost and cost of production. Above all, the management behind the project has a decisive influence on most of these aspects. These considerations imply that project appraisal is viewed as a composite process as against the approach of viewing each aspect individually. This chapter will focus on the appraise s thinking process from the viewpoint of the lending financial institutions; this will help ensure necessary preparation on the part of the borrowersentrepreneurs/businessmen/businesswomen.
Scope of Appraisal
The appraisal of a project is undertaken by the financial
institutions with the twin objectives of determining the market potential of a project and selecting an optimal strategy. The methods of analysis vary from project to project, Nevertheless certain common aspects of study from the angle of technology and engineering are with a mention:
This exercise is critical as it calls for a multi-dimensional analysis of the project that is, a complete scanning of the project.
Financial institutions and banks make a critical appraisal of projects, which are submitted to them by the entrepreneurs for getting loans. They have traditionally been accepting the data provided by the entrepreneur as valid while assessing the project.
Size and scale of operations;
Locational aspects of the project and availability of
• Selection of plant, machinery and equipment together with background, competence and capability of machinery/
The exercise of project appraisal simply means the assessment of a project in terms of its economic, social, and financial viability.
Choice of technical process and/ or appropriate technology;
Technical collaboration arrangements, if any;
• Plant layout and factory buildings;
• Technical Engineering Services
• Project design and network analysis for the assessment of •
project implementation schedule;
Aspects relating to effluent disposal,...
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