Objectives of appraisal; financial, technical appraisal

Objectives of project appraisal

• To check whether the project is technically sound and feasible.
• To test whether it is financially viable and economically beneficial.
• To ensure environmental and social acceptability.
• To compare alternatives and rank projects for scarce funds.
• To identify risks and recommend improvement.
• To provide a basis for approval, financing and later monitoring.

Technical appraisal

Checks whether the project can be built and operated as planned:

• Suitability of technology and process; capacity and scale.
• Site and location, geology, topography, availability of land.
• Design, layout, standards and specifications.
• Availability of raw materials, utilities (water, power), manpower and equipment.
• Construction method, schedule and operation and maintenance arrangements.
• Technical risks and alternatives.

Financial appraisal

Checks whether the project is profitable and can be funded:

• Estimate of capital cost (fixed and working capital) and operating cost.
• Sources of finance, debt-equity mix, loan terms and interest.
• Projected revenue, profit and cash flow.
• Indicators: NPV, IRR, B/C ratio, payback period, debt service coverage ratio (DSCR).
• Break-even point and sensitivity to changes in cost, price and demand.