Project Appraisal and Project Formulation

A project proposal is a written document that presents the idea, objectives, plan, cost and expected benefits of a proposed project to convince the client, funder or approving authority to accept and finance it.

Procedure for developing a project proposal

1. Identify the need or problem and the client's requirement (read the terms of reference).
2. Collect data and study the site, background, existing studies and standards.
3. Define objectives and scope clearly.
4. Generate and compare alternatives; select the best technical option.
5. Prepare the technical part: methodology, design approach, work plan, schedule, team and equipment.
6. Estimate resources and cost: quantities, rates, manpower, overhead and profit; prepare the financial part.
7. Analyse feasibility and risk: economic and financial indicators, environmental and social aspects.
8. Write the draft proposal in the required format.
9. Review internally, check for completeness and errors, obtain approvals.
10. Submit before the deadline with the required security and forms; present or clarify if asked.
11. Negotiate and revise after evaluation.

Necessity of appraisal

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

• Helps decide whether to accept, modify or reject a project (go or no-go).
• Avoids wasting scarce capital on unviable projects.
• Compares alternatives and ranks projects for limited funds.
• Finds risks and weaknesses early, when changes are cheap.
• Checks that technical design, cost and schedule are realistic.
• Ensures economic benefit to the nation and acceptable environmental and social effects.
• Gives lenders and donors confidence; usually a condition for financing.
• Provides a baseline for later monitoring and evaluation.

Aspects (analyses) of appraisal

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

Necessity of appraisal

• Helps decide whether to accept, modify or reject a project (go or no-go).
• Avoids wasting scarce capital on unviable projects.
• Compares alternatives and ranks projects for limited funds.
• Finds risks and weaknesses early, when changes are cheap.
• Checks that technical design, cost and schedule are realistic.
• Ensures economic benefit to the nation and acceptable environmental and social effects.
• Gives lenders and donors confidence; usually a condition for financing.
• Provides a baseline for later monitoring and evaluation.

Aspects for a hydropower project

Project formulation is the process of developing a project idea into a detailed plan by defining objectives, scope, technical design, cost, benefits and implementation arrangements so that it can be appraised and implemented.

Techniques of project formulation

The techniques are used together; the output is a project report with ToR, design basis, cost estimate and indicators for decision.

Contents of a good engineering project proposal

1. Title, summary and background of the project.
2. Problem statement and need (justification).
3. Goal and objectives.
4. Scope and expected outputs.
5. Methodology and technical design.
6. Work plan and time schedule.
7. Organisation, management and staffing.
8. Budget and financing plan.
9. Benefits: economic, social, environmental.
10. Risks and mitigation.
11. Monitoring and evaluation plan, sustainability.
12. Annexes: maps, drawings, data, CVs.

Technical and financial parts

Technical proposal contents

1. Introduction and understanding of the project and terms of reference.
2. Objectives and scope of work.
3. Methodology and approach.
4. Work plan and schedule (bar chart, milestones).
5. Organisation and staffing: key personnel with CVs, roles and man-months.
6. Equipment, materials and facilities proposed.
7. Past experience and similar works.
8. Quality assurance, safety and environmental plan.
9. Risk assessment and mitigation.
10. Deliverables and reports.

Financial proposal contents

1. Cost estimate and summary of total price.
2. Breakdown: remuneration, direct costs, reimbursables, taxes (VAT).
3. Bill of quantities and unit rates for construction works.
4. Payment schedule and terms.
5. Sources of finance and cash flow (for the owner's financial proposal).
6. Financial indicators such as NPV, IRR, B/C ratio and payback period.
7. Validity of the offer, bid security and conditions.

Why the proposal is the important document

A good proposal is the main document by which a project is accepted and financed, so its essence is:

• Clear need and objectives: shows exactly what problem is solved.
• Convincing technical approach: proves that the proposer understands the work and can do it.
• Realistic cost and schedule: neither inflated nor unrealistically low.
• Evidence of capacity: experience, staff, equipment, past performance.
• Benefits and risks stated honestly.
• Clarity, brevity and good structure: easy to read and evaluate.
• Compliance with the terms of reference, format and rules of the client.
• Basis for contract and control: once accepted, it becomes the baseline for the scope, time and cost of the project.

Socio-economic survey

A socio-economic survey collects data on the people and economy of the project area: population, households, income, occupation, education, health, land holding, infrastructure, gender and caste composition, and attitude to the project.

• Methods: questionnaire, interviews, focus groups, field observation, existing records.
• Uses: finds beneficiaries and affected people, estimates demand and benefits, plans resettlement and compensation, supports social cost benefit analysis and environmental assessment.

Ordinary (financial) cost benefit analysis

Considers only costs and returns to the owner at market prices, including loan interest and taxes. It asks whether the project is profitable for the investor.

Social cost benefit analysis (SCBA)

Considers all costs and benefits to society, using shadow (economic) prices, excluding transfer payments such as taxes and subsidies and including externalities (pollution, time saved, employment). It asks whether the project is good for the nation.

Decision rule: accept if $B/C > 1$ and $NPV > 0$.

Environmental problems in Nepal

• Deforestation and loss of biodiversity.
• Soil erosion, landslides and flood in the hills and Terai.
• Air pollution in Kathmandu valley (vehicles, brick kilns, dust).
• Water pollution of rivers (Bagmati) from sewage and industry.
• Solid waste and poor disposal.
• Glacier retreat and climate change effects.
• Unplanned urbanisation and loss of farmland.
• Noise pollution and haphazard resource extraction (sand, boulders).

Types of impacts

Improvement measures

Strict EIA and monitoring, afforestation, slope stabilisation, treatment plants, clean transport and emission standards, waste management, community forestry, public awareness and law enforcement.

Necessity of appraisal

• Helps decide whether to accept, modify or reject a project (go or no-go).
• Avoids wasting scarce capital on unviable projects.
• Compares alternatives and ranks projects for limited funds.
• Finds risks and weaknesses early, when changes are cheap.
• Checks that technical design, cost and schedule are realistic.
• Ensures economic benefit to the nation and acceptable environmental and social effects.
• Gives lenders and donors confidence; usually a condition for financing.
• Provides a baseline for later monitoring and evaluation.

Techniques of project formulation

Techniques of project formulation

Importance of project appraisal

• Helps decide whether to accept, modify or reject a project (go or no-go).
• Avoids wasting scarce capital on unviable projects.
• Compares alternatives and ranks projects for limited funds.
• Finds risks and weaknesses early, when changes are cheap.
• Checks that technical design, cost and schedule are realistic.
• Ensures economic benefit to the nation and acceptable environmental and social effects.
• Gives lenders and donors confidence; usually a condition for financing.
• Provides a baseline for later monitoring and evaluation.

Economic vs financial appraisal

Importance of project appraisal

• Helps decide whether to accept, modify or reject a project (go or no-go).
• Avoids wasting scarce capital on unviable projects.
• Compares alternatives and ranks projects for limited funds.
• Finds risks and weaknesses early, when changes are cheap.
• Checks that technical design, cost and schedule are realistic.
• Ensures economic benefit to the nation and acceptable environmental and social effects.
• Gives lenders and donors confidence; usually a condition for financing.
• Provides a baseline for later monitoring and evaluation.

Technical vs financial proposal

Concept

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking. It looks at the proposal from all sides (technical, market, management, financial, economic, environmental and social) and ends with a recommendation. It is done by the owner, a lender or an independent agency.

Importance

• Helps decide whether to accept, modify or reject a project (go or no-go).
• Avoids wasting scarce capital on unviable projects.
• Compares alternatives and ranks projects for limited funds.
• Finds risks and weaknesses early, when changes are cheap.
• Checks that technical design, cost and schedule are realistic.
• Ensures economic benefit to the nation and acceptable environmental and social effects.
• Gives lenders and donors confidence; usually a condition for financing.
• Provides a baseline for later monitoring and evaluation.

Why appraisal is necessary

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

It is necessary to avoid investing limited funds in unviable projects, to find technical, financial and environmental weaknesses before commitment, to choose among alternatives, and to satisfy lenders and donors.

Technical vs financial proposal

Project appraisal

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

Marketing appraisal

Examines demand and sales: size and growth of the market, consumer needs, supply and competition, price, distribution channels, promotion and the forecast of sales. A project with no secure market will fail even if technically sound.

Management appraisal

Examines the capability of the people and organisation: experience and integrity of promoters and the implementing agency, organisation structure, key managers, manpower plan and training, systems for planning and control, and the legal arrangements.

Environmental appraisal

Examines the effects on air, water, soil, ecology and people: whether IEE/EIA is required, identification of impacts, mitigation and management plan, compliance with environmental law and cost of environmental measures. A project that harms the environment seriously may be rejected or modified.

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.

Concept of project appraisal

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

Contents of the proposals

Technical proposal contents

1. Introduction and understanding of the project and terms of reference.
2. Objectives and scope of work.
3. Methodology and approach.
4. Work plan and schedule (bar chart, milestones).
5. Organisation and staffing: key personnel with CVs, roles and man-months.
6. Equipment, materials and facilities proposed.
7. Past experience and similar works.
8. Quality assurance, safety and environmental plan.
9. Risk assessment and mitigation.
10. Deliverables and reports.

Financial proposal contents

1. Cost estimate and summary of total price.
2. Breakdown: remuneration, direct costs, reimbursables, taxes (VAT).
3. Bill of quantities and unit rates for construction works.
4. Payment schedule and terms.
5. Sources of finance and cash flow (for the owner's financial proposal).
6. Financial indicators such as NPV, IRR, B/C ratio and payback period.
7. Validity of the offer, bid security and conditions.

Input analysis in project formulation

Input analysis studies all the resources required to construct and operate the project and checks their availability, quality, source and cost.

Steps: list inputs from the design, estimate quantities, identify sources and suppliers, forecast prices, check reliability and alternatives, then cost them. The result feeds the cost estimate and risk analysis.

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

Step by step process

1. Receive and screen the proposal: check it is complete and matches policy.
2. Define the scope and criteria of appraisal (technical, economic, financial, social, environmental).
3. Collect and verify data: site visit, market data, costs, laws.
4. Technical appraisal: design, technology, capacity, schedule.
5. Market and managerial appraisal.
6. Financial appraisal: cost, funding, cash flow, NPV, IRR, payback.
7. Economic appraisal: shadow prices, B/C, EIRR.
8. Environmental and social appraisal.
9. Risk and sensitivity analysis.
10. Compare alternatives and make the recommendation: accept, modify or reject.
11. Prepare the appraisal report and submit it to the approving authority.
12. Decision and follow-up: approval, conditions, baseline for monitoring.

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

Contents of the project appraisal report

1. Executive summary and recommendation.
2. Project background, objectives and description.
3. Technical appraisal: design, technology, site, cost estimate.
4. Market and demand analysis.
5. Management and organisation appraisal.
6. Financial appraisal: investment, funding plan, cash flow, NPV, IRR, payback.
7. Economic appraisal: B/C ratio, EIRR, social benefit.
8. Environmental and social impact appraisal.
9. Risk and sensitivity analysis.
10. Implementation plan and schedule.
11. Conclusions, conditions and recommendations (approve, modify, reject).
12. Annexes: data, maps, calculations.

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

Basic parameters for a civil engineering project

Civil-specific points inside these aspects: site investigation and geotechnical data, hydrology, design standards (NBC, IS codes), quantities and rates, construction method and equipment, construction period, quality control, safety, land and right-of-way, operation and maintenance cost over the life, and disaster resilience (flood and earthquake).

Necessity of comprehensive appraisal

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

It is needed because formulation alone only presents the promoter's view. A comprehensive appraisal checks every aspect so that:

• Helps decide whether to accept, modify or reject a project (go or no-go).
• Avoids wasting scarce capital on unviable projects.
• Compares alternatives and ranks projects for limited funds.
• Finds risks and weaknesses early, when changes are cheap.
• Checks that technical design, cost and schedule are realistic.
• Ensures economic benefit to the nation and acceptable environmental and social effects.
• Gives lenders and donors confidence; usually a condition for financing.
• Provides a baseline for later monitoring and evaluation.

Necessity of a project proposal

A good proposal is the main document by which a project is accepted and financed, so its essence is:

• Clear need and objectives: shows exactly what problem is solved.
• Convincing technical approach: proves that the proposer understands the work and can do it.
• Realistic cost and schedule: neither inflated nor unrealistically low.
• Evidence of capacity: experience, staff, equipment, past performance.
• Benefits and risks stated honestly.
• Clarity, brevity and good structure: easy to read and evaluate.
• Compliance with the terms of reference, format and rules of the client.
• Basis for contract and control: once accepted, it becomes the baseline for the scope, time and cost of the project.

Contents the proposal must have:

1. Title, summary and background of the project.
2. Problem statement and need (justification).
3. Goal and objectives.
4. Scope and expected outputs.
5. Methodology and technical design.
6. Work plan and time schedule.
7. Organisation, management and staffing.
8. Budget and financing plan.
9. Benefits: economic, social, environmental.
10. Risks and mitigation.
11. Monitoring and evaluation plan, sustainability.
12. Annexes: maps, drawings, data, CVs.

Aspects of project appraisal

Aspects of the project proposal

1. Title, summary and background of the project.
2. Problem statement and need (justification).
3. Goal and objectives.
4. Scope and expected outputs.
5. Methodology and technical design.
6. Work plan and time schedule.
7. Organisation, management and staffing.
8. Budget and financing plan.
9. Benefits: economic, social, environmental.
10. Risks and mitigation.
11. Monitoring and evaluation plan, sustainability.
12. Annexes: maps, drawings, data, CVs.

Technical and financial proposal contents

Technical proposal contents

1. Introduction and understanding of the project and terms of reference.
2. Objectives and scope of work.
3. Methodology and approach.
4. Work plan and schedule (bar chart, milestones).
5. Organisation and staffing: key personnel with CVs, roles and man-months.
6. Equipment, materials and facilities proposed.
7. Past experience and similar works.
8. Quality assurance, safety and environmental plan.
9. Risk assessment and mitigation.
10. Deliverables and reports.

Financial proposal contents

1. Cost estimate and summary of total price.
2. Breakdown: remuneration, direct costs, reimbursables, taxes (VAT).
3. Bill of quantities and unit rates for construction works.
4. Payment schedule and terms.
5. Sources of finance and cash flow (for the owner's financial proposal).
6. Financial indicators such as NPV, IRR, B/C ratio and payback period.
7. Validity of the offer, bid security and conditions.

Project appraisal

Project appraisal is the critical, systematic assessment of a proposed project, before commitment of funds, to judge whether it is technically sound, economically and financially viable, environmentally and socially acceptable, and worth undertaking.

Contents of a good proposal

1. Title, summary and background of the project.
2. Problem statement and need (justification).
3. Goal and objectives.
4. Scope and expected outputs.
5. Methodology and technical design.
6. Work plan and time schedule.
7. Organisation, management and staffing.
8. Budget and financing plan.
9. Benefits: economic, social, environmental.
10. Risks and mitigation.
11. Monitoring and evaluation plan, sustainability.
12. Annexes: maps, drawings, data, CVs.

Procedure for developing a good proposal

1. Identify the need or problem and the client's requirement (read the terms of reference).
2. Collect data and study the site, background, existing studies and standards.
3. Define objectives and scope clearly.
4. Generate and compare alternatives; select the best technical option.
5. Prepare the technical part: methodology, design approach, work plan, schedule, team and equipment.
6. Estimate resources and cost: quantities, rates, manpower, overhead and profit; prepare the financial part.
7. Analyse feasibility and risk: economic and financial indicators, environmental and social aspects.
8. Write the draft proposal in the required format.
9. Review internally, check for completeness and errors, obtain approvals.
10. Submit before the deadline with the required security and forms; present or clarify if asked.
11. Negotiate and revise after evaluation.

Definitions

Project formulation is the process of developing a project idea into a detailed plan by defining objectives, scope, technical design, cost, benefits and implementation arrangements so that it can be appraised and implemented. Project appraisal is the independent assessment of the formulated project to decide whether it should be accepted.

Procedure for developing a project proposal

1. Identify the need or problem and the client's requirement (read the terms of reference).
2. Collect data and study the site, background, existing studies and standards.
3. Define objectives and scope clearly.
4. Generate and compare alternatives; select the best technical option.
5. Prepare the technical part: methodology, design approach, work plan, schedule, team and equipment.
6. Estimate resources and cost: quantities, rates, manpower, overhead and profit; prepare the financial part.
7. Analyse feasibility and risk: economic and financial indicators, environmental and social aspects.
8. Write the draft proposal in the required format.
9. Review internally, check for completeness and errors, obtain approvals.
10. Submit before the deadline with the required security and forms; present or clarify if asked.
11. Negotiate and revise after evaluation.

Definitions

Project formulation is the process of developing a project idea into a detailed plan by defining objectives, scope, technical design, cost, benefits and implementation arrangements so that it can be appraised and implemented. Project appraisal is the independent assessment of the formulated project to decide whether it should be accepted.

Procedure for developing a project proposal

1. Identify the need or problem and the client's requirement (read the terms of reference).
2. Collect data and study the site, background, existing studies and standards.
3. Define objectives and scope clearly.
4. Generate and compare alternatives; select the best technical option.
5. Prepare the technical part: methodology, design approach, work plan, schedule, team and equipment.
6. Estimate resources and cost: quantities, rates, manpower, overhead and profit; prepare the financial part.
7. Analyse feasibility and risk: economic and financial indicators, environmental and social aspects.
8. Write the draft proposal in the required format.
9. Review internally, check for completeness and errors, obtain approvals.
10. Submit before the deadline with the required security and forms; present or clarify if asked.
11. Negotiate and revise after evaluation.

Drawbacks of cost-benefit analysis

• Intangible items (environment, human life, aesthetics, time) are hard to value in money.
• Results are sensitive to the discount rate and project life chosen.
• Forecasts of costs and benefits are uncertain; costs are often underestimated and benefits overstated.
• Externalities and indirect effects may be missed.
• It ignores who gains and who loses (income distribution and equity).
• Shadow prices are difficult to determine and can be manipulated.
• Not suitable alone where the effects are large, irreversible or non-economic.
• Needs large data, time and expert skill.

Need of proper and concise formulation

Proper and concise formulation is needed because it:

• defines clear objectives, scope and deliverables so that everyone understands the project;
• avoids wasting resources on a poor or unnecessary idea;
• gives reliable cost, time and benefit estimates;
• finds risks and alternatives early;
• provides the basis for appraisal, financing, tender and contract;
• helps monitoring and evaluation later. A vague or long formulation causes confusion, disputes and cost overrun.

Techniques and ToR parameters

Terms of Reference (ToR) state the objectives, scope, tasks, outputs, schedule, qualifications and conditions for a study or project. Formulation techniques give the parameters that go into the ToR:

• Feasibility and technical analysis: scope of survey, design standards, capacity.
• Market and input analysis: data to be collected, resources required.
• Cost-benefit and financial analysis: methods, discount rate, indicators required.
• Environmental and social analysis: IEE/EIA requirement, mitigation.
• Risk analysis: sensitivity cases.
• SWOT and logical framework: strategy, outputs, indicators, assumptions.
• Management and implementation: schedule, deliverables, staffing, reporting.

Technical proposal contents

1. Introduction and understanding of the project and terms of reference.
2. Objectives and scope of work.
3. Methodology and approach.
4. Work plan and schedule (bar chart, milestones).
5. Organisation and staffing: key personnel with CVs, roles and man-months.
6. Equipment, materials and facilities proposed.
7. Past experience and similar works.
8. Quality assurance, safety and environmental plan.
9. Risk assessment and mitigation.
10. Deliverables and reports.

Financial proposal contents

1. Cost estimate and summary of total price.
2. Breakdown: remuneration, direct costs, reimbursables, taxes (VAT).
3. Bill of quantities and unit rates for construction works.
4. Payment schedule and terms.
5. Sources of finance and cash flow (for the owner's financial proposal).
6. Financial indicators such as NPV, IRR, B/C ratio and payback period.
7. Validity of the offer, bid security and conditions.

A good proposal is the main document by which a project is accepted and financed, so its essence is:

• Clear need and objectives: shows exactly what problem is solved.
• Convincing technical approach: proves that the proposer understands the work and can do it.
• Realistic cost and schedule: neither inflated nor unrealistically low.
• Evidence of capacity: experience, staff, equipment, past performance.
• Benefits and risks stated honestly.
• Clarity, brevity and good structure: easy to read and evaluate.
• Compliance with the terms of reference, format and rules of the client.
• Basis for contract and control: once accepted, it becomes the baseline for the scope, time and cost of the project.

Qualities of a good proposal

• Complete: covers all items asked.
• Concise: no unnecessary length.
• Consistent: figures in text, tables and drawings agree.
• Credible: supported by data and references.
• Clear: simple language, headings, tables and figures.

Objectives (three):

1. To obtain approval and funding for the project from the client or donor.
2. To describe clearly the scope, method, cost and schedule so that all parties agree on what will be done.
3. To serve as a baseline for contract, monitoring and control.

Limitations (three):

1. It is based on assumptions and estimates, so actual cost and time may differ.
2. Preparation takes time and money, and incomplete data reduces accuracy.
3. It may be biased towards winning approval and may overstate benefits; it cannot cover all future changes.

Questions a good proposal should answer

A well prepared proposal answers these questions:

Project proposal

A project proposal is a written document that presents the idea, objectives, plan, cost and expected benefits of a proposed project to convince the client, funder or approving authority to accept and finance it.

Questions a well prepared proposal answers

A well prepared proposal answers these questions:

Aspects of the feasibility study of a road project

A feasibility study checks whether the road is technically sound, economically worthwhile and acceptable to the environment and people.

Project proposal

A project proposal is a written document that presents the idea, objectives, plan, cost and expected benefits of a proposed project to convince the client, funder or approving authority to accept and finance it.

Technical vs financial proposal

Evaluation by the client

In Nepal, evaluation follows the Public Procurement Act, 2063 and Rules, 2064.

Construction works (bids):

1. Opening and preliminary examination: completeness, bid security, signed forms.
2. Technical (qualification and responsiveness) evaluation against criteria such as experience, financial capacity, equipment and personnel, on a pass or fail basis.
3. Financial evaluation of the bids that pass: arithmetic correction and comparison of prices.
4. Award to the lowest evaluated substantially responsive bidder.

Consulting services (proposals):

1. The technical proposal is opened first and scored on firm's experience, methodology and work plan, and key staff (points are given, with a minimum technical pass mark).
2. The financial proposals of technically qualified consultants are then opened.
3. Combined score under Quality and Cost Based Selection (QCBS): for example 80% weight to technical and 20% to financial. The highest combined score is invited for negotiation and contract. Other methods are least cost selection and quality based selection.

A project proposal is a written document that presents the idea, objectives, plan, cost and expected benefits of a proposed project to convince the client, funder or approving authority to accept and finance it.

Cost benefit analysis for a road project

Cost benefit analysis (CBA) compares the money value of all costs and benefits of the road, discounted to present value, to decide if the road is worth building.

Costs: construction (earthwork, pavement, structures), land acquisition and compensation, utility shifting, supervision, environmental mitigation, and periodic and routine maintenance.

Benefits:

• Saving in vehicle operating cost (fuel, tyre, repair).
• Saving in travel time of passengers and goods.
• Reduction in accidents.
• Benefit to induced and generated traffic.
• Wider benefits: access to market, school and health, rise in land value, employment.

Steps: (1) forecast traffic with and without the road; (2) find unit costs and benefits; (3) work out yearly costs and benefits over the design life (say 20 years); (4) discount at the opportunity cost of capital; (5) compute NPV, B/C and EIRR; (6) sensitivity analysis.

Illustrative calculation

Capital cost NRs 500 million (year 0); maintenance NRs 10 million per year; benefits NRs 90 million per year for 20 years; discount rate 10%.

$$\text{Annuity factor} = \frac{1-(1.10)^{-20}}{0.10} = 8.5136$$ $$\begin{aligned} PV_{benefit} &= 90 \times 8.5136 = 766.22 \\ PV_{cost} &= 500 + 10 \times 8.5136 = 585.14 \\ B/C &= \frac{766.22}{585.14} = 1.31 \\ NPV &= 766.22 - 585.14 = 181.09 \end{aligned}$$

Answer: $B/C = 1.31 > 1$ and $NPV =$ NRs 181.09 million, so the road is economically justified. The IRR on net benefit of 80 per year is 15.03%, above 10%.

Cost-benefit analysis (CBA) compares the total expected benefits of a project with its total costs, both expressed in money and discounted to present value, to judge whether the project is worthwhile.

Steps: identify all costs and benefits; assign money values (using shadow prices if market prices are distorted); choose a discount rate and project life; discount; calculate indicators.

Indicators:

$$B/C = \frac{PV\ \text{of benefits}}{PV\ \text{of costs}},\quad NPV = \sum \frac{B_t - C_t}{(1+r)^t}$$

A project is accepted if $B/C > 1$, $NPV > 0$ and $IRR >$ required rate.

Ordinary (private/financial) CBA counts only the cash costs and benefits to the owner at market prices. Social CBA (SCBA) counts all costs and benefits to society, including externalities and non-market effects, using shadow prices and a social discount rate.

Drawbacks: hard to give money value to intangible items (environment, human life, time); choice of discount rate affects results; forecasts are uncertain; ignores distribution of benefits among groups; externalities can be missed; costs may be underestimated and benefits overstated; not suitable alone for decisions with large social or ecological effects.

Environmental impact analysis

Environmental Impact Assessment (EIA) is a systematic study to identify, predict, evaluate and mitigate the positive and negative effects of a proposed project on the physical, biological, social and cultural environment before decisions are taken. In Nepal, it is required by the Environment Protection Act, 2019 and Environment Protection Rules, 2020: IEE for smaller projects and full EIA for larger ones (for example hydropower above 50 MW, roads in sensitive areas).

Steps

1. Screening: decide whether IEE or EIA is needed.
2. Scoping: identify key issues and prepare the terms of reference.
3. Baseline study of existing environment.
4. Impact identification and prediction (checklist, matrix, network, overlay).
5. Evaluation of significance and comparison of alternatives.
6. Mitigation measures and Environmental Management Plan.
7. Report preparation, public hearing and review.
8. Approval, monitoring and auditing.

Shadow pricing

A shadow price is the true economic (opportunity) cost or value of a good to society, used when the market price is distorted by taxes, subsidies, controls or monopoly.

• Unskilled labour in a country with unemployment has a shadow wage lower than the market wage.
• Imported goods are valued at border (CIF) prices, with a shadow exchange rate if the official rate is unrealistic.
• Taxes, duties and subsidies are transfer payments and are removed.

Market externalities

Externalities are side effects of a project on people not involved in it, not reflected in market prices.

• Negative: pollution from a factory, noise, loss of farmland.
• Positive: a road increases land value and trade for nearby people. In social CBA they are valued and included.

Market imperfection

Markets are imperfect when prices do not show true cost or value because of monopoly, government control, lack of information, taxes or subsidies, and restricted entry. Then market prices cannot be used directly in economic analysis, and shadow prices are needed.

Social cost benefit analysis

SCBA evaluates a project from the viewpoint of the whole society. It uses shadow prices, includes externalities and intangible effects and excludes transfers, discounted at a social discount rate. The project is accepted if the economic NPV is positive and $B/C > 1$ (or EIRR is above the social discount rate).

EIA

Environmental Impact Assessment (EIA) is a systematic study to identify, predict, evaluate and mitigate the positive and negative effects of a proposed project on the physical, biological, social and cultural environment before decisions are taken. In Nepal, it is required by the Environment Protection Act, 2019 and Environment Protection Rules, 2020: IEE for smaller projects and full EIA for larger ones (for example hydropower above 50 MW, roads in sensitive areas).

Steps

1. Screening: decide whether IEE or EIA is needed.
2. Scoping: identify key issues and prepare the terms of reference.
3. Baseline study of existing environment.
4. Impact identification and prediction (checklist, matrix, network, overlay).
5. Evaluation of significance and comparison of alternatives.
6. Mitigation measures and Environmental Management Plan.
7. Report preparation, public hearing and review.
8. Approval, monitoring and auditing.

Environmental problems in Nepal

• Deforestation and loss of biodiversity.
• Soil erosion, landslides and flood in the hills and Terai.
• Air pollution in Kathmandu valley (vehicles, brick kilns, dust).
• Water pollution of rivers (Bagmati) from sewage and industry.
• Solid waste and poor disposal.
• Glacier retreat and climate change effects.
• Unplanned urbanisation and loss of farmland.
• Noise pollution and haphazard resource extraction (sand, boulders).

Types of impacts

Identification and comparison by checklist method

A checklist is a list of environmental factors (air, water, soil, noise, flora, fauna, land use, health, employment, culture) against which the possible effects of the project are marked.

• Simple checklist: lists factors; the assessor ticks those likely to be affected.
• Descriptive checklist: adds the nature and measurement of impact.
• Scaling / weighting checklist: each factor is given a scale value (say -5 to +5) and an importance weight; the weighted scores are added for each alternative, and the alternative with the best total is preferred.

Advantages: simple, cheap, quick, ensures nothing is forgotten. Limitations: does not show interaction between factors or the cause and effect link, and gives subjective values.

EIA

Environmental Impact Assessment (EIA) is a systematic study to identify, predict, evaluate and mitigate the positive and negative effects of a proposed project on the physical, biological, social and cultural environment before decisions are taken. In Nepal, it is required by the Environment Protection Act, 2019 and Environment Protection Rules, 2020: IEE for smaller projects and full EIA for larger ones (for example hydropower above 50 MW, roads in sensitive areas).

Steps

1. Screening: decide whether IEE or EIA is needed.
2. Scoping: identify key issues and prepare the terms of reference.
3. Baseline study of existing environment.
4. Impact identification and prediction (checklist, matrix, network, overlay).
5. Evaluation of significance and comparison of alternatives.
6. Mitigation measures and Environmental Management Plan.
7. Report preparation, public hearing and review.
8. Approval, monitoring and auditing.

Environmental problems in Nepal

• Deforestation and loss of biodiversity.
• Soil erosion, landslides and flood in the hills and Terai.
• Air pollution in Kathmandu valley (vehicles, brick kilns, dust).
• Water pollution of rivers (Bagmati) from sewage and industry.
• Solid waste and poor disposal.
• Glacier retreat and climate change effects.
• Unplanned urbanisation and loss of farmland.
• Noise pollution and haphazard resource extraction (sand, boulders).

Types of impacts

Improvement measures

Strict EIA and monitoring, afforestation, slope stabilisation, treatment plants, clean transport and emission standards, waste management, community forestry, public awareness and law enforcement.

Environmental analysis in project formulation studies how a project will affect, and be affected by, its natural and social surroundings, so that harmful effects are avoided or reduced before approval.

• Baseline: present condition of land, water, air, noise, flora, fauna, people.
• Impact identification: during construction (dust, noise, spoil, land take) and operation (emissions, discharge, resettlement); positive and negative, direct and indirect.
• Evaluation: magnitude, extent and duration; compare alternatives.
• Mitigation: avoid, reduce or compensate, e.g. afforestation, retaining walls, treatment plants, resettlement plan.
• Cost: environmental management cost is added to the project cost and benefits.
• Legal requirement: IEE or EIA under the Environment Protection Act, 2019 and Rules, 2020 of Nepal.
• Output: environmental management plan and monitoring plan, which affect the decision whether to accept, modify or reject the project.

Environmental Impact Assessment (EIA) is a systematic study to identify, predict, evaluate and mitigate the positive and negative effects of a proposed project on the physical, biological, social and cultural environment before decisions are taken. In Nepal, it is required by the Environment Protection Act, 2019 and Environment Protection Rules, 2020: IEE for smaller projects and full EIA for larger ones (for example hydropower above 50 MW, roads in sensitive areas).

Steps

1. Screening: decide whether IEE or EIA is needed.
2. Scoping: identify key issues and prepare the terms of reference.
3. Baseline study of existing environment.
4. Impact identification and prediction (checklist, matrix, network, overlay).
5. Evaluation of significance and comparison of alternatives.
6. Mitigation measures and Environmental Management Plan.
7. Report preparation, public hearing and review.
8. Approval, monitoring and auditing.

Benefits: avoids costly mistakes, protects resources and people, improves design, gives public participation, and supports sustainable development.

A feasibility study is a detailed investigation, done before final approval, to decide whether a proposed project is practicable and worth investing in. It follows the pre-feasibility study and uses reliable data.

Aspects:

• Technical: technology, design, site, resources.
• Market: demand and supply.
• Financial: cost, funding, profitability.
• Economic: benefit to the nation (B/C, EIRR).
• Environmental and social: impacts and acceptance.
• Managerial and legal: capacity, permits.
• Risk and sensitivity.

Output: a feasibility report with alternatives and a recommendation to go ahead, modify or stop. It is the basis for detailed design, financing and tender.

A project proposal is a written document that presents the idea, objectives, plan, cost and expected benefits of a proposed project to convince the client, funder or approving authority to accept and finance it.

Main contents: background and need, objectives, scope, methodology, work plan and schedule, organisation and staffing, budget and funding, expected benefits, risks and monitoring.

Parts: technical proposal (how the work is done) and financial proposal (cost). A good proposal is clear, complete, realistic and follows the client's format; once accepted it becomes the baseline for the contract.

SWOT analysis is a planning tool that examines the Strengths and Weaknesses (internal factors) and the Opportunities and Threats (external factors) of a project or organisation.

Example (hydropower project):

• Strengths: good head and flow, experienced team.
• Weaknesses: remote site, limited funds.
• Opportunities: rising power demand, export market.
• Threats: floods, policy change, price rise.

Use: in formulation it helps to choose strategy: use strengths to take opportunities, fix weaknesses and prepare against threats.