Chapter 05: Project - Errors, Appraisal

Project formulation is an important and a crucial stage in project preparation. The success of any project almost always depends on the quality of thought put during project formulation. Some of the mistakes that can occur during project evaluation are

• Product selection- wrong product selection may lead to failure of entire project
• Capacity utilization estimates- under utilization of production capacity may lead to cost hikes
• Market Study- mistakes in market study may lead to wrong product selection, wrong demand estimations
• Technology selection- appropriate technology must be chosen- wrong selection may have implications for cost, non-availability of spare parts
• Location selection- choosing a location where government schemes provide additional benefits is good choice; a location away from raw material or market may add up unnecessary cost
• Selection of ownership form: wrong choice of ownership form may fail to attract enough resources

Project Appraisal
Project appraisal is a process of testing a projects feasibility. The different criteria used for project appraisal are

• Economic analysis- essentially asking the question : will this project make profit ?
• Financial analysis- how much money needed, in what quantities, during what phase of the project and ensure cash flow
• Technical Feasibility- adequacy of technology used to meet expected production targets
• Managerial competence- ability of managers to have control on project during its entire life cycle
• Market analysis-finding demand- confirming it- estimating