Manual for Development Projects - Planning Commission

Chapter 5
Purpose
- Net Present Worth (NPW)
- Benefit-Cost Ratio (BCR)
- Internal Rate of Return (IRR)
- Net Benefit-Investment Ratio (NBIR = N/K Ratio)
- Sensitivity Analysis
- Choosing Among Mutually Exclusive/Alternate Projects
- Domestic Resource Cost (Modified Bruno Ratio)
5.1 The third phase in the project cycle is appraisal. If a project is well formulated and thoroughly
appraised, a good follow-through on the subsequent stages of the project cycle will see to its goals being
achieved. Appraisal involves a careful checking of the basic data, assumptions and methodology used in
project preparation, an in-depth review of the work plan, cost estimates and proposed financing, an
assessment of the project's organizational and management aspects, and finally the validity of the
financial, economic and social benefits expected from the project. On the basis of such an assessment, a
judgement is reached as to whether the project is technically sound, financially justified and viable from
the point of view of the economy as a whole.
5.2 The Planning and Development Division, as per the Rules of Business, 1973 (up-dated upto
February, 1985) is responsible for the development of appropriate cost and physical standards for the
effective technical and economic appraisal of projects. In the Planning and Development Division, there
is a division of labour in the appraisal of projects. The technical appraisal is undertaken by the
concerned technical section in consultation with other technical sections, wherever necessary. This
covers engineering, commercial, organisational and managerial aspects, while the pre-sanction appraisal
of the development projects from the financial, economic and social points of view is carried out by the
Project Appraisal Section. The rationale behind the project appraisal is to provide to the decisionmakers
financial and economic yardsticks for the selection/rejection of projects from among competing
alternative proposals for investment.
Various Aspects of Appraisal
Page 2 of 24
5.3 Appraisal can be referred to as ex-ante, on-going and ex-post. In the Planning and Development
Division, projects are examined from the technical, institutional/organizational/ managerial, social,
commercial, financial and economic points of view. These aspects are briefly discussed in the following
paragraphs:
http://hd2/pc/popup/ch5_p.html
9/23/2010