Project Appraisal: Definition, Process, Steps, Tools
When an organization wants to find a solution to a particular business problem and identify the best way for implementing that solution, it needs to plan and develop a project that might provide an effective action plan for addressing the problem through implementing the solution.
This organization will need to give an appraisal of the potential project to make sure the project is really effective because it supports the right solution and solves the required problem. In this context, project appraisal management serves as the major process of analyzing and approving the project.
In this article, I am going to write about the project appraisal process and its key steps. I hope my article will help you learn how to evaluate and appraise projects. At the end of the article I give a link to the project appraisal template, which is a more structured way of explaining the appraising process.
What is Project Appraisal? – Definition
Before we talk about the definition of project appraisal, I would like to tell one interesting story from my life. Here’s that story.
Since I’m a PMP and have extensive experience in managing various types of projects, I’ve always wondered how my neighbor, who is a truck driver and therefore not experienced in project assessment management, could do all those “projects” without first assessing and analyzing the initial concept, problem, and solution. By “projects” I mean the activities my neighbor did when he built the garage in his backyard, renovated the kitchen, fixed his truck, even talked to the mailman, and so on. I was amazed that this person had no idea about project evaluation and management, yet he could do successful “projects” without even understanding that they were projects.
One day I took all these thoughts with me and went to my neighbor’s house. I wanted to find out how he had achieved success without using a project, evaluation, or anything else I might consider an evaluation process. When I met him in his renovated kitchen, I was surprised to see that he was making a preliminary plan for his next project: Buying a new car. He was sitting at the small kitchen table, writing something on a large sheet of newspaper (“Daily News”, to be precise). I approached the table and saw many words and sentences underlined and crossed out, with many arrows and circles on the sheet of paper. “What are you doing?” I asked. “Don’t you see? I’m trying to plan my new purchase. Remember that big Mercedes I showed you last month in Truck Driver magazine? I’ve decided to buy it. And now I want to plan everything in advance to avoid failure, you know.”
I sat at the table next to my neighbor and he told me about his plans. I found out that he always made a plan before doing something important or unusual in his daily life, such as building a garage or renovating a kitchen. He never used documents and templates, just a sheet of newspaper, because, as he said with a smile, “newspapers always lie, but my records and plans will make reality more “realistic” and pragmatic” (I still can’t quite understand what he meant).
I’m not going to annoy you by retelling our conversion in this article. I just want to focus you on the key idea behind this story: Often people unwittingly use the methods and techniques of project assessment and evaluation to determine the chances of success of their endeavors. Before I saw in my neighbor’s kitchen how newspapers could be used in the evaluation process, I thought that only formal documents and papers were the tools to evaluate a professional project. But now I know for sure that anyone can do an appraisal; the only thing to remember is that each type of project requires the appropriate level of knowledge and skills to produce a good project appraisal report. And that’s all… Let’s give the definition of project appraisal.
Defining Project Appraisal
Project Appraisal is a consistent process of reviewing a given project and evaluating its content to approve or reject that project by analyzing the problem or need to be addressed by the project, generating solution options (alternatives) for solving the problem, selecting the most feasible option, conducting a feasibility analysis of that option, creating the solution statement, and identifying all people and organizations involved with or affected by the project and its expected results. It is an attempt to justify the project through analysis, which is a way to determine the feasibility and cost-effectiveness of the project.
Appraising a project means evaluating the proposed solution for its ability to solve the identified problem or need. Some PM methodologies and guides (e.g., PMBOK) consider technical and financial project appraisal to be part of the initiation or pre-planning phase. PRINCE2 suggests developing the Business Case, which is a form of project formulation and appraisal. Method 123 (MPMM, based on the PMI and PRINCE2 standards) also uses the business case to prepare a proposed project for feasibility analysis and evaluation.
Project Appraisal Management is an essential stage of any project, regardless of its nature, type and size. This stage represents the first point of the pre-planning or initiation phase. Without a project assessment, it is financially and technically unreasonable to proceed with further planning and development. Whether you are buying a new car (e.g. my neighbor’s project), constructing a building, improving a business process, upgrading a network system, conducting a marketing campaign, building a garage, or any other initiative, you should conduct a preliminary assessment and evaluation of your endeavor to ensure that you are making a desired and necessary change in your environment.
Project Appraisal: Key Steps
Different PM methodologies use different approaches and techniques to develop a project appraisal. In my practice, we use a method that views the appraisal process as a series of 4 steps that have a number of sub-steps and tasks. In this checklist you can see the whole hierarchy with the details. I will give an overview of the steps. If you want to go deeper, please read the checklist.
Step #1. Concept Analysis
The first step requires you (as a project appraiser or analyst) to perform a series of analyses to determine the concept of the future project and to present the Decision Package to senior management (project sponsors) for approval. This means that you need to perform the problem-solution analysis that determines the problem/need to be addressed and the solution to be used to address the problem.
The solution should be analyzed for cost-effectiveness and feasibility (various project appraisal methods and techniques can be used). You also need to identify stakeholders (the people and organizations involved in or affected by the problem and/or solution) and analyze their needs (how they relate to the problem and/or solution). Finally, you will need to develop a decision package that includes the problem statement, solution proposal, stakeholder list, and funding request. This package is then submitted to the sponsor for approval (or rejection). If the sponsor approves the project concept, you can proceed to the next step.
Step #2. Concept Brief
In this step, you must develop a summary of the project concept to define the goals, objectives, broad scope, duration, and projected costs. All of this data will be used to develop the Concept Brief.
You need to develop a project statement document that specifies the project mission, goals, objectives, and vision. Then you create a broad scope statement that defines the boundaries, deliverables, and requirements of your effort.
Finally, you create a preliminary schedule template that establishes an estimated project duration, and then develop a cost projection document based on cost estimates and calculations.
Step #3. Project Organization
You use the Concept Brief to establish an organizational structure for your project. This structure should be developed and explained in the Project Organization Chart. The document covers issues such as the governance structure (roles and responsibilities), team requirements and composition, implementation approach, performance measures, and other information.
The idea behind the Project Organizational Chart is to create a visual representation of the roles, responsibilities and their relationships, and which people/organizations are assigned to which roles and tasks within the project.
Step #4. Project Approval
The final stage requires you to review all of the previous steps and compile them into a single document called the Project Appraisal. This document summarizes all the estimates and assessments that have been made to justify the project concept and verify that the proposed solution addresses the identified problem.
The financial, cost-benefit, and feasibility analyses will serve as project evaluation methods for project approval. The document is to be submitted to the Snooper stakeholders (the customer, the sponsor) for review and approval. If the assessment is approved, the project moves to the next phase, planning.
Types of Project Appraisal
Project appraisal uses the following two major types:
- Results oriented appraisal
- Financial appraisals (cost/benefit analysis)
1. Results Orientation
It is carried out at the beginning of a project, before any financial or other material costs are incurred.
Results-oriented project appraisal focuses on identifying and predicting risks and their impact on the achievement of the results foreseen in the project plan and contract. This type of appraisal involves identifying risks based on project management processes such as the initiation process, the planning process, the execution process, and the control process.
Outcome-oriented project assessment also focuses on comparing actual and projected results and ensuring that they are all aligned with the project’s goals and objectives.
2. Financial Appraisal (cost-benefits analysis)
This type of project evaluation is used to determine whether a request for funding (or an investment made) can be justified by the projected savings or revenues after it is completed.
Cost-benefit analysis is a planning tool that helps you determine whether an investment will provide a satisfactory return for your organization. It compares the investment or change with its alternatives according to one or more criteria such as cost, technical factors, services, resource utilization, etc.
Cost-benefit analysis considers all the resources invested in a project and compares them to the expected benefits. The benefits of a project are usually measured against the costs that would have been incurred if the project had not been undertaken.
Under this method, projects with a balance of benefits and costs are accepted, those with an excess of costs over benefits are rejected, and those with an excess of benefits over costs are deferred for further consideration.
In practice, some organizations use a different approach where projects with projected benefit-cost ratios greater than one are accepted, those with ratios between zero and one are borderline for further consideration, and those below zero are rejected before any further investment in plans or work on plans is made.
The Future of Project Management Appraisal
Looking ahead, we can expect several trends to shape the project appraisal landscape.
The use of AI and machine learning in project appraisal is likely to increase, enabling more accurate and efficient appraisals. We can also expect to see a greater emphasis on sustainability in project appraisal, with a greater focus on environmental and social impacts.
Finally, as remote working becomes more prevalent, we can expect to see an increase in the use of digital tools and platforms for project appraisal.
Integrating big data analytics
Big data analytics will play an important role in the future of project evaluation. With the ability to quickly process large amounts of data, big data analytics can provide valuable insights that can improve the accuracy of project evaluations. For example, it can help identify patterns and trends that may affect a project’s viability, such as market fluctuations, consumer behavior, or technological advances. This can lead to more informed decisions and better project outcomes.
Increased Use of Predictive Analytics
Predictive analytics uses historical data to predict future outcomes, and its use in project assessment is likely to increase. By analyzing past project performance, predictive analytics can help predict a project’s success and identify potential risks before they occur. This proactive approach can significantly improve project planning and execution.
Focus on Agile Project Appraisal
As organizations continue to adopt agile methodologies, we can expect to see a shift toward agile project appraisal. This approach emphasizes flexibility, collaboration, and customer satisfaction. Agile project assessment involves continuous evaluation and adaptation throughout the project lifecycle, allowing for rapid response to change and ensuring that the project remains aligned with business objectives.
The Rise of AI-Based Project Appraisal Tools
Artificial Intelligence (AI) is poised to revolutionize project appraisal with the development of AI-powered tools. These tools can automate various aspects of project appraisal, such as data collection, risk assessment, and financial analysis. This not only increases efficiency, but also reduces the potential for human error.
In conclusion, the future of project assessment looks promising, with technological advances paving the way for more accurate, efficient and proactive assessments. As these trends continue to evolve, organizations that adapt and innovate will be better positioned to make informed project decisions and achieve their strategic goals.
Project appraisal might seem daunting, but with the right approach, it can be a powerful tool in your project management arsenal. Remember, the goal is to make informed decisions that steer your project towards success. So, happy appraising!
