Project appraisal is the analysis of costs and benefitsnof a proposed project with a goal of assuring a rational allocation of limited financial resources amongst alternate investment opportunities with the objective of achieving specific goals. Project appraisal is important because the number of projects to satisfy the identified needs would exceed the available resources and selection amongst alternate projects is to be made for achieving desired goals. Project appraisal enables the lending financial institution to make an independent and objective assessment of various aspects of an investment proposition to arrive at the financing decision, The various factors considered by financial institution while appraising a project are technical financial, economic, commercial, social and managerial.
Project appraisal is the process of transmitting information accumulated through feasibility studies into a comprehensive form in order to enable the decision maker undertake a comprehensive appraisal of various projects and embark on a specific project: or projects by allocating limited resources. Since risk is involved in all activities associated with the project, project appraisal aims at improving the quality of projects and their long term profitability, aims at minimising the risk of lending by rectifying their weaknesses and improving their effectiveness by incorporating into them safeguards, missed by the promoters because of their lack of knowledge or information.
There is lot of confusion regarding appraisal and evaluation of a project. Various points of difference are:
1. Evaluation is a comparative study whereas appraisal is an independent examination.
2. Appraisal is undertaken in the first stage whereas evaluation comes thereafter.
3.ation helps in arriving at conclusion.