Commercial Appraisal or Analysis or Evaluation
The commercial appraisal is concerned with market for the product/service. The very ideas of promoting a project are to produce some product/service and to market the same to the consumers and earning a profit thereby. Marketing management receives more attention than in earlier years because the reason behind that the very survival of any projects depends on the question as to whether the product/service offered by the product is successful commercially. Commercial appraisal or market appraisal of a project is done studying the commercial successfulness of the product/service offered by the project from the following angles –
- Demand for the product
- Supply position for the product
- Distribution channels
- Pricing of the product
- Government policies.
Economic Appraisal
Economic appraisal measures the effect of the project on the whole economy. Developing countries and underdeveloped countries face scarcity of capital and foreign exchange. Hence, policy makers are concerned as to where the scarce resource can be directed to maximize economic growth of the country. So, the policy makers make a choice based on economic return. This is true irrespective of whether resources are committed to a large project under taken by the government or to smaller project under taken by an individual entrepreneur. But an individual entrepreneur, when left free to choose, is more likely to be interested in his profit rather than having a broader perspective of the economic returns of the project. For example – let an entrepreneur own a granite quarry consisting of high-quality granite stone. If the entrepreneur is not aware of the potential of granite stone as its use in the form of polished slabs/tiles, he may choose to exploit the granite quarry by setting up a stone crushing unit which will produce stone jelly to be used as a raw material for say, lying of road, preparing concrete mix e.tc. Even if the entrepreneur is aware of the potential of granite stone, if he is not mentally prepared to venture into a high-tech project for the production of polished granite slabs/tiles which can have very good export potential, he may settle for a low-tech stone crushing project, producing jelly. He may be even satisfied with the return from the stone crushing unit through setting up a unit for production of polished granite slabs/tiles will maximize the economic growth of the country as a whole by earning valuable foreign exchange in view of its export potential.
Management appraisal
Management is the most important factor that can either make a project a success or a failure. A good project at the hands of a poor management may fail while a not so good project at the hands of an effective management may succeed. Banks and financial institutions that lend money for financing projects lay more emphasis on management appraisal.
Institutions look at the capacity of the project to repay the loan along with interest within the stipulated period of time and also, they observe the willingness of the borrower to repay the loan. While the capacity to repay is assessed by technical, commercial and financial appraisal the willingness to repay is assessed by way of management appraisal. While other appraisal techniques are quantitative and objective in nature, management appraisal is purely qualitative and subjective in nature. Management appraisal depends upon the constitution of the enterprise.
The partnership firms, the management appraisal shall be done on the managing partners of the firm. Mutual understanding and trust among the partner are a key factor for the success of an enterprise. Persons, who maintained a cordial, long term relationship in the past either in business or in other areas, make good partners. Persons who join together for the first time with sole intention of promoting a new project are often found to lack in mutual understanding and this will slow up shortly after the project has taken shape, or at times, even during the implementation stage of the project itself. In private limited companies, it will be the managing direction/executives’ directors who are to be apprised. The affairs of closely held public limited companies are mostly looked after by the promoter directors. Public limited companies, the management appraisal shall be done on the directors who are in the board of the company, on the chief executive officer of the company and also on key functional managers. Appraisal of chief executive officer carries more importance since he is the king- pin of a company. The importance of management appraisal is being increasingly felt now days in view of the growing number of units that have become sick due to mismanagement. Management appraisal is concerned with the appraisal of human qualities.
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