1. Indicator comparison method:
This is a common and simple method in which the project’s main economic and technical indicators are compared with those of projects that have been built, are under construction or are in operation. It helps assess the reasonableness and accuracy of the project’s indicators, from which sound conclusions can be drawn and accurate investment decisions made. The comparison is carried out on the following indicators:
- Design and construction standards, State standards for the grade of works, or financial conditions acceptable to the project.
- Technology and equipment standards in relation to national and international technology investment strategies.
- Standards required by the market for the project’s products.
- Aggregate indicators such as the structure of investment capital and the unit investment cost (investment per unit of capacity).
- Industry norms for production and for the consumption of energy, raw materials, labour, wages, management costs, etc., in accordance with official economic and technical norms or planned and actual indicators.
- Investment efficiency indicators (at the advanced average level).
- Corporate financial ratios in line with customary practice and with the guidance of the State and the industry for similar enterprises.
- Indicators with and without the project.
When using the comparison method, the indicators used for comparison must be applied in a way that suits the specific conditions and characteristics of the project and the enterprise, avoiding mechanical and rigid comparisons.
2. Sequential appraisal method:
Project appraisal is carried out in a logical sequence from the general to the specific, with each earlier conclusion serving as the premise for the next:
2.1. General appraisal:
This involves a general review of all the contents of the project to be appraised in order to identify reasonable or unreasonable issues that require closer examination. General appraisal provides an overall picture of the project and a clear understanding of its scale and importance. Because the contents are reviewed only in general terms, it is difficult at this stage to identify issues that should lead to rejection, or errors that need to be supplemented or corrected; such errors are identified only during detailed appraisal.
2.2. Detailed appraisal:
This is carried out after the general appraisal and covers each component of the project, from its legal conditions to the analysis of its financial and socio-economic efficiency. For each component reviewed, an opinion is given as to whether it is acceptable, needs to be amended or is unacceptable. However, the degree of focus on each key component may vary depending on the specific characteristics and circumstances of the project.
In detailed appraisal, the conclusion on an earlier component may be a condition for continuing the review. If some key components of the project are rejected, the project may be rejected without appraising all the subsequent indicators. For example, if the project’s objectives are found to be unreasonable, or its technical and financial analyses are not feasible, the project cannot be implemented.
3. Appraisal method based on sensitivity analysis of the investment project
This method is based on anticipating a number of adverse scenarios that may affect the project in the future, such as investment cost overruns, low output, rising input costs, falling product prices or unfavourable policy changes, and examining the impact of these factors on the project’s investment efficiency and break-even capability.
The degree of deviation from the forecast is usually set at 10% to 20%, and the typical factors most likely to occur and adversely affect the project’s efficiency should be selected for review. If the project remains efficient even when several adverse events occur simultaneously, it is a robust project with a high level of safety. Otherwise, the likelihood of such adverse events should be reconsidered in order to propose effective measures to overcome or mitigate them. In general, this method should be applied to projects whose efficiency is higher than normal but which are subject to many factors that may change for objective reasons.
