SOURCES OR MEANS OF FINANCE

There are basically two sources available for financing project- internal
sources and external sources. If the size of the project is large, the fund
requirement will have to be financed from external sources. The
technique of raising capital from multiple sources is known as layered
financing. The following shows the various sources of project finance.

A) SOURCES OF LONG TERM FUND (FINANCE FIXED CAPITAL

REQUIREMENT):-
1) Issue of shares.
2) Issue of debentures.
3) Term loans from specialized financial institutions like IFCI,
IBRD etc.
4) Venture capital.

B) SOURCES OF MEDIUM TERM FUNDS (FINANCE FIXED

WORKING CAPITAL
REQUIREMENT):-
1) Public
deposits.
2)
Deferred
credits.
3) Lease finance.
4) Subsidy and other incentives/assistance from the
government.
5) Hire purchase.

C) SOURCES OF SHORT TERM FUNDS (FINANCE WORKING

CAPITAL REQUIREMENT):-
1) Trade credit.
2) Commercial banks.

PROJECT APPRAISAL AND EVALUATION

The project has to be appraised in relation to the feasibility of the

technical, economic, financial, commercial, managerial, social and other
aspects of the project. It is defined as critical and careful second look at
the project by a person not associated with the project preparation. The
objective of a project appraisal is to decide whether to accept or reject
an investment proposal.
ELEMENTS OF PROJECT APPRAISAL

There are mainly seven aspects of project appraisal. They are:

1) Technical Feasibility: - It includes detailed estimates of the goods and

services needed for the project- land, machineries and equipments, raw
material, trained labour etc. Location of the project should be given
special attention in relevance to technical feasibility. Another important
feature of technical feasibility relates the type of technology to be
adopted for the project.

2) Economic Viability: - It is a study on capital cost, working capital,

operating cost and revenue, marketing, profitability etc. It also includes
an appraisal of anticipated demand and capacity utilization.

3) Commercial Viability: - T he appraisal of commercial aspects of a

project involves a study of the proposed arrangements for the purchase
of raw materials and sale of finished products etc. The main objective is
to see that the proposed arrangements will ensure that the best value is
obtained for money spent.

4) Financial Feasibility:- It seeks to ascertain whether the project is

financially viable regarding the cost of project, cost of production and
profitability, cash flow estimate and Performa balance sheet. It will study
whether the project will satisfy the return expectations of those who
provide the capital.

5) Managerial Competence: - Proper evaluation of managerial ability and

talent is an essential part of appraisal of a project. While evaluating the
management, back ground of the entrepreneur and promoters, their
character and integrity, past record of promotion etc are studied.

6) Social Consideration: - The social objective of a project are also

considered keeping in view of the interests of the public. The projects
which offers large employment potential, which are located in backward
areas or projects which will stimulate small industries or growth of
ancillary industries are given special consideration.

7) Ecological Analysis: - It is necessary to ensure whether the project

causes pollution, whether it disturbs the equilibrium of ecology and
whether it fits into the environment.

8) Project Risk Analysis:- Project face a host of risk such as project

completion risk, resource risk, price risk, technology risk, political risk,
interest rate risk etc. An analysis of such risks is helpful in the appraisal
of a project.

Institutional finance involves financial support provided by institutions

such as banks, investment funds, government agencies, and
international organizations to support various projects. These projects
can range from infrastructure development to corporate expansions. The
process of project evaluation within institutional finance includes
determining objectives, identifying types of projects, and employing
various evaluation methods.

Project evaluation serves several key objectives aimed at assessing the

success, impact, and effectiveness of a project. These objectives
include:

1. Assessing Achievement of Objectives: Evaluate the extent to

which the project has achieved its stated goals, objectives, and
expected outcomes. This helps in determining whether the project
has delivered the intended results and benefits to stakeholders.
2. Measuring Performance: Assess the performance of the project
in terms of efficiency, effectiveness, and quality of implementation.
This includes evaluating the use of resources, adherence to
timelines and budgets, and the quality of project management
practices.
3. Identifying Strengths and Weaknesses: Identify the strengths
and weaknesses of the project, including what worked well and
areas that need improvement. This information is valuable for
learning lessons from the project experience and enhancing future
project planning and implementation.
4. Informing Decision Making: Provide evidence-based information
to stakeholders, project sponsors, and decision-makers to support
informed decision-making regarding project continuation,
expansion, replication, or termination. Evaluation findings help in
allocating resources effectively and prioritizing future projects.
5. Learning and Knowledge Sharing: Promote organizational
learning by documenting lessons learned, best practices, and
challenges encountered during the project lifecycle. This
knowledge sharing facilitates continuous improvement and
enhances organizational capacity to manage similar projects in the
future.
 6. Enhancing Accountability and Transparency: Hold project
managers, implementers, and stakeholders accountable for project
outcomes and resource utilization. Evaluation results help in
demonstrating transparency in project management and
governance practices.
7. Improving Stakeholder Engagement: Engage stakeholders in
the evaluation process to gather diverse perspectives, feedback,
and insights on the project's impact and relevance. This fosters
stakeholder ownership, support, and collaboration for future
projects.
8. Validating Assumptions and Hypotheses: Validate assumptions
and hypotheses underlying the project design and implementation
strategies. Evaluation helps in understanding whether the theory of
change or logic model guiding the project was accurate and
effective in achieving desired outcomes.
9. Enhancing Sustainability: Assess the sustainability of project
outcomes and impacts over the long term. Evaluation findings
inform strategies for sustaining project benefits beyond the project
lifecycle and ensuring lasting positive changes in communities or
target groups.
10. Facilitating Reporting and Communication: Provide
structured reports and communication materials that communicate
the project's achievements, challenges, and lessons learned to
various stakeholders, including funders, donors, and the wider
community.

Types of project evaluation:

1. Formative Evaluation: This type of evaluation is conducted during

the development and implementation phases of the project. It aims
to provide continuous feedback to improve project design,
implementation strategies, and activities. Formative evaluation
helps in identifying challenges early and making necessary
adjustments to enhance project effectiveness.
2. Summative Evaluation: Summative evaluation occurs at the end
of the project or a specific phase of the project. It focuses on
assessing the overall outcomes, impacts, and achievements
against predefined goals and objectives. Summative evaluation
provides a comprehensive assessment of project success and
informs stakeholders about the project's overall effectiveness.
 3. Process Evaluation: Process evaluation examines how well
project activities are implemented according to the project plan. It
assesses factors such as adherence to timelines, utilization of
resources, quality of project management practices, and
stakeholder engagement. Process evaluation helps in
understanding the efficiency and effectiveness of project
implementation strategies.
4. Impact Evaluation: Impact evaluation measures the long-term
effects and broader impacts of the project on its target population,
community, or environment. It seeks to determine whether the
project has achieved its intended outcomes and contributed to
positive changes in the lives of beneficiaries. Impact evaluation
often involves assessing changes in knowledge, behavior, social
conditions, economic indicators, or policy influence attributable to
the project.
5. Cost-Benefit Analysis: Cost-benefit analysis evaluates the
economic feasibility and financial viability of the project by
comparing the costs incurred with the benefits or value generated.
It quantifies both tangible and intangible costs and benefits to
determine whether the project's benefits outweigh its costs and
whether the investment is justified.
6. Outcome Mapping: Outcome mapping focuses on mapping the
changes in behavior, relationships, actions, and activities of
stakeholders as a result of the project interventions. It emphasizes
documenting the pathways of change and understanding how
project activities contribute to desired outcomes.
7. Real-Time Evaluation: Real-time evaluation involves ongoing
monitoring and evaluation throughout the project lifecycle. It
provides timely feedback and enables project managers to make
adjustments and improvements in real-time based on emerging
issues, challenges, and opportunities.
8. Meta-Evaluation: Meta-evaluation involves assessing the quality,
relevance, and effectiveness of the evaluation itself. It examines
the methodologies, data collection techniques, analysis, and
reporting of evaluation findings to ensure the credibility and
usefulness of the evaluation process.

Methods of Project Evaluation

Cost-Benefit Analysis (CBA): Compares the total expected costs

against the total expected benefits of the project to determine its
feasibility.
Net Present Value (NPV): Calculates the present value of all cash flows
associated with the project, both inflows, and outflows, discounted back
to their present value using a specific discount rate.

Internal Rate of Return (IRR): Estimates the profitability of potential

investments by calculating the discount rate that makes the NPV of all
cash flows equal to zero.

Payback Period: Measures the time required to recover the initial

investment from the cash flows generated by the project.

Economic Impact Analysis (EIA): Assesses the broader economic

impacts of a project, including job creation, economic growth, and
community benefits.

Risk Analysis: Identifies potential risks and evaluates their impact on

the project's outcomes. Techniques include sensitivity analysis, scenario
analysis, and Monte Carlo simulations.

SWOT Analysis: Evaluates the Strengths, Weaknesses, Opportunities,

and Threats related to the project.

Real Options Analysis (ROA): Provides a method for valuing the

flexibility of making future decisions that can change the course of a
project in response to market developments or other uncertainties.

Environmental Impact Assessment (EIA): Evaluates the

environmental implications of a project to ensure sustainable
development and compliance with environmental regulations.

Social Return on Investment (SROI): Measures the social,

environmental, and economic value created by a project, beyond
traditional financial metrics.