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The Financial Express

Evaluating a project: Speed thrills but kills!

| Updated: October 18, 2017 01:42:46


Evaluating a project: Speed thrills but kills!

Theoretically, a project is a temporary endeavour with a defined beginning and end - often constrained by time, funding or deliverables, and undertaken to meet unique goals and objectives - typically to bring about beneficial change or added value. A project also refers to a set of development measures undertaken by individuals or the government for the benefit of a class of people or for the community as a whole. Under the present circumstances, both big or small economies should ensure that the projects taken to boost up development should be specific, measurable, achievable, realistic and time-bound.
Since a project involves huge expenditure, private efforts are often inadequate to shoulder it.  Hence, the state's participation becomes essential in undertaking projects of social or strategic importance.  A   project is, therefore, a public investment where profit maximisation cannot be the sole criterion. A public investment aims at rendering maximum social service by maximising the benefit of the project concerned at minimum possible cost to facilitate the progress of the entire economy.
As it is not possible to carry out a huge number of projects at a time, the question of choice appears before the decision makers. Whether or not a particular project is worthwhile? Which is the best of several alternative projects? When to undertake a particular project? Different criteria of project evaluation are used accordingly - 1) The Benefit-Cost [B/C] Criterion 2) The Rate of Return Criterion 3) The Maximisation of Benefit over Cost Criterion.
Firstly, B/C Criterion is preferred to other criteria for several reasons. 1) It seeks to evaluate both large and small projects on an equal basis. 2) It enables the planner to take a long and wide view of the projects. 3) It scientifically and satisfactorily yields a ranking of projects. Moreover, the B/C Criterion is also superior to the Rate of Return Criterion since the former yields a scientific ranking of projects differing from a ranking determined by the latter. 
Secondly, the Rate of Return Criterion takes into account the rates of return from different projects based on the decision - what project is to be assigned top priority and what next.
Regardless of a difference in ratio, the two criteria will yield the same project ranking if two conditions are fulfilled. 1) Current cost must be nil so that O/K=0. Here, 'O' stands for annual operation and maintenance cost and 'K' for fixed investment; 2) B/C Ratio must be equal. Practically, neither of this happens. Hence, ranking according to one criterion will differ from the other.
Thirdly, Benefits [B] of a project are of two types - 1) direct benefits which are derived immediately after the project is taken up; 2) indirect benefits which are incidental or complementary to the original primary benefits - tangible and intangibles. Costs [C] either refer to primary costs incurred for the operation and maintenance of the project or project cost proper and associated costs - additional cost which is to be incurred over and above the project cost proper for making the output of the project available.
In addition, major problems of evaluation consist of choosing appropriate discount rate and external or internal constraints. Legal, administrative, distributional and budgetary constraints may also be there.
Furthermore, the core of a social cost-benefit analysis is the calculation or estimation of the prices used in determining the true value of benefits and the real magnitude of costs. The government should choose appropriate discount rate in calculating the worth of project benefits and costs occuring over time. Basically, social rate of discount or social time preference is a price of time - a rate the planners use to calculate the Net Present Value (NPV) of a time stream of project benefits and costs. The higher the future benefits and costs are valued in the government's planning scheme, the lower the social rate of discount
Nowadays, the tools of social cost-benefit analysis for project appraisal are considered essential to an efficient process of project selection in the developing countries. Generally, economists advocate for using the NPV in selecting investment projects - project should be accepted or rejected according to whether their NPV is positive or negative. NPV calculations are sensitive to the choice of a social discount rate. 
Since most developing countries face capital constraints, the question of choice appears naturally. The choice of investment projects also involves ranking of all projects that meet the NPV rule. Projects are ranked by descending NPV and NPV/K ratio is calculated for each project. Project or set of projects with the highest NPV/K is chosen first and down the line until all available capital investment funds are exhausted.     
EVALUATION, ASSESSMENT AND MANAGEMENT: A project evaluation documents the implementation and impact of the project as clearly and specifically as possible. The evaluation segment describes evidences that are collected concerning project activities and their outcomes. A strong evaluation plan is a core element of a project and thus a well-planned evaluation includes: (a) clear statement of the intended outcomes of the project; (b) evidence that will indicate the extent to which the outcomes are being achieved.
Contextually, there are two types of evaluation with somewhat different purposes: 1) A formative evaluation calls for improvisation of a programme or project; identification of improvements, modifications, and management needs of the project; and judging the value of a project during its implementation. 2) Summative evaluation calls for detailing a plan to evaluate the extent to which goals or objectives of the project are accomplished. Plus, it helps to identify the changes or modifications needed for the next iteration of the project. A summative evaluation occurs after the completion of the project as it evaluates the outcomes or accomplishments of the project and assesses the value of a project after completion as well as suggests what changes need to be made to the program.
However, evaluation and assessment cannot be interpreted as interchangeable with respect to documenting the outcomes of a funded project. Though evaluation and assessment are related, they are not identical. While assessment refers to the specific measurement of outcomes, evaluation is a broader concept that signifies both the program outcomes and program inputs like resources and activities. 
Therefore, a project requires a feasible, value-added goal achieved by utilising the given resources within a time limit. 'Controlling of resources' is one of the biggest issues in project management. Indeed, project management is visualisation of all activities required in achieving a goal within a time limit and with limited resources. 
Dr B K Mukhopadhyay, a Management Economist, is Principal of Eminent College of Management and Technology, India.
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