Project Appraisal — Improved Methods

Abstract

Development projects need to stay focused on the achievement of economic development objectives, and need to use monetary valuations of project performance only in a meaningful context. This chapter provides a brief overview of current methods of project appraisal, role of costs and benefits, role of information and transaction costs, and incommensurability of some of the objectives of project appraisal. The focus here is to address some of the important issues that are relevant in the context of development finance. For a full account of details of project appraisal methodology, see for example, Layard and Gleister (1994). Project appraisal, using methods of cost-benefit analysis (CBA) involves essentially a comparative analysis of costs and benefits ‘with’ the project and ‘without’ the project, rather than ‘before’ and ‘after’ (since the latter approach fails to account for changes in production/consumption that would occur without the project). An important aspect of project appraisal in development projects is to comprehend multiple criteria of development effectiveness, in addition to the conventional monetary assessment of costs and benefits over a relevant time horizon.