Financial & economic appraisal of projects & programmes

We have conducted financial and economic appraisals for clients across a range of applications including two hydroelectric plants in Malaysia, extensions to the Gautrain Rapid Rail Network, the South African beef genomics research programme, the Atlantis green technology special economic zone. We also recently produced an economic evaluation of proposed regulation to improve the energy efficiency of household lighting in South Africa.

Project appraisals can be conducted from a number of different perspectives, depending on the nature of the project and the needs of the client:

• A private sector firm would typically undertake an appraisal to assess the commercial viability of a proposed project or business idea and to gauge the capital required. The firm may be interested in comparing the financial return on investment of several project alternatives or planned capital investments.
• Government departments and non-profit organisations also need to gauge the financial/fiscal implications of proposed programmes or initiatives but may also be concerned with understanding the broader social, economic, and environmental impacts.

Financial and economic feasibility studies are both based on the principle of discounting the future streams of costs and benefits associated with a project. A financial appraisal, however, has a narrower focus – determine if the project is commercially viable from the perspective of that particular firm or entity. Important components of a financial appraisal include establishing whether there is a market for the good or service, what the competitive landscape is and under what economic and regulatory conditions the project would generate an adequate return on investment.

An economic appraisal can be viewed as an extension of a financial model. The goal of an economic appraisal is to assess the net impact on society as a whole – including any broader economic, social and environmental cost and benefit. Cost-benefit analysis, for example, is the methodological framework on which most economic evaluations are based. The aim is to assess the future streams of costs and benefits and, where possible, express these in monetary terms. In the case of a hydroelectric project, it may include loss of environmental areas or improved flood control. A rapid rail project may include the value of time saved by rail users and a reduction in road accidents. Projects that result in a net benefit to society are considered to be viable from an economic perspective. A project that is financially viable but results in considerable environmental harm would probably not be viable from an economic perspective.