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Project Management - Evaluation

Updated on November 2, 2011

Evaluation and appraisal are sometimes used interchangeably. This is for two reasons: (i) both mean assessment, and (ii) at-times they over-lap especially when we talk of ex-ante evaluation.

In fact, both are materially different as shown below:

Appraisal is the process of examining a proposal like setting-up of a fertilizer plant. It involves weighing up the costs and benefits, risks and uncertainties of putting up the plant before a decision is made.

Evaluation is a review of actual operations of the fertilizer plant which covers (i) how successful or otherwise it had been and (ii) what lessons do we learn for future industrialization. To be short, it is like before-project and after-project situation.

What is covered in evaluation

In evaluation, actual performance is compared with planned performance. The gap or difference, if any, is analyzed and investigated. It runs like (i) what was expected, (ii) what has actually happened, (iii) what should have been the position under the circumstances, (iv) action, if required, for penalities or rewards and for future guidance.

Here it is like variance analysis as in cost-accounting where actual cost is compared with standard cost and the variance is broken into its component like price variance, quantity variance and, in overhead analysis, capacity variance. Were the variances favorable or un-favorable, avoidable or unavoidable? What action, in any, to be taken against the executives (purchase manger, production manager and marketing manager.)

Still wider coverage of evaluation

But evaluation goes much beyond the current operations. It looks at objectives set at the time of appraisal and tries to find out if the objectives were met or not.

Here are some examples:

CHANGE IN CONCEPT

A company was granted loans for replacement of 25,000 old and obsolete spindles. Instead, the company installed the same spindles at another location and continued with the old and inefficient spinning plant. When this came to the notice of the bank, it changed its follow-up procedures to ward off such future attempts.

Being financier, the bank holds all ‘titles’ including shipping documents. When machinery arrives at port, the company obtains the documents from the bank, gets the machinery released and transports it to the site. The bank decided that henceforth, the shipping documents would only be released when the site has been inspected and the visiting officers confirm that (i) old and obsolete machinery had been dismantled and scrapped, (ii) foundations for new machinery have been laid down and (iii) necessary arrangements have been made within the premises for installation of new machinery and equipment. (This was meticulously followed and no further infringement reported.)

EUCALYPTUS TREE
EUCALYPTUS TREE

OBJECTIVE NOT ACHIEVED

For poverty alleviation, Asian Bank granted loans to small farmers in Laos for plantation of eucalyptus trees. According to the bank own report, the project "failed to improve the socioeconomic conditions of intended beneficiaries, as people were driven further into poverty by having to repay loans that financed failed plantations."

CHANGE OF IN PRODUCT

A company was financed by a bank for installing a baby food plant with the collaboration of Cow & Gates. But the company failed to maintain quality standard and shifted to producing ordinary powdered milk, butter and cheese. Though the company is profitable, it has defeated the bank’s efforts to develop industries for better health of the infants.

APPROPRIATE TECHNOLOGY

A project was approved for making seamless pipe using locally available steel. When completed, it switched over to imported steel nullifying bank efforts to contribute towards development of down-stream projects of Pakistan Steel Mills Ltd.

Financial & Socio-Economic Indicators

Project feasibility Reports or Appraisal Reports is normally divided into three parts: (i) Financial (ii) Economic and (iii)n Social. A project may be financially sound but may be in-appropriate for the economy or community. For each sector, various ratios are calculated and form part of the appraisal reports. On the basis of these ratios or indicators, a project is approved or rejected.

When project is completed and put into operations, the same indicators are computed from real-life data. These are compared with estimated ones and differences, if any, are analysed as a normal routine under evaluation process. A short list of such indicators is given below:

Financial & Socio-Economic Indicators

FINANCIAL
ECONOMIC 
SOCIAL 
Internal Rate of Return 
Internal Economic Rate of Return 
Jobs created 
Debt Service Cover 
Domestic Cost per $ earned or saved 
Size of Loan 
Average Weight Cost of Funds 
Effective Rate of Protection 
% local content 
Fixed Assets Cover to Debt
Value added in manufacture
Impact on income distribution

SUCCESSFUL PROJECTS

A sound feability report should result in a sound and successful projects. Such projects should not only meet all their obligations towards workers, suppliers, governments and owners but also have sufficient funds to keep them in an adequate state of liquidity. These projects serve the purpose for which they were established such as improvement in balance of payment, regional development and job creations. Their neighborhood or spill over affects should be positive and a model for further industrialization.

CHALLENGED PROJECTS

Unfortunately, there is time-lag between project appraisal and project evaluation. Suppose, a project for a pager (sometimes called a beeper or bleep) was established in Pakistan and became instantly popular for sending short messages on very low rates. The sponsors left no aspect un-examined before launching the project. But, at that point of time, they could not envision the on-slaught of mobile phones for communication conventiently, cheaply and instantly. The pager company had to be liquidated.

Delays and Cost over-runs are norms rather than exceptions. In such cases, the evaluator conduct in-depth studies to find whether the delays or over-runs were un-avoidable or not? In fact, the evaluator tries to find out if there was any element of dishonesty or inefficiency.

The evaluation gives useful feed back for avoid pitfalls experienced earlier and if recommendations are followed, the project appraisal standards would improve adding more and more successful projects in the country.

ABONDONED PROJECTS

For various reasons, the project become terminally sick and no amount of bailout can save them. It may be due to bad location, fiscal anomolies, technological obsolesence or dis-interested management. Such projects should be abondoned and resources so released be applied for other useful purposes.

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    • profile image

      Sana Rao 7 years ago

      Thank YOU SIR!

      SIR thank a lot for still sharing shre the hub page with us but i want to clearify myself about abondoned projects,will u explain it to me?Take care.

    • hafeezrm profile image
      Author

      hafeezrm 7 years ago from Pakistan

      Due to some major problems, some projects are abondoned during construction or after some operations. Have you seen Pakistan Commodity Exchange Building in front of PIDC or PC Hotel. It is abondoned for the last 20 years.

      There are a number of reasons like product has become obsolete (type-writers, telex or VCRs) or drying up of raw material like Dalmia Factory near crossing of Rashid Minhas Road and Stadium Road. Such projects cannot be rehabilitated and therefore abondoned. Due to long legal procedures, it takes decades before these could be disposed of.

    • profile image

      Ademola 7 years ago

      So good an article

    • hafeezrm profile image
      Author

      hafeezrm 7 years ago from Pakistan

      Thanks Ademola.

    • Rufi Shahzada profile image

      Rufi Shahzada 7 years ago from Karachi

      Dear Sir,

      The HUB is very much Informative for me.

      As far as I know Sir that NCEL (National Commodity Exchange Limited) was planned as a 5 Star Hotel project in the era of Z.A Bhutto , but due to some political reasons it was abandoned. Is it correct ?

      RUFI SHAHZADA

    • profile image

      yousuf Asghar  7 years ago

      Thank you Sir , it tends us to think beyond our capacity!

      Sir you can be a History Teacher as well=)

    • Syed Mairaj Ahmad profile image

      Syed Mairaj Ahmad 7 years ago

      Sir can we use marketing term (shelf Life*) as a synonym for abandoned project on a micro level for a products/fmcg/raw material?

      *Shelf life is the length of time that food, drink, medicine and other perishable items are given before they are considered unsuitable for sale or consumption.

    • hafeezrm profile image
      Author

      hafeezrm 7 years ago from Pakistan

      Never heard of this term in the given context. Projects are not abondoned because they have outlived their life as they are constantly upgraded, modernized and expanded. There are manufacturing plants running for 100 years. Some brand new projects are abondoned by the sponsors as they are no more interested in them.

      If we look an alternate word, it could be any of :

      abdicate, back out, chicken out, desert, discard, discontinue, ditch, drop out, dump, give up, opt out, pull out, quit etc.

    • profile image

      projmanagement 7 years ago

      Was searching for "Evaluation of Project Management", saw your Project Management hubpage. Great info on Project Management!

    • ziamae85 profile image

      ziamae85 7 years ago

      I'm really gathering information about all aspect on project management, finance, etc..and I have your page...thanks for the very informative hub...

    • projectfinances profile image

      projectfinances 7 years ago

      Really great info on this hub...Adds to my list of a-must read article.

    • Adn@n @hm3d profile image

      Adn@n @hm3d 7 years ago from Karachi,Pakistan

      Dear sir/

      it's very informative and clearly defined each and every topic....thank u so much

    • profile image

      HIRA SAMI 6 years ago

      VERY WELL EXPLAINED THE DIFFERENCE.

    • profile image

      SANA KARIM 6 years ago

      Dear Sir,

      It's really very informative topic. Thanks for sharing.

    • profile image

      barry  6 years ago

      great info have never got it like this before

    • asif jamal profile image

      ASIF JAMAL 6 years ago from Islamabad

      great work

    • muhamad asad profile image

      muhamad asad 5 years ago from pakistan

      under passes, bridges, flyovers takes a long time to be built in pakistan but in other countries sky scrappers are built within the specific time.is this because of lack of planning or what?

    • hafeezrm profile image
      Author

      hafeezrm 5 years ago from Pakistan

      This is due to inefficiency and dishonesty.

    • muhamad asad profile image

      muhamad asad 5 years ago from pakistan

      but i think sir there is no concept of project management in pakistan.you may agree or disagree.

    • hafeezrm profile image
      Author

      hafeezrm 5 years ago from Pakistan

      @Muhammad Asad, there are lot of successful entrepreneurs like Gul Ahmed Group, ICI Group and Dawoods which follow the project management principles and are successful. Of course, there are lot others who have spoiled the show.

    • muhamad asad profile image

      muhamad asad 5 years ago from pakistan

      thank you for prompting me and giving an insight on the development in pakistan...have some information on gul ahmad and ici group but cant find anything on dawood group.

    • profile image

      Abdihakim 2 years ago

      great innovations and inventions

      ALLAH is great

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