Friday 16 June 2023

Effective Project Evaluation


Principles for Project Evaluation

Effective Project Evaluation :To ensure the quality of the evaluation work, when evaluating the project, the evaluator should strictly abide by the following six basic principles of this paper: scientific, objectivity, fairness, demand-oriented, matching input and output, and value of money and time.

Principles of Effective Project Evaluation 

In order to ensure the quality of the evaluation work, the evaluators should strictly adhere to the following basic principles when evaluating the project:


1. Scientific principles

The reliability of assessment conclusions depends first of all on the scientific nature of assessment methods and indicator systems, and inappropriate methods and indicators can lead to unreasonable or even completely opposite conclusions. 


With the deepening of the theoretical research on project evaluation, some new methods and indicators may replace the original methods and indicators; At the same time, the nature of the project is different, and there will be certain differences in evaluation methods and indicator systems, which requires that the selection of evaluation methods and indicator systems should be scientific and reasonable.


2. The principle of objectivity

Although the evaluation object of the project is the proposed project, whether the project can be established cannot be determined by people's subjective consciousness, and the possibility of the project establishment must be analyzed realistically from the actual material environment, social environment, economic development level, cultural tradition, ethnic customs and other conditions. Any project that goes against objective reality will eventually lose its fundamental foundation and even have an irreversible negative impact on society.

3. The principle of impartiality

In order to prevent deviations from the conclusions, the evaluators should adopt a position that is as impartial as possible, especially to avoid generating trending opinions before the start of the argument, let alone to carry out the assessment work from a position prohibited by law.

4. The principle of being demand-oriented

The emergence of any project must originate from the needs of society, and projects that do not meet the needs have no vitality. Many facts have proved that projects that do not run well after being put into use are often due to the loss of social needs, the products (or services) provided by the project become leftovers in economic life, and the project itself becomes a bankruptcy who is not low-debted.

5. The principle of matching inputs and outputs

Although the project will obtain the highest possible return with the lowest possible investment when pursuing investment benefits, the realization of project functions must have supporting investment, and excessive requirements for profit maximization will lead to the neglect of project auxiliary investment, so that the main functions of the project cannot be fully realized, and the additional investment that is unavoidable in the future can only receive half the effect. Therefore, the inputs of the project must correspond to the requirements of the outputs.

6. The principle of time value of funds

The use of funds will produce different values over time, investors have certain expectations for the return on investment, whether the project can achieve self-appreciation while returning investment, is the core issue of any project evaluation concern, the dynamic investigation of funds is an important way to clarify the return on investment and business performance of the project.

Factors in Effective Project Evaluation

When enterprise project evaluators evaluate projects, there will be many problems that cause them to be unable to accurately evaluate the project. For example, the recognition of the value of the invested enterprise in the appraisal, the valuation of intangible assets mainly for the acquisition.


 "The long-established regional center has rich experience in successful project development, and the fund company, as a manager of 50,<> US dollars, management experience and professionalism are equally important." Developers with strong economic strength and a large number of successful project development experience are an important guarantee for the timely operation, completion and repayment of projects. 

Projects that have already started operation have a strong guarantee of meeting the job creation and repayment, and the government participation will evaluate the project more rigorously, and the safety is more secure. Bank loans indicate that the project has passed the bank's survey and project evaluation, and the safety factor of the project will be greatly increased.

Project evaluation is an effective guarantee to ensure the smooth implementation of the project, and enterprises will have many problems in the process of project evaluation, which is summarized as follows:


1. Confirmation of the increase or decrease in the assessment of the invested enterprise

Whether it is confirmed by the assessment body itself, or by the relevant government departments or other authoritative institutions. If the latter confirms that state-owned assets are involved, an assessment and project approval is also required. If it is an off-site assessment, it is also necessary to establish and confirm the off-site project. These work in practice. It is more troublesome to operate.


2. For investments that are mainly based on the purchase and operation of real estate

For other investments, a case-by-case approach can be used in practice. For wholly-owned subsidiaries or invested enterprises holding more than 50% of the investment, it is possible to determine whether to conduct asset appraisal for the invested enterprise according to the purpose of the investment enterprise's appraisal and soliciting the opinions of the relevant asset appraisal project initiation and confirmation departments.

If the assessment is not carried out, the audit institution in the location of the invested enterprise may conduct an overall audit of the invested enterprise, and calculate a coefficient based on the ratio of the book value of the audited owner's equity to the book value of the paid-in capital, and use this coefficient to calculate the appraisal value of other investments of the invested enterprise.

3. Valuation of intangible assets

Intangible assets refer to all economic resources controlled by specific entities that do not have independent entities and continue to play a long-term and continuous role in the production and operation of enterprises and bring economic benefits, such as patent rights, non-patented technologies, production licenses, franchise rights, trademark rights, copyrights, mining rights, mineral resources exploration rights, computer software, etc. 


The valuation methods for intangible assets usually include the current market value method, the present value of earnings method and the replacement cost method.

Risk in Effective Project Evaluation


In the process of project evaluation, enterprises will lead to risks due to various reasons. Therefore, enterprise project evaluators need to understand how to effectively deal with these risks. Generally, project evaluators first need to identify risks and make preliminary qualitative.


"The main market of US's foreign contracting engineering enterprises is in the Middle East and Asia and Africa, and many countries in these regions will have problems such as political instability, underdeveloped economy, and imperfect legal system. That is, the risks at the national level, mainly including approval risks, legal change risks and nationalization risks."

When enterprises conduct project evaluation, there will be risks due to various reasons, so how should enterprises avoid the emergence of these risks when conducting project evaluation?

First, risk identification is required.

Project risk assessment depends heavily on people's ability to identify and understand the characteristics of the project's main risks. 

The identification of project risks is to determine what risks exist in the project, as well as the extent to which these risks affect the project and the possible consequences, and its main task is to find out the project risks, identify the main factors that cause project risks, and make a preliminary qualitative estimate of the project risk consequences.

Second, risk management afterwards

Project risk measurement refers to the comprehensive prediction and evaluation of the size of project risk, the degree of impact of project risk and the consequences of project risk. It is a project risk analysis activity that quantifies the identified project risks in project risk analysis and evaluation.

3. Make risk prevention measures

The focus of risk management is not on the identification and measurement of risks, but on risk prevention, that is, how to reduce the degree of risk or avoid risks and reduce risk losses. When predicting the main risk factors and their degree of risk, corresponding avoidance and preventive countermeasures should be proposed according to different risk factors in order to reduce possible losses.

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