Week 8| Importance of Financial Appraisal in Selecting a Development Project

Many development projects have been proposed every day yet not all of them are financially viable to carry out. The project could be technically and environmentally feasible but financial aspect is one of the most important aspects that we should not ignore of. Thus, I do realize that the lesson I learnt in lecture on financial appraisals is essential in selecting a viable project. In the lesson, I learnt that there are few methods we could implement to filter out our projects, such as: (Pay Back Method, Average Annual Percentage Rate of Return, Discounted Cash Flow, Net Present Value, Internal Rate of Return).

All these methods could be used in assessing the financial feasibility of the project. In the lecture, I was being taught on the use of all these mathematical calculation which is quite fascinating as the calculation is challenging. It is essential for us to identify the timing and amount of the cash inflow and outflow of the project as well as to determine the appropriate discount rate to be used in the calculation. Moreover, I do realize that we should not judge the project solely on the financial result that has been presented as there are few non-financial considerations we need to take note of such as the potential environmental impact and resources availability. Financial appraisal should be used as a standalone method in selecting the development project. I do learn that there are some drawbacks of all these financial appraisal methods. It will be essential to understand their drawbacks so that the decision that been made will be more informed. Such as, a short payback period does not indicate a good investment as it could be risky if the timing of the cash flow is unpredictable and inconsistent. A longer payback period may not indicate a bad investment as it could be less risky compared to a short payback period investment when the timing of cash flow is predictable and more consistent.