Project Appraisal and Its Challenges Ahead

Abstract

This paper reviews project appraisal theories and recent developments in more general evaluation of government activities and government themselves, and it derives new challenges that the project appraisal needs to take up. It also identifies four theoretical sources for the development of project appraisal. The first two, i. e., welfare economics and cost-benefit analysis, have been and will be the foundation of any evaluation of government activities, and the second two, i. e., new public management and “program evaluation”, will be the sources for further development of project appraisal.

It idetifies 12 new challenges for the further development, whose basic nature is the shift of emphasis within the project appraisal concepts. This shift is principally driven by outcome-and-output orientation a la new public management. The new challenges are the shift of emphasis (1) from ex-ante to on-going evaluation of project performance; (2) toward self-sustainability and replicability of a project, particularly toward financial sustainability of a project itself and the government budget that finances it; (3) toward another self-sustainability in terms of a project's institutional and human capabilities, which take many years to build up; (4) toward encouragement and utilization of project undertakings by private enterprises and/or non-governmental organizations, and toward the reduction of government's undertakings and interventions; (5) from investment evaluations to recurrent expenditure evaluations; (6) toward including the alternatives of suspension and cancellation of a project in case of on-going or ex-post evaluation; (7) toward expanding project alternatives to include higher level alternatives such as public expenditure reviews; (8) toward stakeholders' participation; (9) toward creating more alternatives in terms of the relevance of the project to its objectives; (10) toward the expansion of evaluation criteria to include the elements discussed in this challenge list and more such as an environmental criterion; (11) toward developing concrete ideas of benefits regarding the new criteria introduced above and developing thire measurement methods; and (12) toward analyzing the effects of fungibility problem in case of foreign assistance.