What is Project Evaluation? Project Evaluation Criteria

Project Evaluation

Project evaluation is a step-by-step process of collecting recording and organizing the information about project results, including short-term outputs and immediate and longer-term project outcomes.

The project planning stage is the best time to identify desired outcomes and how they will be measured. this will guide future planning as well as that the data required to measure success is available when the time comes to evaluate the project.

The purpose of evaluation in project management is to assess performance reveal areas where the project deviates from goals uncover extent or potential problems so that they can be corrected. Evaluation is the assessment of a project’s performance, efficiency and impact in relation to stated objectives project managers undertake interim evaluations during implementation as a first review of progress a prognosis of projects likely effects and as a way to identify necessary adjustments in project design. The use of mid-term reviews of ongoing projects has spread quickly in the last decade terminal evaluations conducted at the end of a project are required for project completion reports they include an assessment of the effects of a project and their potential sustainability.

Thus, project evaluation is a process that extends throughout the project lifecycle through to a ‘’postmortem’’ that assesses the capability of the project to support organizational strategy in terms of a useful product or service which supports the organizational mission.

Project Evaluation Criteria

It is difficult to lay-down any specific criterion to judge a project, whether it has been a success or a failure. It depends upon the view taken by top management. However , some items that may be considered in this respect are as under:

  1. Customer satisfaction: Customer is the target user of project results. A project therefore may be considered a success if it meets the customers requirements and passes-on satisfaction on them however this is less tangible and difficult to measure.
  2. Efficiency: Efficiency in meeting the schedule and the budget
  3. Commercial Success: A project may be considered a commercial success if it increases if it increases yield, reduces throughput time or adds to the market share of the firm.
  4. Future potential: A project is conceived and implemented to meet certain requirements in future. So in this respect the potential of the project like new product new market new technology etc, are important aspect that make it valuable.
  5. Alignment with firm’s objectives: A project should be in harmony with the objectives of the firm.

Techniques of Project Evaluation

Various techniques are used to evaluate project proposals. The important project evaluation techniques are classified into two broad categories.

1. Non-Discounting Techniques: As the name itself suggests, these techniques do not discount the cash flows to find out their present worth. There is two such techniques available i.e.,

  1. Payback period method: The payback period is the length of time required to recover the initial cost of the project. The payback period therefore, can be looked upon as the length of time required for a proposal to ‘break even’ on its net investment.
  2. Accounting rate of return: According to commonly accepted accounting principles and practices over the entire economic life of the project and then the averages yield is calculated. Such a rate is termed as Accounting Rate of Return.

2. Discounting Criteria/ Discounted Cash Flow Methods: The Discounted Cash Flows (DCF) or time adjusted techniques satisfy these requirements and as such provide an objective basis for selecting and evaluating investment projects. ” A bird in hand is better than two in the bush”. This proverb fits well in the context of Discount Cash Flow. Discount Cash Flow Methods are as follows:

  1. Net Present Value (NPV) Method.
  2. Internal Rate of Return (IRR) Method.
  3. Profitability Index (PI) Method.