1.4 Basic Elements of Appraisal

Appraisal may take various forms. Comparison of Economic and Commercial Appraisal explains the main forms of economic appraisal and how it is distinguished from commercial appraisal. However, irrespective of the precise form of an appraisal, a number of basic elements are common to most of them. The following ten key steps should generally be addressed:

• explain the strategic context
• establish the need for expenditure
• define the objectives and constraints
• identify and describe the options
• identify and quantify the monetary costs and benefits of each option
• assess risks and adjust for optimism bias
• weigh up non-monetary costs and benefits including Sustainability, Equality and Lifetime Opportunities
• calculate Net Present Values and appraise uncertainties, including appropriate sensitivity analysis
• assess affordability and record proposed arrangements for funding, management, marketing, procurement, benefits realisation, monitoring and post project evaluation
• assess the balance of advantage between the options and present the results and conclusions

Where funding of the private or voluntary sectors is in view, then, in addition to the ten key steps, assessment of the following three criteria is also a basic appraisal requirement:

• additionality
• viability
• cost-effectiveness