Economic Appraisal of Large Projects

However, the aim of the new or improved plant is normally to make a profit for the company owning it, and profitable operation is by no means assured, unless it is as carefully planned for as in the design process. This chapter will show how the planning for a profitable operation is undertaken. 

The economic appraisal process is usually concerned with a large project, not necessarily physically large (although that is normally the case), but certainly large in respect to the sums of money required for its design and construction - sums of money that may exceed those readily available within the company for that investment. The project is also long in terms of its construction period and operating lifetime, and it is this extended lifetime that is the prime reason for the appraisal. 

A small plant, which can be designed and built in a year, will normally be financed out of annual revenue a large plant, taking several years to build and costing perhaps more than the profit generated in those years, has to be considered quite differently, and special techniques have to be used to determine its profitability. 

The project to be considered, then, involves an investment that is large with respect to the available funds (costing perhaps tens or hundreds of 

of course, possible to add up all of the revenues over the project s lifetime and to compare this sum with the total investments. If the revenues exceed the costs, then the project is apparently profitable, but if the reverse is true, it is not profitable and no manipulative techniques will be able to make it so. The comparison of costs and revenues, in an appropriate fashion, is the target of economic appraisal, and its first problem is to deal with the time value of money. 

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The largest element of the economic benefit comprises die journey benefits (in terms of reduced wait, in-vehicle or interchange time, improved comfort, quality of service and safety etc) as perceived by the existing public transport users as a result of the capital investment Non-user benefits (that is benefits to non-public transport users such as car drivers passengers) normally account for a small share of the total economic benefit for LUL projects. This is because a large proportion of the projects appraised are either relatively small scale in capital value or perceived to have limited influence on overall modal share between public and private transport particularly during the peak. 

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