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Financial Evaluation


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Importance of Financial Evaluation in Private and Social Projects

When starting a project it is necessary to determine which risks, benefits and gains the project will have, to determine these factors the financial evaluation is carried out.Β The financial evaluation is a deep investigation of the flow of funds and risks, in order to determine an eventual return on the investment made in the project, it also helps to make a decision whether or not to start the project because it analyses the scope and project risks.Β The financial evaluation tends to do when analysing a private project and a social project.

Financial evaluation of a private project

Financial evaluation is the process by which once the initial investment, future benefits and costs have been defined during the operation stage, it allows determining the profitability of a project, its main purpose is to determine if the project will have a profit or loss at the end your horizon of life.

To determine if the project is bankable, tools such as present value, net present value, discount rate, internal rate of return, payback period, among others, are used.

Financial evaluation of a social project

In the case of a social project, there is usually no income stream due to the nature of the project.Β To determine if the project is bankable, it is sought that at least the project managed to cover the costs that are presented in it, known as sunk costs.Β In addition, a financial evaluation may be made taking into account the benefits that will be obtained according to the beneficiaries, the executing entity or entities, financing entities, the economy or society.

Financial evaluation is important both in private and social projects because it helps you measure profitability, the private project aims to generate financial profitability for the investor, while the social one has the purpose of improving the quality of life of some certain group of individuals.

In addition, projects have an initial investment, resources that they want to invest for in the future to obtain benefits, and financial evaluation helps you make a decision to accept or reject a project.Β First it quantifies the resources necessary to carry out the project and then it checks that this use of resources is satisfactory, according to some previously established criteria.

In conclusion, financial viability is essential to evaluate the progress that a project of any nature will have, it is essential to know and analyse if the project at the end of the life horizon is going to present a profit or loss.

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