…despite any shortcomings of particular techniques a company may wish to adopt, the importance of appraising projects before they are ever accepted cannot be over-emphasised. If this had been the norm rather than the exception, businesses collapse would not have been as rapid as we are witnessing today.
The sum total of quantitative and qualitative decisions finally culminates in embarking on a particular project, as against the other. Therefore, it behooves on decision-makers to ensure that they are satisfied with the line of action they finally take. This exercise is often regarded as project appraisal.
Of course, It is not easy to determine which project best satisfies criteria until some analysis is carried out. As a result of the appreciation of this uneasiness, some techniques have evolved, which greatly assist in quantifying the financial effect of embarking on any project. These techniques will be briefly looked into in turn.
Another advantage of using ARR is that information is readily available since it draws from the accounting records kept by the business. Even where estimates will be made, it is much easier to use the basic concept of price minus cost to arrive at a profit.
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