UEH Master Programs

The scarcity principle - the infinite needs and wants of people compared to limited available resources - is one of the inherent properties of nature that affects the behavior of all people in society and is the central research problem of economic science. Because of limited resources, economic decision makers have to choose (consciously or unconsciously) between different choices to allocate resources (resources allocation), in other words, trade-offs or make an economic decision. Economists solve these trade-offs based on the cost-benefit principle. Specifically, comparing the costs and benefits between alternative options, choosing the option with net benefits, also known as economic surplus – the highest difference between benefits and costs. Economic decisions often imply intertemporal allocation, thus the concept of net benefit must be understood as the net present value of a resource allocation option. The “appraisal of investment projects” (more precisely, appraisal of investment projects from a social point of view) applies principles of economics to build a framework for analyzing the costs and benefits of different projects (also known as investment projects). This is to support decision makers properly and fully identify the costs and benefits of investment projects to support rational decision-making.

The decision-makers in the economy can be individuals, households, businesses, or governments. Individuals, households, or businesses analyze the project from the point of view of different benefit groups, and the government analyzes the project from the point of view of the benefits of the whole economy. Based on different perspectives of decision-makers, the benefits and costs of the project will also be recognized differently. Therefore, the results of the project analysis may be similar or contradictory from different analytical points of view. Particularly, a project is considered good from the point of view of a group that is unlikely considered good from the point of view of both the economy and vice versa.

The content of the course is not only limited to the project financial appraisal (or project appraisal from a private point of view), but also extends to the project economic appraisal (or project appraisal from a social point of view). Project financial appraisal is widely used as an effective tool to support decision-making in: (1) Business enterprises (deciding whether or not to invest in a project), and (2) Credit providers (deciding whether or not to loan), and economic appraisal should be used by competent state agencies to assist in the decision-making of whether or not to license an investment project (both public and private).

For any project, information from the financial appraisal is the basic input for the economic appraisal. Therefore, the concepts, principles and tools used in financial appraisal are a prerequisite for learners to study economic appraisal. In addition, project appraisal relies solely on reasonable current estimates for benefits and opportunity costs araise in the future. But the future is uncertain. Therefore, risk analysis becomes an indispensable fator of project appraisal. Nowaday, project appraisal practitioners approve to use the concept of integrated project appraisal instead of the traditional concept of project appraisal (i.e. financial appraisal for private project and economic appraisal for public project).