Non-financial criteria in project appraisal methodologies: empirical evidence from Indian companies

There is an abundance of literature advocating the growing usage of sophisticated capital budgeting practices in corporate India. However, the qualitative aspects in project appraisal are still disregarded. Our research investigates the extent to which Indian companies incorporate non-financial criteria in their project appraisal practices. In addition it makes a contribution to project appraisal methodologies by presenting a comprehensive framework of factors to be considered in project selection. Based on a survey of 77 listed companies, SWOT analysis, customer market analysis, technical considerations, social considerations and necessity to maintain existing product lines emerged as important non-financial criteria in project appraisal. Gratifyingly, the qualitative criteria are used by almost all companies and only 2.6% of the companies do not use this type of criterion. Furthermore exploratory factor analysis identified technical factors, stakeholders' expectations, financial feasibility, social factors, strategic alignment and external factors as the prime factors affecting project selection. According to the authors' knowledge, this is the first study on the significance of non-financial criteria in project appraisal in a developing country like India.