It's course project management

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CHAPTER TWO: THE PROJECT CYCLE:
MEANING AND MODELS
Hawassa University
Awada Business and Economics college
Department of Logistics and Supply Chain
Management

2. An Overview of Project cycle
A project passes through a number
of stages called project cycle.
What is project cycle?
Project Cycle: is the various stages through
which a project proceeds from inception to
implementation/maturity.
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Project cycle (cont…)
Some authors (Choudhury 2005) present the project life
cycle in a life cycle curve.
- Inception (concept, definition, organizing etc) (12%)
- Maturity ( implementation ) (85%)
- Decay (clean up) (3%)
Inception
Maturity or
Implementation
Decay (Clean
up )
Time
Level
of
effort

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Project cycle (cont…)
Each stage follows the proceeding one and leads
to the next.
These different phases are identified by different
institutions and authors.
Some of the phases as identified by different
authors are,

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An Overview of Project cycle (Cont…)
i) The Baum Cycle (World Bank Procedures)
Baum (1970) model is the first basic model of a
project cycle which has been adopted by the World
Bank.
According to this model a project cycle consists of
the following six stages:
 Identification
 Preparation
 Appraisal and Selection
 Negotiation and Financing
 Implementation
 Evaluation

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An Overview of Project cycle (Cont…)
The UNIDO Project Cycle
The UNIDO established a project cycle consisting
of the following 3 distinct phases:
1. The Pre-investment phase
2. The Investment phase
3. The Operating phase
The DEPSA Model: developed in Ethiopia in
1990 by Development Projects Studies Authority
(called “The DEPSA’s Model”), which is nearly
identical with the UNIDO

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The Baum Cycle (World Bank Procedures)
I. Identification
Project starts by generating potential idea that can
be converted into a meaningful project.
Identification of promising inv’t opportunities
(projects) requires:
imagination,
sensitivity to environmental changes,
And a realistic assessment of what the firm
can do.

8. Identification (Cont …)
The sources for identifying such projects may be
one or more of the following:
“Resource-based” project ideas- stem from
the opportunity to make profitable use of
available resources.
“market-based”- arise from an identified
demand in home or overseas markets.
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9. Identification (Cont …)
“need-based”- where the purpose is to try to
make available to all people in an area of
minimal amounts of certain basic material
requirements and services.
Well-informed “technical specialists” and
“local leaders”
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10. II. Preparation
Once projects are identified, there begins a
new stage that calls for progressively more
detailed preparation and analysis of a project's
aspects.
At this stage, the project is being seriously
considered as a definite investment action.
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11. Preparation (cont...)
It involves pre-feasibility and feasibility studies and
covers the establishment of commercial, technical,
institutional, financial, and socio- economic
feasibility.
Decisions have to be made on the
- scope,
- location and site,
- soil and hydrological requirements, and -
size of the project.
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12. III. Appraisal and Selection
critical review or an independent appraisal.
Appraisals should cover at least seven aspects of a
project:
a) Technical
b) Financial
c) Commercial
d) Incentive
e) Socio-Economic
f) Managerial
g) Organizational 12

13. IV. Negotiation and Financing
Once the project to be implemented is agreed on, for
donor funded projects, discussions are held on
funding and associated aspects of funding such as
- Conditions for grants,
- Repayment period,
- Interest rates on loans,
- Flow of funds,
- Contributions from stakeholders, and
- Whether there is co-financing or not.
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14. Negotiation and Financing (cont...)
This culminates into an “Agreement Document”
for the project, which binds all the parties involved
during implementation of the project.
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15. V. Implementation
The most important part of the project cycle.
Funds are actually disbursed to get the project
started and keep running.
Problems frequently occur as the economic
and financial environment during
implementation often differ from the
expectations at the time of appraisal.
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16. Implementation (cont...)
Most importantly:
the better and more realistic a project plan is,
the more likely that the plan can be carried out
and the expected benefits realized.
project implementation must be flexible.
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17. VI. Evaluation
The final phase in the project cycle.
Once a project has been carried out, it is often
useful
- To look back what took place in the past,
- To compare actual progress with the plans, and
- To judge whether the decisions and actions
taken were responsible and useful.
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18. Evaluation (cont...)
Who does the evaluation ?
- Project’s management unit
- The sponsoring agency
- Evaluation unit, stemming from the
administrative structure.
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19. The UNIDO Project Cycle
Comprises three distinct phases:
1. The pre - investment phase
2. The investment phase, and
3. The operating phase
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20. The UNIDO Project Cycle (cont...)
1.The Pre–Investment Phase - comprises the
ff. stages:
- Identification of investment opportunities
(opportunity studies)
- Analysis of project alternatives, preliminary project
selection, and project preparation (pre-feasibility and
feasibility studies);and
- Project appraisal, selection, and investment decision
(specialized appraisal reports)
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21. The UNIDO Project Cycle (cont...)
A. Opportunity Studies
- analyze:
. Natural resources
. Future demand
. Imports substitution and export possibilities
. Expansions of existing capacity
. Diversification
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22. The UNIDO Project Cycle (cont...)
In general,
- A project opportunity study should not
involve any substantial cost.
- The purpose of opportunity study is to
arrive at a quick and inexpensive
determination of salient facts of an
investment possibility.
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23. The UNIDO Project Cycle (cont...)
B. Pre-Feasibility Studies
- an intermediate stage between a project opportunity
study and a detailed feasibility study.
- prior assessment (before the costly and time-
consuming task of feasibility study)
- helps to see if:
. All possible project alternatives are examined,
. The project concept justifies detailed study,
. All aspects are critical and need in-depth
investigation, and
. The project idea is viable and attractive or not.
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24. The UNIDO Project Cycle (cont...)
C. Support /Functional/ Studies
- prerequisites for, or in support of, pre-feasibility
and feasibility studies.
- may include:
. Market studies of products,
. Raw material supply studies,
. Location studies,
. Environmental impact assessment
. Economies of scale studies, and
. Equipment selection studies 24

25. The UNIDO Project Cycle (cont...)
D. Feasibility Studies
- provide all data necessary for an investment
decision.
- consist of defining, refining, and critical
examination of a project’s commercial,
technical, financial, economic, and
environmental aspects.
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26. The UNIDO Project Cycle (cont...)
E. Appraisal Report
- proves whether the pre-production expenditures spent
since the initiation of the project idea were well spent
or not.
Project appraisal as carried out by financial institutions
concentrates on the health of the company to be
financed, the returns to be obtained by equity holders,
and the protection of its creditors.
- technical, commercial, market, managerial,
organizational, financial, and, socio-economic aspects.
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27. The UNIDO Project Cycle (cont...)
2. The Investment/Implementation Phase
- provides wide scope for consultancy and
engineering work.
- can be divided into the ff. stages:
A. Establishing the legal, financial, and
organizational framework;
B. Tendering, evaluation of bids, and negotiations;
C. Detailed engineering design and contract;
D. Technology acquisition and transfer;
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28. The UNIDO Project Cycle (cont...)
E. Acquisition of land, construction work, and
installation;
F. Pre-production marketing
G. Recruitment and training of personnel; and
H. Plant commissioning and start-up.
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29. The UNIDO Project Cycle (cont...)
In general, in the pre-investment phase, the
quality and dependability of the project are
more important than the time factor; while
in the investment phase, the time factor is
more critical in order to keep the project
within the forecast made in the feasibility
study.
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30. The UNIDO Project Cycle (cont...)
3.The Operating Phase
- deal mostly with overcoming problems of
different aspects, such as:
. applications of production techniques,
operation of equipment, or
. inadequate labour productivity, or
. strategies and the associated production
and marketing costs as well as sales
revenues.
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31. The DEPSA’s Project Cycle
comprises three major phases:
1. Pre - investment phase,
2. Investment phase, and
3. Operating phase
Which are divided into six stages:
I. Identification, IV. Implementation,
II. Preparation, V. Operation, and
III. Appraisal/decision, VI. Ex-post evaluation
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Thank You!

33. CHAPTER 3
PROJECT IDENTIFICATION
is the process of searching for and
subsequently finding potential projects that
might be realized to generate benefits in
excess of costs that accrue to the society
and contribute towards the attainment of
development objectives.
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34. Who Identifies Projects?
- private firms,
- public enterprises,
- government units,
- local or international development agencies,
- financial institutions,
- profit seeking or not-for profit organizations.
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35. How Project Ideas Come
About
Basically from observing existing
opportunities and problems in a given
context.
And specifically:
- Polices review & opportunity studies.
- Review of past projects.
- Surveys
- Plans of private sector, cooperatives, and
state enterprises.
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36. How Project Ideas Come About (Cont...)
- Investment identification missions by
development banks and other donors.
- Brainstorming
- Observation of constraints, problems, and
limiting factors/bottlenecks
- Need to tackle unexpected or undesirable
events such as drought, earthquake, flood,
natural catastrophes, and other similar
hazards.
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37. Pre-Identification and
Identification of Projects
Pre-Identification
- is an important prerequisite to the identification
of promising investment projects.
- involves surveying, reviewing, inventorying, and
analysis of strategies and policies, data about
natural resources, and socio-economic variables.
But this step is usually missed in developing nations.
Reason: - ignorance
- assumed to be costly and time consuming.
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38. Pre-Identification and
Identification of Projects (cont...)
But modern technologies are helping to solve
this problem:
- speeding up data collection, organization,
analysis, etc
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39. Pre-Identification and
Identification of Projects (cont...)
Project Identification
- the process of finding projects that could
contribute towards achieving specified
development objectives.
- Identify those which are feasible and promising
and merit further examination and appraisal.
- Irrespective of their origin, project ideas generally
should aim at overcoming constraints on the
national development efforts.
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40. Pre-Identification and
Identification of Projects (cont...)
Two levels where project ideas are
born/sourced:
- macro-level and
- micro-level.
1. Macro Sources of Project Ideas
- Federal/Central or Regional Governments;
- Bilateral and Multilateral Agreement; and
- International Development Agencies.
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41. Macro Sources of Project Ideas (cont...)
Specifically:
- National policies, strategies, and priorities
- General surveys, resource potential
surveys, regional studies, master plan and
statistical publications.
- Constraints on the development process.
- Unusual events such as droughts, floods,
earthquake, hostilities, etc.
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42. Macro Sources of Project Ideas (cont...)
In general, in developing countries, the
government remains to be the major source of
project ideas.
Reason:
- have the resources and facilities to
undertake opportunity studies, survey, etc
- unlimited access to data and info.
- fully familiar with the development
objectives, priorities, and strategies.
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43. 2. Micro Sources of Project Ideas
- Private and Public Enterprises;
- Local Groups or Organizations;
- Consumer Groups and Associations;
- Financial Institutions/Credit Associations;
- Cooperatives, Farmers’ Unions, etc;
- New Technology Suppliers
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44. Micro Sources of Project Ideas (cont...)
Techniques and/or procedures to generate
project ideas from micro sources:
- Analyze the performance of existing
industries
- Examine the inputs and outputs of
various industries
- Review imports and exports.
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45. Cont’d…
In order to come up with sound and/or
useful project ideas, we need to carryout
project identifications within national,
regional, and sectoral development
framework and existing policies.
NB: Submit your project idea/title on coming
Friday!
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II. Pre feasibility study
After we have identified project ideas the next step is
project preparation and analysis.
Project preparation includes both Pre-feasibility
and Feasibility studies
Once a project idea is identified a preliminary project
analysis will be done ( i.e., pre-feasibility study).
Which means the project idea must be elaborated in
sort of study.

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Pre feasibility study (Cont…)
Why pre-feasibility study?
Because, undertaking a feasibility study that enables a
definite decision to be made on the project is a costly
and time – consuming task.
Therefore, before assigning larger funds for such a
study, preliminary assessment of the project idea might
be made in a pre-feasibility study.
In the pre-feasibility study stage, the analyst obtains
rough estimation of the major components of the
project’s costs and benefits.

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Pre feasibility study (Cont…)
Some of the main components examined during the
pre-feasibility study include:
Availability of adequate market (or beneficiaries)
project growth potential
investment costs, operational cost and distribution
costs
demand and supply factors; and
social and environmental considerations
If the project is appeared to be sound the next sages is
a feasibly study.

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III. Feasibility study
Pre – feasibility study should be viewed as an
intermediate stage.
A feasibility study should provide all data necessary
for an investment decision.
 The commercial,
 Technical,
 Financial,
 Economic and
 Environment
because an investment project should be defined and
critically examined.

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Feasibility study (Cont …)
Therefore, the structure of a pre – feasibility study
should be the same as that of a detailed feasibility
study.
The major difference between them lies on the
amount of work required in order to determine
whether a project is likely to be viable or not.
Once the project is decided as viable using pre-
feasibility study, a detailed analysis of issues like,

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Feasibility study (Cont …)
 marketing,
 technical,
 financial,
 economic, and
 ecological aspects is undertaken in the feasibility
stage.
Feasibility study provides a comprehensive
review of all aspects of the project and lays the
foundation for implementing the project and
evaluating it when completed.

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Feasibility study (Cont …)
In the feasibility study, a team of specialists, like
 Scientists,
 engineers,
 economists,
 sociologists,
 environmentalists etc are needed to work together.
If the project is viable, the next step is project design stage.
Which means, in the feasibility stage more accurate data need
to be obtained in order to proceed to the next stage.

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Feasibility study (Cont …)
Finally, the feasibility report should include (but
not limited) the following analysis:
 Market analysis
 Technical analysis
 Organizational analysis
 Financial analysis
 Social – economic analysis, and
 Environmental analysis

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IV. Selection (project appraisal)
The feasibility study would enable the project analyst to
select the most likely project out of several alternative
projects.
Selection follows, and often overlaps with the feasibility
analysis.
It addresses the question
 is the project worthwhile?
A wide range of appraisal criteria have been developed to
judge the benefits of a project.
The criteria are divided into two broad categories:
 non-discounting criteria and
 discounting criteria.

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Selection (Cont…)
After a project has been prepared, it is appropriate to
forward for a critical review (external review)
This provides an opportunity to re-examine every
aspect of the project plan to assess whether the
proposal is appropriate and sound before large sums are
committed.
Project appraisals cover the following aspects:
a) Technical – here the appraisal concentrates in verifying
whether the proposal will work in the way suggested or not.

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Selection (Cont…)
b) Financial – this will try to see
 if money needed for the project have been
calculated property,
 the sources are all identified,
 and reasonable plans for their repayment are
made where necessary.
c) Commercial –
 the way the necessary inputs for the project are
supplied.
 and the arrangements for the supply of the products
are verified.

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Selection (Cont…)
d) Incentive – whether things are arranged in such a way
that all those whose participation is required will find it
in their interest to take part in the project, at least to the
extent envisaged in the plan.
e) Economic – the appraisal here tries to see whether what is
proposed is good from the perspective of the national
economic development.
 The effects (positive and negative) are taken into account and
checked if all are correctly valued.

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Selection (Cont…)
f) Managerial – this aspect of the appraisal examines if the
capacity exists for operating the project and see if those
responsible ones can operate it satisfactorily.
Moreover, it tries to see if the responsible are given sufficient
power and scope to do what is required.
g) Organizational – this appraisal examines how the project is
organized internally and externally.
This helps to see if the arrangement and organization of the
project allows the proposal to be carried out properly and to
allow for change as the project develops.
These issues are the subjects of specialized appraisal report.
And on the basis of this report, financial decisions are made –
whether to go ahead with the project or not.