IMPORTANCE OF PREPARATION AND

APPRAISAL AS IMPORTANT
COMPONENTS OF THE PROJECT CYCLE
INTRODUCTION
Project preparation and appraisal are clearly not the only aspects of agricultural development or
planning. Identifying national agricultural development objectives, selecting priority areas for
investment, designing effective price policies, and mobilizing resources are all critical. But for
most agricultural development activities, careful project preparation and appraisal in advance of
expenditure is, if not absolutely essential, at least the best available means to ensure efficient and
economic use of capital funds and to increase the chances of implementation on schedule. Unless
projects are carefully prepared in substantial detail, inefficient or even wasteful expenditure is
almost sure to result.
PREPARATION AND APPRAISAL PHASE
Feasibility study is the key component of project preparation and a technical working document
for project appraisal. A feasibility study therefore needs to be authentic, accurate and
comprehensive. As such, when well implemented, the feasibility study should:
(i) Establish that the project is consistent with the predetermined needs, and is the
most suitable technical and financial solution to meet these needs;
(ii) Recommend how the project should be structured and designed;
(iii) Provide information about all costs during the project life cycle;
(iv) Identify the impact of the project on the environment and population and, if
necessary, devise a resettlement plan, including compensation and management
programs;
(v) Develop a project-specific land acquisition plan;
(vi) Document all stakeholder consultations undertaken for the project;
(vii) Develop a financial model with key investment ratios, and the capability of
running scenario and sensitivity analyses;
(viii) Identify all significant risks associated with the project, and recommend their
allocation and mitigation;
(ix) Assess whether or not the project is affordable to the Government and/or the end
users of the services in terms of direct and contingent fiscal obligations;
(x) Establish the economic justification for the project;
(xi) Prepare a project management plan for the subsequent development phases; and
 (xii) Draft documentation for the procurement of the private party during the
transaction execution phase.

Preparing helps understanding project’s challenges through collection of information relatives to

all aspects that together determine how remunerative or beneficial a proposed investment will
be. Project preparation and appraisal can be divided into six aspects: technical, institutional-
organizational-managerial, social, commercial, financial, and economic. An evaluation of these
aspects will allow the researchers or analyst to address the feasibility study satisfactorily. Thus,
the importance of preparation and appraisal is given as follows:

1. Institutional-organizational-managerial importance

The sociocultural patterns and institutions of those the project will serve must be
considered. An appraisal of these aspects will help address some questions such as:
(a) Does the project design take into account the customs and culture of the farmers who
will participate?
(b) Will the project involve disruption of the ways in which farmers are accustomed to
working?
(c) If it does, what provisions are made to help them shift to new patterns?
(d) What communication systems exist to bring farmers new information and teach them
new skills?
(e) Changing customary procedures is usually slow. Has enough time been allowed for
farmers to accept the new procedures, or is the project plan overly optimistic about
rates of acceptance?
(f) What will be the arrangements for land tenure?
(g) What size holding will be encouraged?
(h) Does the project incorporate local institutions and use them to further the project?
(i) Does the project have sufficient authority to keep its accounts in order and to make
disbursements promptly? Etc.

2. Social importance

A scrutiny of the social aspect will help examine carefully the broader social implications
of proposed investments. In the past, the introduction of high-yielding seed varieties and
fertilizers, coupled with the easy availability of tractors, has led to displacement of tenant
farmers and has forced them into the ranks of the urban unemployed. A series of
questions could be asked in this regard.

(a) Can the project be designed to minimize such effects, or be accompanied by policy
changes that will?
(b) . In some areas the introduction of mechanical equipment or of cash crops has
deprived women of work they needed to support their children. Will a proposed
project have such an adverse effect on the income of working women and their
families? Etc.
3. Commercial importance

On the output side, careful gathering and appraisal of information will help analyze
whether the proposed market for the project's production is essential to ensure that there
will be an effective demand at a remunerative price. The following questions can
therefore surface:
(a) Where will the products be sold?
(b) Is the market large enough to absorb the new production without affecting the price?
(c) If the price is likely to be affected, by how much?
(d) Will the project still be financially viable at the new price?
(e) What share of the total market will the proposed project supply?
(f) Are there suitable facilities for handling the new production? Etc.

4. Financial importance
In agricultural projects the participants include farmers, private sector firms, public
corporations, project agencies, and perhaps the national treasury. For each of these,
separate budgets must be prepared. On the basis of these budgets, judgments are formed
about the project's financial efficiency, incentives, creditworthiness, and liquidity.
A major objective of the financial analysis of farms is to judge how much farm families
participating in the project will have to live on.
(a) What will be the probable change in farm income?
(b) What will be the timing of this change?
(c) How likely price changes or fluctuations that could affect farm income are severely
enough that farmers will refuse to run the risk of participating in the project?
(d) What will be the effect of subsidy arrangements on farm income, and what changes in
government policy might affect the income earned by farmers?
(e) Will new subsidies be needed to provide sufficient incentive for the project to
proceed?
(f) Will they have capital for expanding facilities?
(g) Will they have the working capital needed to carry inventories of farm supplies or
stocks of processed goods awaiting sale? Etc.

5. Economic importance

The economic aspects of project preparation and appraisal require a determination of the
likelihood that a proposed project will contribute significantly to the development of the
total economy and that its contribution will be great enough to justify using the scarce
resources it will need
The financial and economic analyses are thus complementary-the financial analysis takes
the viewpoint of the individual participants and the economic analysis that of the society.
The techniques of economic analysis will help identify those projects that make the
greatest contribution to national income.
 6. Technical importance
The technical analysis will examine the possible technical relations in a proposed
agricultural project: the soils in the region of the project and their potential for
agricultural development; the availability of water, both natural (rainfall, and its
distribution) and supplied (the possibilities for developing irrigation, with its associated
drainage works); the crop varieties and livestock species suited to the area; the production
supplies and their availability; the potential and desirability of mechanization; and pests
endemic in the area and the kinds of control that will be needed. On the basis of these and
similar considerations, the technical analysis will determine the potential yields in the
project area, the coefficients of production, potential cropping patterns, and the
possibilities for multiple cropping. The technical analysis will also examine the
marketing and storage facilities required for the successful operation of the project, and
the processing systems that will be needed.

CONCLUSION

In regards of all that has been said, it is evidently revealed that project preparation and
appraisal play a central role in a project life cycle. It allows to see whether it is
worthwhile investing or carry on with the project highlighted in the course of the
identification phase by looking the overall costs and benefits of the project both at the
individual and national level

References
 Gittinger, J.P (1994).Economic Analysis of Agricultural Projects. Second Edition: The
John Hopkins University Press, Baltimore and London. Pg505.
 Reddy, S.S and P.R.Ram (1996).Agricultural Finance and Management. Oxford and IBH
Publishing Co.PVT.LTD, New Delhi. Pg 256.
 Reddy, S.S , P.R.Ram,T.V.N.Sastry and I.B.Devi (2004).Agricultural Economics. Oxford
and IBH Publishing Co.PVT.LTD, New Delhi.Pg 646.
 DEPARTMENT OF AGRICULTURAL ECONOMICS
AND RURAL SOCIOLOGY, FACULTY OF
AGRICULTURE, AHMADU BELLO UNIVERSITY,
ZARIA

SESSION 2011-2012

COURSE: AGRICULTURAL PROJECT ANALYSIS

ASSIGNMENT 1: DISCUSS PROJECT PREPARATION AND
APPRAISAL AS IMPORTANT COMPONENTS OF THE
PROJECT CYCLE.

PREPARED BY:
BALA MOHAMMED-MSC/AGRIC/5717/2011-2012
SIEWE FRANCOIS-MSC/AGRIC/5174/ 2011-2012
ADO YAKUBU-MSC/AGRIC//2011-2012

SUMMITTED TO PROF. M.A.SANNI

ON NOVEMBER 2012