CHAPTER TWO

PROJECT LIFE CYCLE

 Chapter Outline

 Definition
 Features of Project Cycle
 Project Cycle Models
 World Bank Project Cycle
 UNIDO Project Cycle
 Integrated Project Planning and Management Cycle
(IPPMC)
 Development Project Studies Authority (DEPSA) Life cycle
 Definition

 A project cycle refers to the step-by-step

process by which a project is formulated,
identified, evaluated, implemented and
completed (World Bank).
 Project life cycle is the various stages
through which a project passes from its time
of inception up to its completion. The
stages/phases constitute a specific sequence
that is cyclical in nature.
 Cont’d
 On medium to large projects the life cycle will generally follow
the following patterns:
 Concept- Basic ideas, business case, statement of
requirements, scope;
 Feasibility -Tests for technical, commercial and financial
viability, technical studies, investment appraisal, etc.;
 Evaluation -Application for funds, stating risk, options;
 Authorization- Approvals, permits, conditions, project
strategy;
 Implementation- Development design, procurement,
fabrication, installation, commissioning;
 Completion - Performance tests, hand-over to client, post
project appraisal;
 Operation - Revenue earning period, production,
maintenance;
 Termination - Close-down, decommissioning, disposal.
Project cycle stages
 Features of Project Cycle

The main features of project processes are

information gathering, analysis and decision
making.
Through the project cycle, the primary
preoccupation of the analyst is to consider
alternatives, evaluate them and to make
decisions in which of them should be advanced
to the next stage.
 Project Cycle Models
• Many Project Cycle models differ in their
perspective, emphasis and level of detail
• Some Models:
 World Bank Project Cycle
 UNIDO Project Cycle
 Integrated Project Planning and
Management Cycle (IPPMC)
 Development Project Studies Authority
(DEPSA) Life cycle
The Baum Cycle (Adopted by the World Bank)
WB project cycles has five stages:
Identification
Preparation
Appraisal and selection
Implementation
Evaluation
1. Project Identification (Pre-feasibility studies)
 This is the conception stage in a project’s life cycle.
 At this stage, there are three main activities that
should take place.
 The first is the identification of needs and problem
recognition.
 The second is the formulation of objectives that projects
should aim.
 The third one is the identification of suitable projects whose
desirability and suitability should conform to the established
objectives.
 In this sense, projects are actually designed to solve
specific problems and/or to meet the particular needs
of a society, a country or an individual.
 Cont’d
A project idea may originate from multiple sources.
Many of the important projects in developing countries
emerge from:
 Political commitment of national leader,
 New experiments emerging from previous project
failures,
 Expansion and replication of successful projects tested
locally or proven feasible in other developing countries,
 From the discovery of critical economic and social
bottlenecks of shortages, excess or idle resources,
 Forward & backward linkages with existing projects,
 The work of voluntary agencies, non-profit
organizations and foundations has been a catalyst for
new ideas.
Generally, project ideas are born at two levels, the micro-level and macro-level
 Cont’d
Preliminary Screening
• Project planning is a process of elimination of
inferior alternatives.
• Select one or more of them as potentially
viable.
• This calls from a quick preliminary screening
by experienced professionals who could also
modify some of the proposal.
• At this stage the analyst should eliminate
proposals that are technically unsound.
 Cont’d
• Pre-feasibility Study:
• Promising options should be investigated in a
systematic manner to suggest which are to be
eliminated.
• Sophisticated analysis of the technical, financial,
social and institutional aspect of the project is
postponed to a later stage.
• However, the report should indicate which of these
aspects deserve particular attention during the
subsequent step. These reports are called pre-
feasibility studies.
2. Project Preparation (feasibility Study)
• Decisions have to be made on the scope of the project,
location and site, soil and hydrological requirements,
project size (farm or factory size), etc.
• Resource base investigations are undertaken and
alternative forms of projects are explored.
• Complete technical specifications of distinct proposals
accompanied by full details of financial and economic
costs and benefits are the out come of the project
preparation stage.
• The project now exists as a set of concrete proposals.
• Practically, project design and formulation is an area in
which local and international consultants are very active,
especially for big projects that cover large areas and have
big budgets.
2. Project Preparation (feasibility Study)
• Once projects have been identified, there begins a
process of progressively more detailed preparation and
analysis of project plans.
• At this stage, the project is being seriously considered as
a definite investment action.
• Project preparation, (also called project formulation),
feasibility studies and covers the establishment of
commercial, technical, institutional, financial, and socio-
economic feasibility.
• Decisions have to be made on the scope of the project,
location and site, soil and hydrological requirements,
project size (farm or factory size), etc.
 3. Projects Appraisal and Investment Decision

• With the results of the feasibility study, the decision-

makers - not the analysts - make decisions based on
certain investment criteria that are important to
them.
• Appraisal is the comprehensive and systematical
assessment of all aspect as of the proposed project.
• The appraisers are usually the central economic
authorities responsible for drafting the overall
development strategy and entrusted with major
decisions on matters relating to this strategy.
 Cont’d
• The project is reviewed to conform that it accords
with the broad development objectives and fits into
the development process of the country.
• The project is viewed from different perspectives;
technical, commercial, function, economic,
managerial and organizational.
• It is to ensure that the project represents a high
priority use of countries resources and in
combination with other policies, contributes the
maximum possible towards achieving national
development objectives.
 4. Project Implementation, Supervision and follow up
• This stage is about making the project a reality.
• The earlier stages are directed toward the successful
implementation of the project.
• The mobilization of physical and financial resources
are needed.
• The recruitment and training of personnel for the
successful implementation and operation of the
projects also required.
• Monitoring and supervision to ensure the project’s
adherence to the plan are essential during this stage.
• The execution of the project should be supervised
closely and progress should be reported regularly.
 5. Project Evaluation
• The ex-ante evaluation involves many forecasts and
estimates of the project’s viability.
• The ex-post evaluation of a project finds out its actual
incomes and makes comparisons with anticipations in
hindsight.
• An important purpose of this stage is to ascertain the
reason for the project’s success or failure.
• This is an audit process to assess the extent of achievement
or possible deviation from the objectives for which the
project is undertaken.
• The result of ex-post evaluation would be the lessons
learned from the experience of planning and
implementation of the project.
 United Nation Industrial Development Organization
(UNIDO) Project Cycle
• Pre- investment phase
√ Opportunity study (identification of project ideas)
√ Pre-feasibility study (preliminary project formulation , selection of alternatives)
√ Feasibility study (techno-economical project back ground, final project
formulation stage)
√ Evaluation report (decision making about project availability)
• Investment phase
√ Project design stage
√ Construction stage
√ Pre-production marketing stage
√ Training
√ Start-up stage
• Operational phase
√ Replacement of equipment
√ Development or liquidation
 UNIDO (United Nation Industrial Development
Organization) Project Cycle

1. per-investment studies (project identification)

a. Opportunity Studies/Project Identification:
√ Availability of natural resources
√ Existing agricultural pattern
√ Future demand for goods, increasing population,
purchasing power
√ Exports and import substitution
√ Environmental impact
√ Functioning similar project of other countries
√ Possible linkages with other industries
 Cont’d

√ Extension by backward as forward linkage

√ Industrial politics
√ General input climate of economy
√ Expansions to an existing project to have large
scale of economy
√ Export potential
√ Availability and cost of production factors
√ The general opportunity studies can be
categorized as area studies, industry studies and
resources based studies.
 Cont’d
b. Pre-feasibility studies/pre-selection:
 To analyze that:
• All possible alternatives examined
• The project concept justifies detailed analysis
• A critical area necessitates in-depth investigation
• Project idea is either attractive for investment or non-viable
• The environment situation at the site in line with national
standards
 Support functional studies to convert specific areas such as;
• marketing
• Raw material and factory supplies
• laboratory and Oliphant testing
• location
• Environmental impact assessment
• Economics of scale and
• Equipment selection
 c. Feasibility study/preparation/
 Feasibility study should provide all data,
define and critically examine the commercial,
technical, financial, economic and
environmental aspects for each alternative.
 The data should be based on investigated
efforts rather than on guess.
 A window dressing approach should be
avoided.
 Cont’d
d. Appraisal report/Appraisal:
The appraisal report will prove whether the pre-
production expenditures were well spent, project
appraisal as carried out by financial institutions
concentrates on the health of the company to be
financed, the returns obtained by equity holders and
the protection of its creditors.
Appraisal reports as a rule deal with the industries
in which it will be carried out and its implications
for the economy as a whole.
 Investment phase
 The investment phase can be divided in to the
following stages.
• Establishing the legal, Financial and organization
basis
• Technology acquiring and transfer
• Detailed engineering design and contracting
• Pre-Production marketing, including the securing of
supplies and setting up the administration of the
firm.
• Recruitment and training of personnel
• Plant commissioning and start- up
 Operating phase
 The problems of the operational phase need to be
considered from both a short and a long term view
point.
 The short term view relates to initial period after
commencement of production.
 Most of the problems have their origin in the
implementation phase.
 The long-term view relates to chosen strategies and
the associated production and marketing costs as well
as sales reviews.
 The Integrated Project
Planning and Management
Cycle
(IPPMC)
 IPPMC
• Developed by Public Policy Implementation and
Project Management (PPIPM) Team as its conceptual
framework
• Conceptual tool for observing and analyzing the
process of a development project
• Clarify the major phases and tasks that constitute
the project, from planning through implementation,
evaluation, and refinement, with the central function
of policymaking providing focus and direction
throughout.
 IPPMC
• May be divided into four phases:
√ Planning, appraisal, and design
√ Selection, approval, and activation
√ Operation, control, and handover
√ Evaluation and refinement
IPPMC: The four phases
 Phase 1: Planning, Appraisal, and Design
• Identification and formulation of the project
– involves the actual conception or identification of a project,
which may occur in several ways.
– parameters must be defined
– development of a statement in broad terms which shows
the objectives and expected results of the project
• Feasibility analysis and appraisal
– Feasibility analysis is the process of determining if the
project can be implemented
– Appraisal is the evaluation of the ability of the project to
succeed
– preliminary design criteria must be established before
project feasibility and appraisal begin
 Phase 1: Planning, Appraisal, and Design

– Projects will proceed to the feasibility stage only if

decision makers find them desirable
– Determining the feasibility of the project depends on the
accuracy of the information received.
– Numerous components of the project must be dealt
with in the feasibility report
• Technical, economic, commercial, financial,
administrative, organizational, political, social,
environmental, and cultural factors
– Once the feasibility studies have completed, policy and
decision makers and lending institutions may carry out
the appraisal
 Phase 1: Planning, Appraisal, and Design

• Design of the project

– Establishes the basic programs, allocates responsibilities,
determines activities and resources, and sets down in
operational form the areas of priority and functions to
be carried out.
– All inputs relating to projects, including personnel, skills,
technical requirements, and so on, must be determined
at this point.
– Environmental factors, social criteria, and procedures
must be assessed and included.
– Preparation of blueprints and specifications for
construction, facilities, and equipment.
 Phase 1: Planning, Appraisal, and Design

– Operating plans and work schedules are prepared and

brought together in a formal implementation plan;
– Contingency plans may also be prepared.
– Designers must bring together the views of policy and
decision makers and technical experts in such a way that
the design reflects the inputs of all persons contributing
to the project.
 Phase 2: Selection, Approval, and Activation

• Selection and approval

– The selection of one project over another is made on
the basis of several criteria.
– Policy makers consider the feasibility of the project and
the priority of the project area.
– If a project fulfills a major need or contributes to
national or sector goals and is politically desirable, it may
be selected over a competing project that is not
politically important.
– The finalization of funding proposals, agreements, and
contract documents
 Phase 2: Selection, Approval, and Activation

• Activation
– Activation involves the coordination and allocation of
resources to make the project operational.
– It is bringing together all the different members of the
project team like the professionals, technicians, resource
personnel, and others like the consultants, contractors,
suppliers and policy makers.
– Responsibilities and authorities are delegated to make
decisions related to personnel, legal, financial,
organizational, procurement and administrative matter.
 Phase 3: Operation, Control, and Handover

• Implementation
– Allocation of tasks to groups within the project orgn.
– At this point, a final review of the project design and
timetable is undertaken, and any necessary changes or
adjustments are included.
– Decisions about the procurement of equipment,
resources, and manpower also need to be made.
– Schedules and time frames need to be established, and
efficient feedback, communication, and other
management information systems must be set up.
 Phase 3: Operation, Control, and Handover
• Supervision and control
– Appropriate procedures must be activated to provide
feedback to both the policy makers & project manager
– Control procedures must identify and isolate problem
areas
– Specific management tools, such as CPM, PERT, and other
forms of network analysis are particularly useful.
• Break down a project into detailed activities & establish
the interrelationships between & among them
– In addition to providing internal control, those funding
the project maintain an independent monitoring and
control system.
– Take into account the changing patterns
 Phase 3: Operation, Control, and Handover

– Control procedures are useful only if action is taken to

correct any deviation.
• Completion and handover
– prepares the project for phasing out and handover to
another form of administration.
– Scaling down and dismantling the project organization.
– Transfer of project personnel to other areas of
operation
– Finalization of contracts, termination of loan facilities, …
– Completion reports prepared for various authorities,
including funding organizations and policy makers.
 Phase 4: Evaluation and Refinement
• Evaluation and follow-up
– Actual benefits together with their side effects, may not
become apparent until the project has been operating for
some time - Evaluation needs to cover several time periods
– Retrospective examination in attaining intended goals
– Necessary to consider evaluation as an ongoing process
integrated with each phase of IPPMC
– Project's impact on the target group, its influence on the
political, social, cultural, and environmental factors relating to
the project
– Follow-up activities may vary from determining how unmet
needs can be satisfied to action on project tasks not properly
fulfilled.
– Relate follow-up action closely to project evaluation
 Phase 4: Evaluation and Refinement
• Refinement of policy and planning
– Policy makers and managers will need to refine their
procedures in the light of each completed project.
– Experiences and lessons learned should be the basis on
which planning and policy tasks are reviewed.
– Planning must also be able to meet new demands and
situations.
– Refinement of these procedures is an important
contribution that the project can make to future
development programs.
The DEPSA Model
Development Project Studies
Authority Model
 The DEPSA Model
Comprises three major phases:
• Pre-investment phase
√ Identification Stage
√ Formulation Stage
• Pre-feasibility study
• Feasibility study
√ Appraisal
• Appraisal
• Decision
 The DEPSA Model
Comprises three major phases:
• Investment Phase
√ Implementation
• Tendering negotiation and contractual
• Detailed engineering design
• Construction, erection and commissioning
• Operation Phase
√ Operation
√ Ex-post evaluation
 Pre-Investment Phase
• Project Identification
– Identify an idea, which enables to launch a project
– Sources of project ideas
• National, sectorial or regional plans and strategies
• Constraints in the development process due to shortage of
essential infrastructure facilities, problems in the balance of
payments, etc
• A government's decision to correct social and regional
inequalities or to satisfy basic needs of the people through
development projects.
• Unusual events such as drought, floods, earthquake, etc
• A possible external threat .
• Multi or bilateral agreement
 Pre-Investment Phase
• Project Identification
√ Sources of project ideas
• The identification of unsatisfied demand or need
• The existence of unused or underutilized natural or
human resources
• The initiative of private or public enterprise in
response to incentives provided by the government
• The necessity to complement or expand investment
previously undertaken
• The desire of local groups or organization to enhance
their economic independence and improve their
welfare.
 Pre-Investment Phase
• Project Formulation
√ Content of the pre-feasibility study
• The objectives of the project
• The nature and size of the demands for the output or the needs
that it would satisfy, together with the foreseen beneficiary
groups
• The availability of the most important materials & human inputs
• Basic alternative technologies available & their merits &
weakness
• Approximate investments and operation costs as well as
expected revenue
• Rough estimate of financial and economic return
• Any major factors that is likely to have an important effect on
the project
 Pre-Investment Phase
• Project Formulation
√ Feasibility study
• If the pre-feasibility study indicates that the project is promising
and further work is justified, the project enter the stage of
preparation.
• Project is considered as a definite investment action
• Detailed planning of the idea can begin project preparation
(sometimes called project formulation) covers the
establishment of technical, economical and financial feasibility.
• Decisions have to be made on the scope of the project, location,
and site etc. Complete technical specifications of distinct
proposals accompanied by full details of financial and economic
costs and benefits are the outcomes of the project preparation
stage. The project now exists as set tangible proposals.
 Pre-Investment Phase
• Project Formulation
√ Project Appraisal
• Second look at a project report by a person or an institution
that is in no way involved in its preparation.
• Appraisal is the comprehensive and systematic assessment of all
aspects of the proposed projects.
• Appraisal highlights wide area in the project with the ultimate
objective of strengthening them adequately so as to ensure final
success of the project.
• The main objective of the appraisal is to improve and renovate
the project with the cooperation of the promoter (financing
agencies).
• It's in this stage that the bank will judge whether the project is
acceptable or unacceptable.
 Pre-Investment Phase
• Project Formulation
√ Project Appraisal
• Second look at a project report by a person or an institution
that is in no way involved in its preparation.
• Appraisals should cover at least seven aspects of a project
– Technical: does the proposed project work in the way
suggested?
– Financial: appropriate calculation, sources identified and
reasonable plans made for their repayment
– Commercial: inputs for the project and disposal of the product
– Incentives
– Economic: view point of national development
– Managerial: capable manager, sufficient power and scope
– Organizational: units, etc, change as the project develops
 Investment Phase
• Project Implementation
√ Funds are actually disbursed to get the project set up
and running.
√ Covers the actual development or construction of the
project up to the point at which it becomes fully
operational.
√ It includes monitoring of all aspects of the work or
activity as it proceeds.
√ The project's objectives are realized only when it is
successfully implemented.
√ Implementation stages begins immediately after the final
decision on the project and ends when it starts
rendering the benefit envisaged
 Investment Phase
• Project Implementation
√ Project analysts generally divide the implementation
phase into three different time periods:
√The investment period: when the major project
investments are undertaken.
√The development period: when the project's
production builds up.
√The life of a project: when full development is
reached.
Project Evaluation and operational phase
√ Look back over what took place, to compare actual
progress with the plans, and to judge whether the
decisions and actions taken were reasonable and useful.
√ A systematic and periodical gathering, analyzing and
interpreting of inputs, information to see the effects and
impacts of a development program/project
√ Help the management of the project after the initial
construction phase,
√ Help in the planning of future project.
√ Experience with one project can give rise to new ideas
for extension of the project.
√ Helps to determine whether the objectives set were
realistic, to assess the impact of the project activities.
Chapter End!