Certified Project Finance Analyst

Accredited by Cambridge Academy of Professionals-UK

Certified Project Finance Analyst (CPFA)

Accredited by Cambridge Academy of Professionals-UK

Workbook: M-2: Project Cycle in relation with Finance

Project Cycle: Emphasis on Financial & Economic

A project is defined by the World Bank as “a proposal for capital investment to develop
facilities to provide goods and services.” It is a production plan which can be carried out
independently of other projects in the same company. It is the smallest unit of investment
activity for producing goods and services.

Similarly, The United Nations (1958) defines a project as “the compilation of data which will
enable an appraisal to be made of the economic advantages and disadvantages attendant
upon the allocation of a country’s resources to the production of specific goods and
services.”

Projects are prepared for all types of business activities mentioned in the International
Standard Industrial Classification, and this could range from a simple car-wash to farming
produce. A project may be an investment to build something entirely new for example the
BRT road constructing by Lagos State Government or for the expansion or improvement of
an existing facility.

A project may be distinguished from a programme. A programme is defined as a

coordinated set of projects within the same country, state, local government areas or city.
For instance, a rice project may require several simultaneous activities to take place for it’s
completion. These activities could be access road and transportation, and water supply for
parboiling rice to prevent the germination of the harvested rice. The road, transportation,
and water projects together may be seen as a programme.

The World Bank sees a project as “a continuous and self-sustaining cycle of activity which
runs through four principal stages viz.: the identification of the project, its preparation, its
appraisal, and supervision of the project in its construction and operating stages to make
sure that it achieve its objectives.”

Project Cycle Management

The activities related to a project are cyclical in nature. One stage leads to the other, and
stages are revisited to ensure success.

Identification

The first step is to identify the focus of the project and it’s desirable outcomes. During this
time, feasibility tests and needs requirements are conducted to understand what the scope
of the project should be. The project outcome needs to be able to solve an existing problem.

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 Certified Project Finance Analyst
Accredited by Cambridge Academy of Professionals-UK

Determining who the relevant stakeholders are can help ease the constraints of a project.
For instance, if the constraints exist largely at the top level, the problem may be overcome
through stakeholders operating at the government level. middle level stakeholders can help
with addressing constraints at the community level as well provide links from the field to the
policy environment.

Design

When the project has received the needed approvals, design concepts are then worked
upon. This involves further research on problems that the project is trying to resolve. Risks
are also considered and how to best mitigate them.

Implementation

After the designs are finalised, the next step is to implement those designs. It is important to
supervise and review the progress of the project in order to curb any deviations. The plans
may need to be adjusted where necessary.

Evaluation

Evaluation needs to be carried out during the project to ascertain timeliness, and after the
completion to ensure its long-term impact and sustainability.

Lesson Learning

From the planning to the delivery, there are plenty of circumstances that may take place
that serve as lessons for future projects or governance.

Financial and Economic Feasibility

What is Feasibility Report?

A feasibility report helps show the integrity of the project in terms of success or failure. The
report determines the success probability and indicates whether changes are required in the
plan.

Such a report is crucial and should be prepared by any manager heading a project. The
feasibility report and business plan is needed by third party financing companies and
approvers to demonstrate how the project will fair after completition. Irrespective of the
project size, the feasibility report needs to include a market forecast, a marketing plan,
cash-flow budget and proforma income statement.

A feasibility report helps to make a decision on whether to invest or not. It also aids the
raising capital for the business. Raising the needed capital may be difficult without the
report. Based on the bankers evaluation of the business plan and feasibility report, a

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 Certified Project Finance Analyst
Accredited by Cambridge Academy of Professionals-UK

decision will be made. The report will ascertain the ability of the business to repay the loan
as and when due.

A feasibility report forecasts the performance of the new undertaking. For instance, if in the
feasibility report the estimated sales per month are USD 100,000, a comparison should be
made with the estimated sales of USD 100,000 to ascertain whether the initiative is
performing below or above forecast. Whenever there is a significant difference between the
actual performance and estimate, you should find out why and take corrective action.

Critical Aspects of a Feasibility Report

There are certain aspects of a feasibility report which a strong report should have. Among
these critical aspects are:

• The product/service market size.

• The management structure of the business.
• Financial requirements of the project.
• A marketing plan.
• Determination of profitability. After analysing how much profit to expect, one can
determine whether the proposal should continue.

@ restricted use for the delegates of CPFA Program