ADU

MASTERS OF BUSINESS
ADMINISTRATION (MBA)

PROJECT ANALYSIS
AND MANAGEMENT

BY
ALEMAYEHU SHIFERAW (PhD)
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 PART 2

PROJECT CYCLE

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 2.1. The Project Life Cycle

⚫ Is the stages through which the project

passes from inception to its
completion.
⚫ Is a continuous process made up of
separate and complementary stages
(phases) each with its own
characteristics and each setting a ground
for the next one.
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 Project Life Cycle (Cont’d…)
❖ The Project Analysis or appraisal is done in stage
(Cycle) and should provide information on:
❑ administrative feasibility, marketing, and
technical appraisal;
❑ financial capability;
❑ expected economic contributions,
❑ social objectives
❖ Different phases are identified by different institutions
and authors. The following are various expressions of
the stages of the project cycle
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 Project Life Cycle (Cont’d…)
❖ Gittinger (1996 ):In his book Economic Appraisal of
Agricultural projects defines the cycle to be:-
➢ Identification
➢ Preparation and analysis
➢ Appraisal
➢ Implementation
➢ Evaluation
❖ Project Management Institute (PMI); A
Professional Institute coins the cycle in terms of:
➢ Initiating
➢ Planning
➢ Executing
5 ➢ Controlling
➢ Closing
 Project Life Cycle (Cont’d…)

❖ The Baum (1970) Cycle (World Bank

Procedures)
❖ According to this model a project cycle
consists of the following six stages.
➢ Identification
➢ Preparation
➢ Appraisal and Selection
➢ Promotion, Negotiations, Board presentations
➢ Implementation and supervision
6 ➢ Evaluation
 THE PROJECT CYCLE: World Bank Project Cycle

➢ If the question, "What does the World Bank do?"

had to be answered in a few words, those words
would be:
➢ "It lends for development projects."
➢ The Bank's main business is to lend for specific
projects, carefully selected and prepared, thoroughly
appraised, closely supervised, and systematically
evaluated.

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THE PROJECT CYCLE: World Bank Project Cycle

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 THE PROJECT CYCLE: World Bank Project Cycle
1. Identification
➢The first phase of the cycle is concerned with
identifying projects that have a high priority, that
appear suitable for Bank support, and that the Bank,
the government, and the borrower are interested in
considering earlier years, project identification as
done, largely in response to proposals by governments
and borrowers.
➢Over the years, the Bank has encouraged and helped
borrowing countries to develop their own planning
capabilities and has also strengthened its own methods
9 of project generation.
 THE PROJECT CYCLE: World Bank Project Cycle
1. Identification

➢ They also assess a country's "creditworthiness“ for

Bank
➢ This analysis provides the basis for a continuing
dialogue between the Bank and a country on an
appropriate development strategy, including policy
and institutional changes for the economy as a whole
and for its major sectors.
➢ It is then possible to identify projects that fit into and
support a coherent development strategy, that meet
sectorial objectives, and that both the government and
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the Bank consider suitable.
 THE PROJECT CYCLE: World Bank Project Cycle
1. Preparation

➢ A "project brief” is prepared for each project, describing

its objectives, identifying principal issues, and
establishing the timetable for its further processing.
➢ It is difficult to generalize about the preparation phase
because of the variables that abound: the nature of the
project, the experience and capability of the borrower,
the knowledge currently available, the sources and
availability of financing for preparation, and the nature
of the relationships between the Bank, the government,
co-financers, and other donors that may be involved in
11 the sector or project.
 THE PROJECT CYCLE: World Bank Project Cycle
3. Appraisal
➢ As the project takes shape and studies near
completion, the project is scheduled for appraisal.
➢ Appraisal, perhaps the best known phase of project
work, provides a comprehensive review of all aspects
of the project and lays the foundation for
implementing the project and evaluating it when
completed.
➢ Appraisal is solely the Bank's responsibility. It is
conducted by Bank staff, sometimes supplemented by
individual, consultants, who usually spend three to
12 four weeks in the field.
 THE PROJECT CYCLE: World Bank Project Cycle
3. APPRAISAL

❖ If preparation has been done well, appraisal can be

relatively straightforward. Appraisal covers four
major aspects of the project:
➢Technical analysis,
➢Institutional analysis,
➢Economic analysis, and
➢Financial analysis

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 THE PROJECT CYCLE: World Bank Project Cycle
TECHNICAL ANALYSIS

➢ The Bank has to ensure that projects are soundly designed,

appropriately engineered, and follow accepted agronomic,
educational, or other standards.
➢ The appraisal mission looks into technical alternatives
considered, solutions proposed, and expected results.
INSTITUTIONAL ANALYSIS
➢ The creation of a sound and viable local "institution”,
➢ It covers the borrowing entity itself, its organization,
management, staffing, policies, and procedures, and also the
whole array of government policies that conditions the
environment in which the institution operates.
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 THE PROJECT CYCLE: World Bank Project Cycle
ECONOMIC ANALYSIS

➢ Through cost-benefit analysis of alternative, project

designs, the one that contributes most to the
development objectives of the country may be
selected.
➢ This analysis is normally done in successive stages
during project preparation, but appraisal is the point
at which the final review and assessment are made.

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 THE PROJECT CYCLE: World Bank Project Cycle
FINANCIAL ANALYSIS

➢ Financial appraisal has several purposes. One is to

ensure that there are sufficient funds to cover the
costs of implementing the project. The Bank does
not normally lend for all project costs; typically, it
finances foreign exchange costs and expects the
borrower or the government to meet some or all of
the local costs.
➢ Therefore, an important aspect of appraisal is to
ensure that there is a financing plan that will make
16 funds available to implement the project on schedule.
 THE PROJECT CYCLE: World Bank Project Cycle
4. NEGOTIATIONS, BOARD PRESENTATION

➢ Negotiation is the stage at which the Bank and the

borrower endeavor to agree on the measures
necessary to assure the success of the project.
➢ These agreements are then converted into legal
obligations, set out in the loan documents.
➢ A financial covenant to be agreed upon during
negotiation will define the overall financial
objectives and specify the necessary rate of return
and the timing of the initial rate increase.
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 THE PROJECT CYCLE: World Bank Project Cycle
5. IMPLEMENTATION AND SUPERVISION

➢ The next stage in the life of a project is its actual

implementation over the period of construction and
subsequent operation.
➢ Implementation, of course, is the responsibility of the
borrower, with whatever assistance has been agreed
upon with the Bank in such forms as organizational
studies, training of staff, expatriate managers, or
consultants to help supervise construction.
➢ The Bank's role is to supervise the project as it is
18 implemented.
 THE PROJECT CYCLE: World Bank Project Cycle
6. EVALUATION

➢ Once these stages are complete, and Bank funds

fully disbursed, the level of supervision declines
sharply. During the period of active supervision,
attention tends to be focused on the problems of
the moment.
➢ the bank’s independent operations evaluation
department prepare an audit report and evaluate
the project.

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THE PROJECT CYCLE: UNIDO PHASES OF THE PROJECT
CYCLE

Phase 1 – Pre-investment

Opportunity Prefeasibility Feasibility Appraisal &

study study Study Decisions

Phase 2 – investment

Construction Commissioning &

Negotiation and Engineering & Manpower
Contracting Design start up
training

Phase 3 – Operation

Phase 4 – Evaluation
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 THE PROJECT CYCLE:
1. Project Identification
➢ Sources of Project ideas
➢ Screening Projects
➢ Project Selection
2. Project Preparation and Appraisal
➢ Market analysis
➢ Technical analysis
➢ Financial Analysis and
➢ Environmental analysis
3. Implementation phase
21 4. Follow-up and evaluation phase
THE PROJECT CYCLE:
Project Identification
• Initial step of the project cycle,
• This is the birthplace of the project.
• Needs precede projects i.e, the first step in identifying a
project is to identify a need
Conduct SWOT Develop selection
analysis criteria

Profile readily Screen ideas Vs

Scan source of
available data criteria
ideas

No
• Reject Yes
Further
• Rework Acceptable
Study
• Later
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reconsider
 THE PROJECT CYCLE:
Sources of Project ideas

➢ Demand : Unsatisfied demand and the most effective ways to

meet it.
➢ Linkages:- Need for Upstream and downstream linkages, i.e.
vertical integration
➢ Problems :-
➢ Resources :- Availability of resources cause for ideas
➢ Trade :- Possibilities for import substitution and export
potential
➢ Government Policy :- Incentives to entrepreneurs – tax
holidays, subsidies, grants for development in sectors or
regions and planned allocation.
23 ➢ External Constraints:-
 THE PROJECT CYCLE:
PROJECT SELECTION

❖ Projects meeting screening criteria are selected for

further study.
Other options are:-
➢ Reject: Some of the projects not acceptable at the
present time would be rejected as unworkable.
➢ Rework: Projects that need some refining of
major features before serious consideration.
➢ Consider later: Projects that are not currently
timely but have a potential at future
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 THE PROJECT CYCLE:
PROJECT PREPARATION AND APPRAISAL

➢ Project preparation is the study of an investment

opportunity.
➢ The UNIDO manual states the following to be the
project preparation steps
▪ Market analysis
▪ Technical analysis
▪ Financial Analysis and
▪ Economic analysis

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 THE PROJECT CYCLE:
PROJECT PREPARATION AND APPRAISAL

❖Market analysis: Involves conducting market

assessment and developing market strategy
❖Technical analysis: Engineering and other technical
parameters of the project need to be clearly defined.
These are:
• Engineering and Technology:
• Location, Site and Environment:
• Raw Materials and Supplies:
• Human Resources:
• Organization and Overhead:
26 • Implementation Planning:
 THE PROJECT CYCLE:
PROJECT PREPARATION AND APPRAISAL

❖ Financial analysis: Financial analysis is a

simulation of the investment from the financial point
of view. The Analysis Includes:-
➢ investment costs:
➢ production costs:
➢ finance:
➢ indicators of financial performance:
❖ Financial Criteria:
➢ Commercial benefits are measured in regard to revenues or
profits.
27 ➢ Commercial costs are the prices of factors of production.
 THE PROJECT CYCLE:
PROJECT PREPARATION AND APPRAISAL
Economic analysis
➢ Economic Prices: Constraints in the economy may result in
values of project inputs and outputs that differ from
commercial or market prices.
➢ Benefits and costs:
➢ Externalities: impacts of the project upon the economy and
physical and social environments are included in the analysis.
➢ Social factors: How a project conforms to social policy in
terms of distribution of the region or country's resources is a
consideration in this type of analysis.
➢ Criteria : net consumption, distribution and other benefits to
28 society are criteria that are applied in economic analysis.
 THE PROJECT CYCLE:
Implementation phase

o The project takes shape during the implementation

phase.
o It concerned with that period in the project's life
when physical components are being constructed,
equipment purchased and installed, and new
institutions, programs, and policies put in place.

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 THE PROJECT CYCLE:
Follow-up and Evaluation phase

➢ Although it is extremely important, the follow-up phase is

often neglected.
➢ During this phase, everything is arranged that is necessary to
bring the project to a successful completion.
➢ Examples of activities in the follow-up phase include writing
handbooks, providing instruction and training for users, setting
up a help desk, maintaining the result, evaluating the project
itself, writing the project report, holding a party to celebrate the
result that has been achieved, transferring to the directors and
dismantling the project team.
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 Thank you

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