Chapter one

Basic Concepts of Project

Introduction

• Projects are one of the several instruments to achieve particular objectives in a process of
development.

• Projects have been described as "the cutting edge" of development, it is a means through
which development targets are achieved and are considered to be a tangible benefit for
the project beneficiaries

• Thus, projects have to be discussed as an integral part of the national development.

• To have national development we have to have national development planning.

• There are three distinct stages through which development planning is carried out:

• National Planning

• Sectoral Planning

• Project Planning

National Planning

• National planning refers to the drawing of a national plan indicating projection of the
economy on a macro economic basis.

• It requires the formulation of overall economic and social objectives by identifying the
constraints such as shortage of investment, foreign exchange, skilled labor, and
maintaining consistent inter relation between the various sectors and regions of the
economy

• National planning consists of Marco-economic planning which concerned with the rate of
economic growth, establishing regional balance and priorities and with the formulation of
investment policies and programs, which will achieve the target set.

Sectoral, (Sub-Sectoral) Planning

• Once the national planning is done, planning will be developed on sub-sectoral basis.

• The analysis of each sector will provide an indication for investment, employment, export
etc.

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 • Before embarking on an individual project, it is frequently necessary to possess detailed
knowledge of the sector concerned (e.g., chemical, textile, engineering, iron and steel,
etc. these referred to as sub-sector with manufacturing sector).

• Such sectoral planning should provide an area where new investment may be made, and
as such, play an essential part in project identification.

• In addition, it provides an important framework in which to analyze new projects and to

assess their ramifications/consequences.

Project Planning

• Once a sectoral (sub-sectoral) plan has been drawn up, the way is clear for project
planning.

• This consists of two stages:

A. A pre-feasibility study, which concentrates on the market identification and on the costing of
a project to satisfy the market, and a rough financial plan and economic analysis.

B. A detailed feasibility study: is an investigation to determine whether a particular project is

desirable and practicable.

• It will be undertaken when the investor are known, and the availability of finance
will be discussed and will consists of a very detailed description and analysis of
the project.

The Concept of a Project

• According to Harrison, “ Project is a non routine, non repetitive, one-off undertaking,

with well defined time, financial and technical performance goal;”

• According to Project Management Institute (PMI), “Project can be defined as a

temporary endeavor/effort undertaken to accomplish a unique objective.

• Examples of Project

• Construction of a house.

• Writing a book, Building a dam.

• Introducing a new product in the market.

• Construction of a new bridge over a river.

• A Politician contesting an election.

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The Concept of a Project

• Project is a set of proposal for the investment of scarce resources into clearly identified
set of economic activity that is expected to produce future benefit.

• In a brief statement, a project is just a proposal to invest money in certain activities with
the expectation of return in the future.

• In the broadest sense a project is defined as a specific activity that produces an

observable and measurable result under certain preset requirements. for example: build a
garage

• The easiest way to define a project is to outline the common characteristics that it might
be expected to have:

1. Temporary. This key characteristic means that every project has a finite start and a finite end.

• The start is the time when the project is initiated and its concept is developed.

• The end is reached when all objectives of the project have been met (or unmet if it’s
obvious that the project cannot be completed – then it’s terminated)

• Projects are ended when the goals are accomplished or when the goals are not
achieved.

2. Unique Deliverable(s). Any project aims to produce some deliverable(s) which can be a
product, service, or some another result.

• Deliverables should address a problem

3. A project can typically be more of a once off endeavor, rather than something that’s
happening all the time in a repeated fashion

4. Multiple resources are involved in the projects along with the close coordination.

5. Clients desire changes in every project and the parent organization desires to
maximize its profits.

6. Uncertainty and risks is inherent in any project.

• Achieving project objectives can not be predicted in advance with accuracy.

• In general, a project is a specific activity with specific starting point and specific ending
point intended to accomplish a specific objectives and with a pre-determined input
resources.

Reasons for Initiation of Projects/why we develop a project?

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 • In the following scenarios, projects are initiated

• For starting new business

• For some community issues

• For regulatory mandate

• For implementation of new system or process

• For introduction of new tools, equipment or techniques

• Project Participants/who will get involved in a project?/who are the stakeholders

• The individuals or organizations that are participating actively are considered as project
stakeholders.

Following are some of main key stakeholders of the project.

• Project Manager

The individual who has the responsibility to manage the project is considered as project
manager.

• Customer or End user

Customers or end users are those persons or organizations that will utilize the product of
the project.

• Performing Organization

Performing organization is the one whose employees are most directly participate in
performing the project work.

• Sponsors

The person or group that supplies financial resources for the project in cash or any other
kind is referred to as sponsor.

• Influencers

People or group that although does not involve directly in the project but can indirectly
influence the project positively or negatively are called influencers

Types of Projects

• Every Project is different.

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• Projects can be classified on several different points.

• The classification of projects varies according to a number of different factors such as

complexity, source of capital, its content, those involved and its purpose.

Projects can be classified on the following factors:

- Three types of projects can be identified depending upon how new resources
committed to them relate to existing economic activity.

• New investment- designed to established new productive process

• Expansion projects – extending an existing activity

• Updating projects – replacing/changing some elements in an existing activity without a

major change of output. E.g. Technology change.

According to complexity:

• Easy: A project is classified as easy when the relationships between tasks are basic and
detailed planning or organization are not required.

• A small work team and few external stakeholders and collaborators are common in this
case.

• Complicated: The project network is broad and complicated.

According to source of capital:

• Public: Financing comes from governmental institutions.

• Private: Financing comes from businesses or private incentives.

• Mixed: Financing comes from a mixed source of both public and private funding.

According to project content:

• Construction: These are projects that have anything to do with the construction of a civil
or architectural work.

• IT: Any project to do with software development, IT system etc.

• Business: These projects are involved with the development of a business.

• Service or product production: Projects that involve themselves with the development
of an innovative product or service, design of a new product, etc.

• They are often used in the R & D department

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 According to those involved:

• Departmental: When a certain department or area of an organization is involved.

• Internal: When a whole company itself is involved in the project’s development.

• Matriarchal: When there is a combination of departments involved.

• External: When a company outsources external project manager or teams to execute the
project.

• This is common in digital transformations, process improvements and strategy changes.

According to its objective:

• Production: Oriented at the production of a product or service taking into consideration a

certain determined objective.

• Social: Oriented at the improvement of the quality of life of people

• Educational: Oriented at the education.

• Community: Oriented at people too, however with their involvement.

• Research: Oriented at innovation and the gaining of knowledge.

Organic Link between Policy, Development Planning and Projects

• Projects and Planning (Relationship)

• Planning in general is a conscious effort to direct human energy for the purpose of
securing a rationally desirable end.

• Planning is a means to an end.

• It's a guide to achieving certain objectives in an optimum manner by means of an orderly

sequencing of activities.

• In other words, planning is a form of decision making in using scare resources in

selective and economical ways to achieve a pre-determined objectives or goals.

• Planning requires projects: a sound planning require a great deal of knowledge about
existing and potential project.

• Since a plan lay down growth rate target, for Gross Domestic Product (GDP),
investment, employment etc., a realistic assumption must be established with regard to
such growth.

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 • This pre-suppose a knowledge of the rate at which good projects can be planned.

• Thus, good and realistic plan cannot be formulated in the absence of a great deal of
project planning and without proper economic appraisal of projects.

• Project requires planning: since projects commit scarce resources, project selection is
meaningful only when it is placed within the broader development-planning framework.

• The best economic appraisal of projects cannot be made without referring framework and
plans and policies.

• To choose the right project one must have an estimate of demand for the product.

• But the estimation of demand could be more realistic if the plan is also realistic.

Projects and Program

• While a project refers to an investment activity where resources are used to create
capital assets, which produce benefits over time and has a beginning and an end with
specific objectives, a program is an ongoing development effort or plan involving a
number of projects.

• Programs may or may not necessarily be time bounded.

• Yet programs cannot live for ever, they have limited life cycle, which however, may or
may not be explicitly stated.

• So in effect in terms of time delimitation, there is only relative difference between

programs and projects.

• The following are the basic difference between program and project.

1) A program is broader in scope than a project.

2) A program is a domain out of which project can be found.

For example, if we think of extension program under, we could identify different projects
like irrigation, crop production, Honey production etc.

3) A program has general objective while projects have a specific objectives.

For example, if the objective of the extension program is self food efficiency, the
objective of the project could be increasing crop production, milk production, honey production
etc. which are more specification than being general.

4) Project has a specific project area while program don't have a specific program area.

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5) Projects have specific beneficiary groups.

• For example, if one establishes a cattle raring project at Somalia region, that doesn't mean
that every Somalia will be willing to buy your product rather there will be a specific
client who will purchase your product.

• The difference and similarities between project and program can be summarized in the
following table:

Project Program
- It is specific in objectives - Has got general objectives

- Has specific - May not have specific area

areal/geographic unit

- Has clearly determined and - May not have specific target

Difference
allocated fund group

- Has specific life - May not have clear and detailed

financial allocation
- May not have specific time of
ending
- Has purpose/objectives
Similarities - Require input (financial, manpower, material)
- Generate output (goods or services)
- Operate over space and time

• Lastly we have the following Organic Link between Policy, Development Planning,
programs and Projects:

• Policy ---⇒ Development Planning ---⇒ Programs ---⇒ Projects ---⇒ Outcomes /
impacts /changes

• Example:

• Examples of program could be a road development program, a health improvement

program, a nutritional improvement program, a rural electrification program,
institutional reform program, management system reform program, etc.

• A health program may include a water project as well as a construction of health

centers both aimed at improving the health of a given community, which previously
lacked easy access to these essential facilities.

• Programs may include one or several projects at various times whose specific objectives
are linked to the achievement of higher level of common objectives.
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The Project Cycle

• The project cycle is the sequence of analytical phases through which a project passes.

• Projects usually go through a series of identifiable stages.

• The various stages through which project planning proceeds from inception to
implementation are often called "the project cycle."

• It is the project's life cycle through which the project advances from infancy to maturity.

• However it is naïve to think that a project cycle as a successive stages overtime. There
are in fact, much feedback between the project cycle stages, and sometimes, some stages
have to be undertaken simultaneously

• Generally, the project cycle may be divided in to:

A. Identification

B. Preparation and analysis

C. Appraisal

D. Implementation and

E. Evaluation

A) Project Identification

• The first stage in project cycle is to identify an idea, which enable to launch a project.

• The question at this stage is where do project ideas come from?

• Sources of project ideas

• We can distinguish two level where projects ideas are born:

i) The macro level and the micro level:

• At the macro level project idea comes from:

• National, sectoral or regional plans supplemented by special studies often called

opportunity studies, conducted with the explicit aim of translating national and sectoral
programs into specific projects.

• Constraints in the development process due to shortage of essential infrastructure

facilities, problems in the balance of payments, etc.

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 • 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 that necessitate projects aiming at achieving, for example, self
sufficiency in basic materials, energy, transportation etc.

• Multi or bilateral agreement

ii) At the micro level, project idea emanate from:

• The identification of unsatisfied demand or need

• The existence of unused or underutilized natural or human resources and the perception
of opportunities for their efficient use

• The initiative of private or public enterprise in response to incentives provided by the

government

• The necessity to expand investment previously undertaken: and

• The desire of local groups or organization to enhance their economic independence and
improve their welfare.

• Once, some project ideas have been put forward, the first step is to select one or more of
them as potentially viable.

• This calls for a quick preliminary screening by experienced professional who could
also modify some of the proposal.

• Following the preliminary screening, promising project options should be investigated in

a systematic manner.

• This requires the preparation of brief reports that clearly indicates sufficient and detail
of those projects that are promising and suggests those projects options that should be
eliminated.

• Reports of this type are often called pre-feasibility or pre investment studies.

• This stage (pre-feasibility stage) involves the rough examination of identified project.

• At this stage, the screening criteria are rough and vague, becoming specific and refined as
project planning advances.

• During preliminary selection, the analyst should eliminate project proposals that are
technically unsound and risky, have no market for their output, have inadequate supply of

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 inputs, are very costly in relation to benefits, assume over ambitious sales and
profitability, etc.

• Some kind of preliminary screening is required to eliminate ideas, which prima facie, that
are not promising.

• For this purpose/preliminary selection/ the following aspects may be looked into:

• Consistency with government priorities

• Availability of inputs

• Adequacy of market

• Reasonableness of cost, and

• Acceptability of risk level

Content of the pre-feasibility study

• The pre-feasibility study should briefly discuss

• 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 and human inputs

Basic alternative technologies available and their merits and 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

B) Project Preparation

• If the pre-feasibility study indicates that the projects is, prima facie (something which
appears to be true when you first consider it), promising and further work is justified, the
project enter the stage of preparation.

• Once project ideas have been identified and selected for further examination, the process
of project preparation and analysis starts.

• Project preparation must cover the full range of technical, institutional, economic, and
financial conditions necessary to achieve the project’s objective.

• Critical element of project preparation is identifying and comparing technical and

institutional alternatives for achieving the project’s objectives.

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 • Different alternatives may be available and therefore, resource endowment (labor or
capital) would have to be considered in the preparation of projects.

• Preparation thus require feasibility studies that identify and prepare preliminary
designs of technical and institutional alternatives, compare their costs and benefits, and
investigate in more details the more promising alternatives until the most satisfactory
solution is finally worked out.

This stage involves the Feasibility studies.

• The major difference between the pre-feasibility and feasibility studies is the amount of
work required in order to determine whether a project is likely to be viable or not.

• If the preliminary screening suggests that the project is prima facie worthwhile, a detailed
analysis of the marketing, technical, financial, economic, and ecological aspects is
undertaken.

• Feasibility study provides a comprehensive/inclusive review of all aspects of the project

and lays the foundation for implementing the project and evaluating it when completed.

After feasibility study has undertaken, the feasibility report should be provided.

• feasibility report should contain the following elements:

1. Market analysis

2. Technical analysis(materials & Inputs, Technology and engineering works, construction,

infrastructure)

3. Organizational analysis

4. Financial analysis

5. Economic analysis

6. Social analysis, and

7. Environmental analysis

C) Project Appraisal

• Thus project appraisal can be defined as a second look at the project report by a team of
professionals, who were not participated in the preparation of the study but qualified and
experienced to evaluate such studies.

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 • It is or should be an independent assessment of the project to identify the weaknesses
and strengths of the study that have a bearing on the decision to invest, and/or to finance
the project.

• Appraisal is the comprehensive and systematic assessment of all aspects of a project

study, addressing particularly issues like:

• Specificity of objectives;

• Clarity of problems;

• Methodology: type and source and appropriateness of data collection techniques

and analysis techniques;

• Project specific factors.

• When a feasibility study is completed the various parties involved in the project will carry
out their own appraisal of the investment project in accordance with their individual
objectives and evaluation of expected risks, costs and gains.

• 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/renew 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.

• Appraisals should cover at least the following aspects of a project, each of which must
have been given special consideration during the project preparation phase:

1. Technical: does the proposed project work in the way suggested?

2. Financial: have the financial requirement of the project been properly calculated, their sources
identified and reasonable plans made for their repayment?

3. Commercial: how will the necessary inputs for the project be supplied and are the
arrangements for the disposal of the product satisfactory?

4. Economic: does the proposed project consistent from the view point of national development?

5. Managerial: do capable manager exist to run the planned project successfully and are they
given sufficient power and scope to do what is required?

7. Organizational: is the project organized internally and externally into units, etc. so as to allow
the proposals to be carried out properly, and to allow for change as the project develops?

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 • When the appraisal is completed, the findings and final recommendations are put together
in the form of an appraisal report.

• The recommendation may be to approve, re-formulate, postpone, or abandon the project

under review.

• On the basis of this report, final decisions are made about whether to go ahead with the
project or not.

• Following appraisal, some projects may be discarded.

D) Project Implementation

• After the project appraisal is completed, negotiations with the funding organization starts
and once source of finance is secured implementation follows.

• Implementation is the most important part of the project cycle.

• The better and more realistic the project plan is the more likely it is that the plan can be
carried out and the expected benefits realized.

• Project implementation must be flexible since circumstances change frequently.

• Technical changes are almost inevitable as the project progresses; price changes may
necessitate adjustments to input and output prices; political environment may change.

• Translating project plan into actual investment and operation is one of the most critical,
time consuming, complex, risk fraught and difficult task.

• No matter how sophisticated or detail the project preparation work, it has no value unless
it is transformed into action or implemented.

• Implementation can be defined as a project stage which 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.

• It's where the earlier preparations and designs, plans and analysis are tested in the
highlight of reality.

• The project's objectives are realized only when it is successfully implemented.

• Implementation stages begin immediately after the final decision on the project is given
and ends when it starts rendering the benefit envisaged/predicted.

• While in earlier stages of project planning there was more thinking and less action, in this
stage more actions and less thinking is needed.

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 • Project implementation may involve complex decisions.

• Now a days planning the implementation stage of a project explicitly is one of the
activity in project preparation.

• The better and more realistic a project implementation plan is, the more likely it is that
the plan can be carried out effectively and the expected output or benefit realized.

• Project analysts generally divide the implementation phase into three different time
periods. These are:

1. The investment period: when the major project investments are undertaken.

2. The development period: when the project's production builds up.

3. The life of a project: when full development is reached.

E) Project Evaluation

• The final phase of the project is the evaluation phase.

• Once a project has been carried out, it is often useful to 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.

• Thus we call it evaluation.

• Evaluation is often seen as an "end of project cycle" exercise.

• Evaluation can be defined as a systematic and periodical gathering, analyzing and

interpreting of inputs, to see the effects of a development project in order it may be
adjusted where necessary.

• The project analyst looks carefully at the successes and failures in the project experience
to learn how better to plan for the future.

• In this stage it is important to examine the project plan and what really happened.

• Performance review should be done periodically to compare actual performance with

projected performance.

• Evaluation is useful in several ways:

• (i) it throws light on how realistic were the assumptions underlying the project;

• (ii) it provides a documented log/record of experience that is highly valuable in

future decision making;

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• (iii) it suggests corrective action to be taken in the light of actual performance;

• (iv) it helps in uncovering/finding judgment biases;

• (v) it induces a desired carefulness among project sponsors.

• Weakness and strengths should carefully be noted so as to serve as important lessons for
future project analysis undertaking.

• Evaluation is not limited only to completed projects.

• Ongoing projects could also be evaluated to rectify problems when the project is in
trouble.

• The evaluation may be done by the project management, the sponsoring agency, or other
bodies.

• This kind of analysis can help not only in the management of the project after the initial
construction phase, but will also help in the planning of future project.

• Experience with one project can give rise to new ideas for extension of the project.

• Generally evaluation of a project helps to determine whether the objectives sets were
realistic, given the capacities with which and the circumstances in which they had to be
fulfilled, to assess the impact of the project activities.

SUMMARY

• A project is a proposal by individual or organization to invest money in a certain

activities with the expectation of return in the future.

• However, it could be better to define a project in terms of the common characteristics that
might be expected to have.

Exercise

1. What is a project? 2. What is the relationship between project and plan, and project
and program?

3. What are the different sources of project idea at a macro and micro level?

4. Write what project lifecycle mean and the various stages through which the project
passes.

5. Argue on the issue of "It would be naïve to think that a project cycle as a successive
stage overtime". 6. Why companies undertake project evaluation?

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