DEVELOPMENT PLANNING AND PROJECT ANALYSIS-I (Econ-4631)

CHAPTER 1: INTRODUCTION TO DEVELOPMENT PLANNING (25%)

1.1 Basic Concepts and Meaning Development Planning
1.2 Historical Background of Development/Economic Planning
1.3 Nature and Scope of Development Planning
1.4 Objective of Development Planning
1.4 Elements of Development Planning
1.5 Requisites for Successful Developing Planning
1.6 Planning in Developing Countries
1.6.1 Objectives of Development Planning in Developing Countries
1.6.2 The Rationale /Need for Planning in Developing Countries
1.6.3 Challenges /Failure of Planning in Developing Countries
1.7 Planning for Forecasting/ Projection

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1.8 Process/Stages in Economic Development Planning
1.8.1National Planning
1.8.2 Sectoral Planning
1.8.3 Project Planning
1.8.3.1 Nature of Project Planning
1.8.3.2 The Need for Project Planning
1.8.3.3 Functions of Project Planning
1.8.3.4 The Importance of Project Planning
1.9 Links among Development Planning, Program and Project
1.10 Similarities and Differences Between Projects and Programs

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1.1 Basic Concepts and Meaning of Development Planning

– Planning is an integral part of human life, based on the theory of

“thinking before acting”.

– It is the process of deciding when, what, where and how to do a certain

activity before starting to work.

– It is the pre-decided outline of the activities to be conducted in a given

organization.

– It is an intellectual process of formulating policies, segregation budget

and designing of future programs which needs to set goals by making
certain guidelines to achieve those goals.
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The following are principles of planning:
Consistency and Feasibility: Plans for each of the sectors must have internal
consistency with each other.

 Feasible on a particular change within the framework of available

resources.

 A good plan sees the target rate of output can be achieved with the capital
allocated.

 Skilled manpower and investment requirement required should not

exceed the available skilled manpower and the targeted maximum amount
of savings, respectively.

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Efficiency: An efficient plan is one that apart from being consistent makes full
use of resources.
 Targets should be set high enough so that maximum effort is expanded.
 High but achievable targets will encourage full mobilization of resources.

Optimality: Means of best use of the limited resources available.

Inclusiveness: It is important that all citizens are made to feel that their voices are
heard and heir opinions matter.
 Social cohesion and political stability requires the institutionalize

participation and

 Consensus building opportunities must be provided for citizens within a

consultative environment to influence policies and actions that affect their
lives.

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Openness: Enhancing trust and maintaining public confidence in the leadership.
 As such office should act and take decisions in an open & transparent

manner.

Equitable: The plan should be equitable and sustainable development in all

sectors by ensuring projects are distributed everywhere in the country.

Strategic: Builds on local assets, focusing on realities of change and identify the
root causes of problems within the framework of available resources.

Comprehensive: View the implications on all aspects of all people's life, rather
than focusing on a particular economic, environmental and social or
cultural issue.

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 Economic/ development planning
– There is no agreement among economists with regard to the meaning
of the term economic planning.

– Basically development planning refers to the strategic measurable

goals that a person, organization or community plans to meet within a
certain amount of time.

– Usually the development plan includes time-based benchmarks and

criteria that will be used to evaluate whether the goals are actually
met.
– It is a deliberate government effort of formulating decisions on how
productive resources shall be allocated and directing economic
variables such as investment in order to attain targeted economic
objective over a given period of time.

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1.2 Historical Background of Development/Economic Planning
– Planning is rooted in applied disciplines, its idea has a long history goes
back to the time of Pluto and early planning theory was emerged out of
practice

– However, the idea of economic planning in its modern form is

comparatively new, backing the 20th century phenomena.

– It was later developed, shaped and molded by eminent thinkers and

writers both in the western and eastern camp of the world

– Ideologically, the evolution of planning comes from three perspectives:

• Planning in eastern Europe (Socialist Perspective)
• Planning in western Europe (Capitalist Perspective)
• Planning in underdeveloped countries (Mixed Economic
Perspective)

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Socialist Perspective: During the 19th century, intellectual theorists, thinkers
and writers in the Eastern Europe became fed up with the inquiry and
contradictions of pure capitalism.

– In 1928, however, the Soviet Union gave the idea of economic planning
a real shape when it formulated its first five year plan.

– The main objective of the socialist Soviet Union plan was to achieve
the rapid transformation of a traditional backward agricultural sector
into a modern industrial sector.

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Capitalist Perspective: There could be several factors that necessitate
planning in Western Europe, among others were wars, great depression of
1930th, expansion of markets, and specialization.

– In Western economies, the objective of the economic planning was

basically different from that of the Soviet Union and a series of
historical development led to the coordination of economic policies,
i.e., planning.

– For instance, the development of science and technology made

planning possible, material progress, improve computation facilities
and advances in management theory

– However, the purpose of planning in Nazi Germany was primarily to

build up the war potential rather than improving the living standard of
the people.
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 – The outbreak of World II war necessitated the proper and efficient
planning of economic resources for successful prosecution of the war.

– The Marshall Plan was a U.S sponsored program designed to

rehabilitate the economies of western European countries in order to
create stable conditions in which democratic institutions could survive
in the aftermath of World War II.
– The growth of markets and increased specialization led to adoption of
economic planning

– The development of democracy also lead to the adoption of planning in

order to rectify social inequalities that people could vote for those who
experience an interventionist approach.

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1.3 Nature and Scope of Development Planning

– A national development plan is a large scale investment project to

develop the infrastructure of a country.

– It requires central planning and monitoring on a national level and

implementation on a micro, local level.

– Adequate funding from government agencies as well as support from

citizens, will allow short, medium and long term goals to be met.

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1.4 Objective of Development Planning
– Planning establishes policies, procedures and programs which necessary
for achieving them.

– It aims to establish a predetermined course of action within a forecasted

environment.

– It schedule and control to meet the completion date of tasks, reporting

the progress against the schedule.

– It identifies activities and end products that will be performed; and

describes how the activities will be accomplished.

– the purpose of planning is to define each major task, estimate the time
and resources required a framework for management review and control
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1.4 Elements of Development Planning

Aim: The aim should be clearly defined so that it can guide and direct the
activities of the enterprise.

Objectives: it may be described as the ends towards which the group activities
are aimed.
Policies: A policy is a verbal, written or implied basic guide that provides
direction to a manager for action.

Procedures: it refers the actions to be taken out in practice to achieve the

organizations objectives as stated in the policies. Procedures may be static or
changed often.

Methods: they are work plans, which provide the manner and order, keeping
the objectives, time and facilities available.

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Rules: they are different from procedures and policies. A rule requires a
specific and definite action be taken or not taken with respect to a situation.

Budget: it is essentially a plan expressed in quantitative terms.

Programs: they show the way and lay down procedure for activities to take
place within a time limit for accomplishing, the stated objectives.

Strategies: it concerns the direction in which human and physical resources

will be deployed to maximize the chance of achieving a selected objective.

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 1.5 Requisites for Successful Developing Planning
Planning Commission: It should be organized in a proper way which dealing
with various aspects of the economy
– Divided and sub-divided under experts e.g. economists, statisticians,
engineers etc.
Statistical Data: It is collected through survey of existing potentials resources
of a country.
– Survey is essential for collection of statistical data & information with
regard to total available material, capital & human resource of a
country.
Objectives: The goals should be realistic, mutually compatible and reliable
enough.
– The goals should be realistic, mutually compatible and reliable enough.
E.g. Expand employment opportunities.

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Fixation of Targets & Priorities: Fix targets and priorities for achieving the
laid down objectives.
– Priorities to be laid down according to the short-term & long-term
needs of the economy.

Mobilization of Resources: A plan fixes public sector outlay for which

resources requires to be mobilized.

Balancing the Plan: Proper balancing in the economy i.e. physical and
financial needs.

Incorrupt and Efficient Administration: There has to be a strong and

efficient administration system

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1.6 Planning in Developing Countries
– Planning here was not as a consequent of industrialization, which is the
inverse of the Western, developed countries
– Economic planning was considered as an important panacea/remedy
and tool to achieve rapid economic development of the developing
countries.
– However, the evolution of planning took a different path in developing
countries because the following reasons:
– Planning was considered as an ideology rather than a means because
the expression of many things, such as desire of self control and
independence and expression of self-determination were resulting in a
political and cultural goal
– New leaders emerged as an independence with new vision in decision
making capacity with plan because plan was considered as a potential
instrument to survive and prosperity.

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1.6.1 Objectives of Development Planning in Developing Countries
Developing countries need economic planning in order to achieve the following
objectives:
– Rapid growth rates of economies and control population growth
– Correct deficiencies in the price mechanism especially in responding to
circumstances requiring rapid structural changes.
– Enhance the linkage between the agricultural and industrial sectors
– Expand domestic and foreign trade as well as solicit for foreign aid
– Create social overhead that enhance agricultural and industrial growth
– Self sufficient in food and raw materials and reduce unemployment.
– Ensure equity in the distribution of the benefits of economic growth like
incomes—so as to reduce inequality.

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 – Balanced regional development, eradicate ignorance, poverty and
disease.
– An integrated self—sustaining economy and build a free and
democratic society.
– Harmonious and consistent use of scarcity of resources thus need for
proper utilization and mobilization
– Identify areas suitable for public and private investments.
– Maintenance of price stability to control inflation.
– Encouragement of public participation in the development process.
– Reduction of external dependence and improvement of balance of
payment position
– Relation between present activities to future trends /targets.

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1.6.2 The Rationale /Need for Planning in Developing Countries
– The wide spread acceptance of planning in developing countries as a
development tool rests on a number of fundamental economic and
institutional arguments.
Market-failure Argument: It is argued that government plays a vital role in
integrating markets and prices.
– According to UNIDO (1970), government should not take passive role
in the process of industrial expansion as market forces by themselves
cannot overcome the deep-seated structural rigidities in the economies
of the developing countries.

– Therefore, in the absence of government in regulating market, there is a

misallocation of resources.
•

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Resources Mobilization and Allocation Argument: Third World economies
cannot afford to waste their limited financial and skilled manpower.
– So, planning through the government will help to harness the
limited resources in order to develop the economy.

Foreign Aid Argument: Carefully designed investment projects are a recipe

for foreign aid i.e. LDC can get foreign aid by developing a plan.

Capital Accumulation Argument: Enable to make the living standards of

people and widening the economic and social choices
– Pan insists to increase the rate of capital formation by raising the level
of incomes savings and investment as well as reducing incidences of
poverty and unemployment rates.

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1.6.3 Challenges /Failure of Planning in Developing Countries
– High levels of Inflation and Political Instability.
– Over-ambitious Planning and Interference in plans by politicians.
– Poorly developed infrastructures.
– Non responsive private sector.
– Corruption by planning officials.
– Limited financial resources and data or information.
– Lack of control over natural phenomena leading to uncertainties
especially in the agriculture sector
– Dependence on foreign aid which is inadequate, uncertain, inconsistent
and tied.
– Limited skilled labour and Limited government commitment.
– Difficulty in identifying viable projects.

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 – Inadequate and unreliable statistical data on which planning is based.
– Weak administrative and implementation machinery.
– Foreign influence and sabotage of plans/ dependence on foreign aid.
– Frequent and rising inflation in developing countries.
– Inadequate funds to implement the plans/ Rampant poverty in
developing countries.
– Unforeseen/unexpected natural calamities affecting plans/ limited
control over natural factors in developing countries.
– Limited political will and commitment from the public and politicians
interference.

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 – Limited/ no support from the masses for certain plans.
– Limited accountability and high level of corruption.
– Existence of a large government sector.
– High degree of conservatism and illiteracy among the population
– The unanticipated economic disturbances such as fluctuations in
international commodity prices, changes in domestic economic policies
of developed countries which are major buyers of LDCs exports and
the major donors. These limit the effectiveness of drawn plans.
– High population growth rates, which always leads to resource
diversion.
– Existence of a large subsistence sector, which is difficult to plan for.

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1.7 Planning for Forecasting/ Projection

– Every act of planning needs a preliminary investigation of existing

resources.
– Such a survey is essential for the collection of statistical data and
information with regard to the total available material, capital and human
resources.
– A good example is demand forecasting which simply a means predicting
the future demand for a product
– Information regarding future demand is essential for scheduling and
planning production, acquisition of raw materials, acquisition of finance,
and advertising.
– Forecasting is most useful where large-scale production is involved and
production requires long gestation period.
– There are many techniques employed in demand forecasting, but the most
important ones are the survey and statistical methods.
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Survey Technique: It is used where the purpose is to make short-run demand
forecasts.
– This technique uses consumer surveys to collect information about
their intentions and future purchase plans.
Statistical Techniques: The statistical techniques of demand forecasting use
historical/time-series and cross section data for estimating long-term demand
for a product.
– The techniques are found more reliable than those of the survey
techniques. They include: (i) the Econometric Techniques; (ii) the
Trend Projection Techniques and (iii) the Barometric Techniques.

– We will briefly discuss here the econometric techniques as they are

more superior and reliable than the trend projection and barometric
techniques.

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 The Econometric Techniques: It include: (i) Regression method; and, (ii)
Simultaneous Equation method.
The Regression Method -Regression analysis is found to be the most popular
method of demand estimation and/or forecasting.
– It combines economic theory and statistical techniques of estimation.
– The economic theory specifies the determinants of demand and the
nature of the relationship between the demand for a product and its
determinants.
– In regression models, the quantity to be forecast in the demand
function is the dependent variable, and the determinants of demand are
the independent or explanatory variables.

– For instance, suppose the demand for sugar in a given geographical

area depends largely on the population, then the demand function for
sugar will be referred to as a single-variable demand function.

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 Example, Table 1: Demand for a certain quantity in Addis Ababa City

Year Price(X) Quantity

(000) Demanded(Y)
(000)
2017 10 40
2018 12 50
2019 15 60
2020 20 70

2021 25 80
2022 30 90
2023 40 100

Using this hypothetical data, we can calculate the terms as shown in table 2 below:

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 Table 2: Calculation of Terms of the Linear Equations in Simple Regression

Year ΣXt ΣYt ΣXt2 ΣXtYt

2017 10 40 100 400
2018 12 50 144 600
2019 15 60 225 900
2020 20 70 400 1400
2021 25 80 625 2000
2022 30 90 900 2700
2023 40 100 1600 4000

t=7 152 490 3994 12000

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 – The simple regression technique is based on the following assumptions:
– The independent variable will continue to grow at the estimated growth
rate, 1.96 according to above regression equation.

– The relationship between the dependent and independent variables will

continue to remain the same in the future as in the past.

– With the regression equation in above, the demand for the concerned
commodity can be easily forecast for any period provided that the figure
for the population is known.

– Suppose the population for the year 2030 is projected to be 10 million

then the demand for sugar, according to this example, would be
estimated using the regression equation as:
Y = 27.44 + 1.96(10) = 27.44 + 19.60 = 47.04 million.

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1.8 Process/Stages in Economic Development Planning
Development planning process refers to a situation where the government sets
various plan objectives, formulates the plans and organizes the implementation
of the project design to achieve the set objectives.

A planning process involves the following:

– Plan formulation: This largely involves setting objectives and targets
for development and identifying plan strategies to employ so as to
achieve these objectives.

– Plan Adoption: This is the act of accepting and owning the plan by the
government, usually through parliament with or without amendments.
• It the becomes a statutory obligation of government and
the general public to ensure implementation.

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 – Plan Implementation/Execution: This is the process where the measures
or policies laid down in the plan are being carried out so as to realize the
objectives.
– Plan Monitoring, Evaluation and Revision: Monitoring refers to the
supervision of the plan process to ensure that the process is going on well.
• Whereas plan evaluation is the assessment of the success or
failure of the planning process and it also involves plan
revision in case of failure of the initial plan.
 Development planning process/ stage is concerned with many decisions, most
of which are related to capital expenditure on projects and their financing.
 There are three distinct stages through which development planning is carried
out:
⎼National Planning
⎼ Sectoral Planning
⎼ Project Planning

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1.8.1National Planning
– National planning refers to the drawing of a national plan indicating a
projection of the economy on a macroeconomic basis.
– It requires the formulation of overall economic and social objectives
which called development strategy,
– Marco economic planning is 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.
– It identifying the constraints such as external demand, shortage of
investment, foreign exchange, skilled labor, and maintaining consistent
of inter- relation between the various sectors and regions of the
economy.

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1.8.2 Sectoral Planning

– Once the national planning is done, planning will be developed on sub-

sectoral basis for the analysis of each sector that will provide an
indication for investment, employment, export etc.

– The sectoral planning of a nation depends on the economic dependency,

whether it is an agrarian, industry or service based economy and all these
sectors do have different plans.

– The different sectors of the economic system have their own growth and
development plan as a sector planning.

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 – Before embarking on an individual project, it is frequently necessary to
possess detailed knowledge of the sector concerned,

• such as chemical fertilizers for agriculture activities; especially

when the project is fairly large in relation to the agricultural sector.

– Such sectoral planning should provide an area where new investment

may be made, and 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.

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1.8.3 Project Planning
• Once a sectoral plan has been drawn up, the way is clear for project
planning.
• Project Planning is foreseeing with blue print towards some predicated
goals

• Project plan is a skeleton which consists of bundle of activities with its

future prospects; it is a guided activity.

• It is a plan for which resources are allocated and efforts are being made to
commence the project with great amount of preplanning

• Project is a way of defining what we are hoping to do about certain issue.

• Project is a final form of written documents that guides us as to what steps

need to be taken next.
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 1.8.3.1 Nature of Project Planning
– A project involves activities, resources constraints and interrelationships
which can be visualized easily by the human mind and planned informally.

– However, when a project crosses a certain threshold level of size and

complexities, informal planning has to be substituted by formal planning.

– So that, the need for formal planning is indeed much greater for project work
than for normal operations.

– There are always competing demands on the resources available in a country

because of the limited availability and ever expanding human needs.

– Planning for the optimum utilization of available resources becomes a pre

requisite for rapid economic development of a country.

– It is a tool by which a planner can identify a good project to make sound

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 1.8.3.2 The Need for Project Planning

• One of the objectives of project planning is to completely define all work

requested in readily identifiable to each project participants.

• The four basic reasons for the need of project planning are to:
• Eliminate or reduce uncertainty

• Improve efficiency of the operation

• Obtain a better understanding of the objectives

• Provide a basis for monitoring and controlling work

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1.8.3.3 Functions of Project Planning

The following functions are to be performed carefully in the project planning

process.
• Project planning should provide a basis for organizing the work on the
project and allocating responsibilities to individuals.
• It is a means of communication and co-ordination between all those
involved in the project.
• It induces the people to look ahead, inspires a sense of urgency and
time consciousness and
• It establishes the basis for monitoring and control.

A project planning must structure the work into small elements that are
manageable, independent, and also measurable in terms of progress.

It must be systematic and flexible enough to handle unique activities,

disciplined through reviews, control and capable of accepting multifunctional
inputs.
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1.8.3.4 The Importance of Project Planning
• Project planning involves a series of steps that determine how to achieve a
particular goal or set of related goals. This goal can be identified in
strategic plan.
• Project planning is important because helps to:
– Identify specific problems that stand in the way of meeting community
goals.
– It creates a work plan for addressing problems and attaining the goals.
– It describes measurable beneficial impacts to the community that result
from the project’s implementation.
– It determines the level of resources or funding necessary to implement
the project.
– It provides a basis for organizing the work on the project and allocating
responsibilities to individuals.
– It is a means of communication and coordination between all those
involved in the project.
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 – It encourages people to look ahead.
– It inspires a sense of urgency and time consciousness
– It establishes the basis for monitoring and control.
– Think ahead and prepare for the future, clarify goals and develop a vision
identify the issues that will need to be addressed,
– It helps to choose between options, consider whether a project is possible,
make the best use of resources,
– It motivate staff and the community and assign resources and
responsibilities to achieve the best results.
– It helps to eliminate poor planning , overambitious projects, unsustainable
projects, undefined problems and unstructured project work plans.

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1.9 Links among Development Planning, Program and Project

– Planning, in general, can best be described as the process of selecting

the enterprise objectives and establishing the policies, procedures, and
programs necessary for achieving them.

– Planning in a project environment may be described as establishing a

predetermined course of action within a forecasted environment.

– Development planning is a process of defining and identifying the

development goals and objectives, strategies and resources needed to
determine the levels of growth of outputs/results and, assess risks and
assumptions.

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 Program: is a group of projects that are closely linked, wherein managing
them together provides shared benefit.

Projects: are means of organizing activities that are impossible to

address within the normal operation of the organization.

A project is a singular effort of defined duration, whereas a program is

comprised of a collection of projects.
Actually, program is a bit more complex than a project.
– Even project and program management are two different roles within
an organization, as well, yet they share similar duties/ many
commonalities.

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 – A program is a domain out of which project can be found and is
broader in scope than a project.
– A program has general objective while projects has a specific
objectives.
– Program, which is the first step in plan elaboration, while project is the
second step in plan elaboration which lead to the accomplishment of
specific objectives within program.
– Program, which is a bigger package of action composed of a number of
projects aiming at attaining one or more related objectives of plan
– For example, if we think of extension program that could identify
different projects like irrigation, crop production and honey production.
– Then the objective of the extension program is self food efficiency, and
the objective of the project could be increasing crop production, milk
production and honey production which are more specification than
being general.

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1.10 Similarities and Differences Between Projects and Programs

Similarities of Projects and Programs: Here are the following four traits/
characteristics that projects and programs have in common.

Both are temporary: Exist for a while until the work is done, not long term
endeavors and their structures and the teams are disbanded.

Both have business cases: Projects and programs should only start when they
have a valid business case.

– Project and program managers work on activities that will add some real
value to make good business sense.

– There is no point in wasting time working on something that isn’t going to

benefit the company.
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Aligned to strategic objectives: It should be easy to see how projects and
programs work to achieve the company’s strategic objectives.
– The work on the project and program directly contributes to the
company’s goals.

Deliver change: Both of them deliver a change. The change could be

something big or small.
– Programs tend to have larger goals for changing the status quo and
often include an element of cultural change but the concept is the
same.

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Difference between Project and Program: The have different functions within
an organization as follows.
Structure: A project is well-defined, with a charter that spells out exactly the
scope & objectives.
– The program team is supervising and coordinating the work on a number
of projects.
– A program tends to have greater levels of uncertainty.
Effort: This is the most significant difference between projects and programs.
– A project represents a single effort. It is a group of people forming a team
working towards for a common goal.
– The different projects are complimentary that help a program to achieve
its overall objectives
– A program is a collection of projects. All the projects together form a
cohesive package of work.

.
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Duration: Some projects may go for several years but mostly they work for a
shorter.
– All projects may not last long to be delivered in multiple phases.
– However, programs are definitely longer and tend to be split into
phases.

Benefits: A project is towards achieving certain outputs. The benefits of a

project tend to be tangible, you get a ‘thing’ at the end of it.
– A program team works towards delivering outcomes, and outcomes can
be tangible but are often not.
– Benefits of a program are sum of the benefits from projects and this
could generate policies.

01-Oct-24 Prepared by Urgaia Rissa (Ph.D.) BA Degree 50