Chapter one

Introduction
1.1. Evolution and Basic Concept
of Project and Project Analysis
.Project planning is a broad field
of study
1.

It touches many branches such as

economics, engineering, Accounting
and,
Finance
It is not sector specific every sector
Required by private, public NGOS
and International financing agencies

1.2. Evolution
.Project

planning and Analysis is a

recent exercise
Initially it has got recognition in the
market economies for evaluating the
profitability of large private in
vestments
But late on its importance was
realized by

International Financing
agencies
Governments
And for small investments

Though

its importance was

recognized it had no
comprehensive and standard
guidelines for long time.

The 1st book published on project

planning was in 1968 by little and
mirrless for Organization for Economic
cooperation and Development (OECD)
In 1972, Guidelines for project
Evaluation was written by Dasgupta,
sen and Marglin for United Nations
Industrial Industrial
Development
organization
( UNIDO)

In

1974 another book on

project
Appraisal
and
planning
for
Developing
countries was written by
littele and Mirrless
It was then after that similar
book by many and guidelines
by world bank were produced

1.2.1.Basic Concept
o Project:-

is complex economic
activities in which scarce
physical financial and human
resource are committed to
achieve specific gals that
provides benefit which
exceeds costs

Common Characteristic of project

are
A. Project has a specific defined objective and
expected out come (output ) to fulfill the
objective (terminated once the objective is
attained )
B. Project has time horizon (time temporary
bounded)
. It could be long-term project Eg. Hydroelectric
. short term Eg. Crop production

C. It has a predetermined budget for excision

(nothing is left to chance )
D. Project is undertaken in a specific geographic
location and has targeted beneficiaries
. Urban project
. Rural project etc .

1.2.2. Project Analysis

Project Analysis is refers to the
detailed Analysis or investigation
of different aspects of a project
including technical demand and
market, Economic, environmental
institutional and financial, at
different stages of a project cycle

1.3. Policy, Plan and

Project
Policy:-

is a broader
development frame work
stated by governments.
Policy requires plan for its
realization.
Plan:- is a conscious guidance
of economic activity on the
basis of available Resources
to achieve definite objective

Plan is concerned with: Collecting statistical data to

know potential resources
Formulating goals to be attained
with in certain time
Setting priorities and fixing
targets
Mobilizing resource

Why deal with projects analysis

Resources

are scarce both in the

private and the public sector.

Capital invt require huge capital
Most invts are irreversible
To eliminate uncertainties
To increase the effectiveness and
efficiency of operations
To identify and work towards a common
goal
To establish a means for monitoring
and control

Chapter two:-Project life cycle

or stage
Project

cycle refers to the various

stages through which a project
passes from the time of its
inception up to its
implementation.
There are many models which
differ in their perspective,
emphasis and level of detail.

New Project cycle (World Bank 1994)

Emphasis

on the issue of participation

Particularly relevant to projects where
beneficiary participation is critical.
It has four phases

Listening- listen the stakeholders.

Piloting- trying it in small scale.
Demonstrating- demonstrating the pilot
Mainstreaming- duplicating the pilot.

Listening

Piloting
Demonstrating Mainstreaming

United Nations Industrial

Development Organization
(UNIDO) project life cycle
The

development of an industrial
investment project from the
stage of the initial idea until the
plant is in operation can be
shown in the form of a cycle
comprising the following three
distinct phases.

Contd
1.Pre-investment phase
A. Identification of investment opportunities
(opportunity studies)
B. Analysis of project alternatives and
preliminary project selection
c. Project preparation (pre feasibility and
feasibility studies).

d. Project appraisal and investment

decision (appraisal report) by the
people who has an interest on the
project

II. Investment phase

Negotiation and contracting

Engineering design
Construction
Reproduction marketing
Training

Commissioning

and start up

III. Operational phase

Replacement

and rehabilitation
Expansion and innovation

The common type of project

cycle are
Identification
Preparation (feasibility study)- exante evaluation
Appraisal Implementation
Evaluation

Graphically
Identification
preparation
Appraisal
Implementation
Evaluation

1. Project identification
stage
Identification

stage is not easy

task. B/c there is no defined
regulation or theory how identify
project.
At this stage two important tasks
are accomplished
1. Project ideas conceived or
generated
II. Screening the project ideas
( pre feasibility study)

1. Sources of project ideas

There are several sources of project
ideas. Broadly classified in to two
categories
. Macro level sources
. Micro level sources
1. Macro level sources are
Broader devet frame work of
national, regional and sectoral
Existing macro economic problems
such as;

Balance of payment
Unempt
Excess dd or ss
Existence of unutilized resource
Threat

to public welfare
Police of intl development genet

Micro level sources are

Periodic SWOT analysis of the

firm
New demand imposed by
customers
Incentives provided by govt
As result of R&D
Community problems
Leading condition of finational
institution
Trade fairs & exhibition

2. Screening the project ideas ( pre feasibility

study)

Many

project ideas may be

generated. But this does not
mean all project ideas must be
carried forward.
Screening stage has two phases.
1. preliminary screening
2. pre-feasibility study

preliminary screening
preliminary

screening done
based on the following;
Technically and risk
Market
Adequacy of input
Cost compared with benefit

pre-feasibility study will be conducted

on the project ideas passed
preliminary screening based on:The structure and objective of
the project
Marketing and marketing concept
Domestic market
Competitors and their market
shares local and import
Sales and distribution system
Economic, social and demographic
trends
Barriers to entry and exit and
protection

Contd
Availability of inputs
. Capital requirement
. Technological know how (skilled
man power availability)
. Availability of row materials
. Availability of power, foreign
exchange etc

Contd
Compatibility

with the promoter

Interest and committeemen of the
promoter is important (sometimes
at least general knowledge about
the project)

Consistency

with
governmental priorities
Approximate estimated of
cost, revenue and profit
Acceptability of risk level

2. Project preparation/ feasibility

study
Project

ideas that has passed

identification stage will be
studied in detail under project
preparation stage.
Feasibility study is d/t from pre
feasibility study in that,
1. its detailed and sophisticated
2. its more accurate with marriage
error not exceed 10%

The standard content of feasibility study

Executive

summary
Project background
Market or demand analysis
Technical analysis
Financial analysis
Economic and social analysis

A. Executive summary

Its

the summary of all aspect of

the study
It consider only the central ideas
from project background up to
the final
Its structure is similarly with the
whole study
Its required due to:Decision makers may not have
time to go through the document
Reduces time and energy

B. Project background

Importance:- project background

is important in that it provides a
general framework of the project
and link with the general
economic & social development
perspective
Contents:Name & address of the project
promoter
Type of business orgn
Economic & social development

Central

overview of an area or

location
Rational for selection
Contribution of the project to
economic development as whole
Objective of the project

C. Market or demand analysis

Market

or dd analysis tries to
answer for the question can I get
market for my product or
services.
Market analysis refers
estimating the potential size of
market and the market share that
can be captured.
Estimating the potential size of
market and the market share that
can be enjoyed is very important

It requires an depth study of many

variables including;
Population and its growth trends
Nature of consumption &its
growth trends
Income &its growth trends
Price elasticity of dd
Distribution channel and so on

Contd
How

do we the size of the market &other

issues raised above?
The following are some of the methods used to
study the market and make demand analysis;
1. Focus group discussion
This methods used when there is time
constraint &cost of making other forms of
study is difficult.
The analyst make discussion with different
groups as customer, retailer &competitors
To be systematic areas of concern have to
formulated in the form of questions

Contd
The

response given to the

question forwarded to individual
to check supported or not
2. Collecting secondary
information
secondary information is
aninformations that is already
available
The sources of secondary
information's are
Statically abstract published by CSA
Date obtained from CSA are

Contd

Population, demographic characteristics

Household size
Consumption size
Industrial, agricultural & service products

Publication

of national bank on

Export
Import

Annual

reports of various
ministries &offices
Other similar studies made on
the area
World bank, IMF, & others

3. Conducting market
survey

If secondary information available is

not sufficient for an intended demand
analysis market survey is an optional.
Survey can be: census survey

Sample survey
Census

survey is costly and time

taking , therefore, sample survey is
very economical and advisable

Steps in sample survey

1.
2.
3.
4.
5.
6.
7.
8.

Define target population

Select the sampling mechanics
Select sample
Develop questioner
Recruit & train data collectors
Collect information
Clean your data
Conduct an analysis

D. Technical analysis
The

technically analysis deals

with technical feasibility &
engineering aspects of the
project
what is required to make the
project operationally analyzed
under technically analysis
The following are the main items
to be analysed

a. Raw materials, supplies &product

mix

Types of raw materials required for the

project such as processed, semi- processed
and un processed are shown here
Factory supplies such as spare part, oil,
grace an so also disused
Utility required such as power, electricity
water have to shown
The availability of all input at local or
imported have elaborated
The quantity required together with
monthly & yearly expense have to be
shown

Format

1. Required type & the amount of

raw material & supplies
estimated
no

type

Estimated Estimated
cost/mont cost/ year
h

Inputs

xx

xxxxx

Packaging

xx

maintains

spare part

xx

stationary

xx

xxx

Fuel & oil

xx

2. Utility & estimated cost

No

items

Estimated Estimated
cost/mont cost/ year
h

electricity

xx

xxx

telephone

xx

water

xx

b. Location site & environmental

assessment
The

location & site should be

mentioned &justification for the
selecting has to be raised
The impact of the activity of the
project should have discussed
If the project has wastes and
emission that pollute the
environment the mechanism in
place for proper disposal &
treatment to reduce the hazard

C. Engineering &
technology
Under this sub heading what are
included?
Plant capacity which refers to
the volume of production during
a given period (month, year)
Machinery & equipment require
to produce
The type of technology
(automatic, semi-automatic &
manual technology)

Formate
No Item

Quantit
y

Unit
price

Total
value

Machinery

5000m

2Bi

Equipment

10

10mi

10Bi

Total

14

D. Man power
Personal

required at various
managerial, sale, operation, &
administrative providing units are
descried
Training required expressed
The details about required
personal and their salary have to
be shown according to the
following format

Required personal &wages/

salaries
No

personal

Administrativ
e
G/Manger
Guards

2
3

Production

No
require
d

Salary/
month

9000.00

Total
salary

E. Implementation
schedule
Implementation

schedule refers to
the sequence of activities of the
project, the time required for every
activity & the production process
schedule
The activity include:Site preparation
Construction
Machinery installation
Production program

E. Financial Analysis
Financial

Analysis answers the

question can we obtain
reasonable return on our invt
The main objective of making
financial analysis is to make an
estimate of cost & revenues of
the project & reveal its net
benefit in financial terms
Invt decision finally rest on the
financial analysis

In

making financial analysis we

focus on three major areas;

.Invt cost
.Production & marketing
cost
.Financial statement

1. Invt cost
Invt

cost refers to the sum of outlays

required to acquire necessary items to
establish a business organization or
any venture
Invt cost include the following
1. Cost of land &site development
2. Cost of building & other civil works
3. Machinery & equipment

Cost of purchased
Shipping, freight, Insurance, loading&
unloading
Cost of storage, foundation& installation

4. Vehicles cost of acquisition of

vehicles including transport,
insurance, tax and so on
5. Office equipment & furniture
6. Preliminary cost such as project
feasibility study, drafting
memorandum & article of
association
7.Working capital required to purchase
inputs at initial stage
8. Initial cash loss
9. Pre production cost that include;

Public

announcement & capital

issue cost
Recruitment &training cost
Travelling cost
Rent, insurance, interest rate
10. contngency

2. Production & marketing

cost
The major component of cost of
production;
1. Material cost:-cost of raw
material
2. Administrative cost such as
salary, utilities, sanitary, fuel &
lubricant
3. Factory overhead including
expense on repair, maintains,
rent, tax & insurance on fixed

Depreciation rate in
Ethiopia;
Building.5%
Vehicles.20%
Furniture

& office equipment

10%
Machinery 1st year
16%
then
after..12%
Tools ..12%
Computer

Marketing cost
Marketing

cost is refer to the cost

incurred to make sales. This include

.Packing
.Storage
.Commissions for sales agent
.Sales salaries
.Discount
.Promotion &advertisement
.Distribution cost

3. Financial statements
Profitability

of any project could

be understood from the
estimated financial statements
The two main types of financial
statements are;
1. Income statement
2. Balance sheet

1. Income statement
Income

statement tells us the

performance of a project
Income statement shows the net
profit or loss of the project.