CHAPTER TWO

PROJECT CYCLE

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 Project Life Cycle
Projects pass through several distinct phases called the project life cycle.
Project is a series of activities aimed at bringing about clearly specified
objectives within defined time period and budget.
 Project life cycle starts with the identification of an idea and develops that
idea into a working plan that can be implemented and evaluated.
 Project life cycle
the sequence of stages that a project crosses
 the way projects are planned and carried out
 phases though which a project advances from infancy to maturity .

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 Basic Project Life Cycle Models
1. World Bank Approach (Baum Model)
 Perhaps the first project cycle model.

Project life cycle:

1. Identification

2. Preparation (pre-feasibility study and feasibility study)

3. Appraisal and Selection

4. Implementation

5. Evaluation

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 Project life cycle-Models

2. UNIDO Approach (United Nations Industrial Development

Organization) of project cycle.
Project phase are:

1. Pre-investment

2. Investment

3. Operational

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 1. World Bank Approach
1. Identification- finding potentially promising projects which are worthy
for investment.
 search for promising project ideas

requires imagination, sensitivity to environmental changes, and a realistic

assessment of what the firm can do.
the initial stage of a project

Sources of project ideas:

Needs- to make available a minimum amounts of certain basic material

requirement or service.
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 World Bank Cont’d…..
Market demand- existing and potential of domestic and/or overseas
market.

Resource availability-opportunity to make profitable use of available

resources

Technology- to make use of available and new technology

Natural calamity- intervention against the adverse effect of natural events

such as drought or floods, etc.

Government policy

New experiments: from previous project failures

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 World Bank Cont’d…..
Technical specialists and local leaders

Proposals to extend existing programs

Replication of successful project tested elsewhere

New experiments from shortages or excess of resources

External threats

Opportunities

Internal strengths and/or weaknesses

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 World Bank Cont’d…..
2. Project preparation and analysis phase
cover the full range of technical, institutional, economic, and financial conditions
necessary to achieve the project’s objective.
 is an essential prerequisite for quality projects.

 Involves collection of data and information on the proposed project.

Involves a great deal of technical input by specialists

 It involves generally two steps:

1. Pre-feasibility studies

2. Feasibility studies

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 World Bank Cont’d…..
1. Pre-feasibility studies: an intermediate stage between a project
opportunity study and a detailed feasibility study.
 The information obtained is not detailed.

 justify a feasibility study

 warrant an in-depth investigation

 Addresses:

 Availability of adequate market

 Project growth potential

 Investment costs, operational cost and distribution costs

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 World Bank Cont’d…..
 Demand and supply factors

 Social and environmental considerations

2. Feasibility Study
 a detailed analysis of the marketing, technical, financial, economic, and
ecological aspects if the pre-feasibility result suggests the project is
worthwhile.
must provide technical, economic and commercial information to
make an investment decision.

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 World Bank Cont’d…..
Feasibility study include:

 Market analysis

 Technical analysis

 Organizational analysis

 Financial analysis

 Economic analysis

 Social analysis

 Environmental analysis

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 World Bank Cont’d…..
3. Appraisal and Selection
Appraisal - comprehensive and systematic assessment of the proposed
project.
 a critical review or an independent appraisal

a second look at the project report by a team of professionals not

participated in the preparation of the study.
review to confirm that its alignment with the broad development objectives
and fits into the development process of the country.
 ensure that the project represents a high priority use of country’s resources
and in combination with other policies.
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 World Bank Cont’d…..
 Provides an opportunity to re-examine every aspect of the project plan.

The objective of project appraisal is:

 to identify weaknesses

 identify means of strengthening it to ensure final success of the project

 to improve and revamp the project.

 Appraisal addresses:

• Specificity of objectives

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 World Bank Cont’d…..
• Clarity of problems

• Methodology ( appropriateness of data collection & analysis

techniques)

• Project specific factors.

The recommendation after appraisal may be:
 Approve
 Re-formulate

 Postpone

 Abandon the project under review

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 World Bank Cont’d…..
 Project appraisal criteria divided into two broad categories:

Non-discounting criteria (payback period and the accounting rate of

return)
Discounting criteria (NPV, IRR and cost benefit ratio).

Project Selection – a viable project proposals are chosen for

implementation on the basis of the priorities of the stakeholders and the
available resources.

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 World Bank Cont’d…..
4. Implementation (Investment Phase)- decisions are made to put into
action and the agreed resources are used to carry out the planned activities.
funds are disbursed to get the project started and keep running.

to ensure that the project is carried out according to the design

 is the most important part of the project cycle

 tenders are let and contracts signed

 must be flexible since circumstances change frequently

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 World Bank Cont’d…..
5. Evaluation: looking at the successes and failures of the project to learn
how better to plan for the future.
 to examine the project plan and what really happened

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 2. UNIDO’S Project cycle Model
According to UNIDO manual, the project development cycle
comprises 3 distinct phases:
1. Pre-Investment Phase
2. Investment Phase
3. Operational Phase
1. Pre-Investment Phase: the stage where the project has to pass through
different levels of refinement to increase the level of information about
the project feasibility.
Includes:
 Opportunity study (identification of project ideas)
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 UNIDO Cont’d…..
Pre-feasibility study (preliminary project formulation, selection of
alternatives)
Feasibility study (final project formulation stage).
a. Opportunity study involves:
 Natural resources with potential for processing and manufacture
 Existing agricultural pattern
 Future demand for certain consumer goods
 Imports (for import substitution)
 Manufacturing sector successful in other countries

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 UNIDO Cont’d…..
 Possible inter – linkage with other industries

 Possible extension of existing lines of manufacture backward or

forward integration.
General investment environment

Availability and cost of production factors

 Export possibilities

b. Pre-feasibility study
 formulation of a feasibility study is costly and time –
consuming.
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 UNIDO Model Cont’d…..
c. Feasibility: investigation of the market, technical, financial, economic
and operational viability of the project.

d. Appraisal: involves a systematic review of all aspects of the project

2. Investment Phases: the stage where the project initiator/owner gets

convinced by the feasibility of the project and decides to commit some
resources.
 the project would be transformed from paper work into actual
practical implementation activities.

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 UNIDO Model Cont’d…..
 Investment phase includes the following stages:

 Establishing legal, financial and organizational basis for the

implementation
 Technology acquisition and transfer

 Engineering design (buildings and other facilities) and contracting

(tendering, evaluation of bids)
 Acquisition of land, construction work and installation

 Pre-production marketing - securing of supplies

 Recruitment and training of personnel

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 UNIDO Model Cont’d…..
Commissioning and Start up – delivery of building to the client

3. Operational Phases
 is the stage after the physical structure has been constructed or the
plant has been installed.
 when the project starts to give the production/service to the
beneficiaries.

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