Chapter Three: Project Life Cycle and Process Groups

3.1. Project Life Cycle

3.2. Initiation Process Group
3.3. Planning Process Group
3.4. Execution Process Group
3.5.Monitoring and Evaluation/Controlling Process Group
3.6. Closing Process Group
3.1. Project Life Cycle

Meaning Project Cycle

• Project cycle- refers to series stages that projects go through on

the path from origin to completion.

• A project life cycle is the step-by-step process by which a project is

formulated, identified, evaluated, implemented and completed.

• A Project life cycle is the series of phases that a project passes

through from its initiation (start) to its closure.

• Project phases are a collection of logically related project activities

that culminates in the completion of one or more deliverables.
Project cycle models

 A clear understanding of the life cycle by dividing project life cycle into phases of a
project:
 Permits managers and executives to better control resources to achieve goals
 Facilitates investment promotion and provides a basis for project decision &
implementation
 Important to understand the role to be played by different actors of the project
 However, due to the complex nature and diversity of projects, there is no
agreement about the life cycle of projects.
 But still, for life cycle of project to be understandable, the two common
project cycle referred as:
 The Baum(World Bank) Project Cycle
 The UNIDO Project Cycle
1. The Baum(World Bank) Project Cycle
The Baum cycle- primarily reflects the series of activities and
procedures to the development of investment
projects(development projects) to be financed by the World
Bank.

The Project , in the Baum Cycle, constitute six distinctive

phases- See Fig 1
Identification
Preparation
Appraisal
Negotiation
Implementation & Supervision
Evaluation
 Identification
n
t io
l ua
a
Ev

Implementation Preparation

Negotiation Appraisal

Fig 1 Baum Project Cycle

1. Identification

 Involve both the bank & borrower in selection of suitable projects that
support the national and sectoral development strategies.
 Economic & sectoral analysis by the bank provide:
An understanding of the development potential of the borrowing country
A framework for assessing credit worthiness & for evaluating national &
sectoral policies
 Continuous dialogue b/n bank and borrowing country leads to
The formation of a coherent development strategy
The identification of projects which fit into it
II. Project Preparation (Feasibility Study)

 In this phase, feasibility studies would be carried out-

 To compare different technical &institutional alternatives
and,
 To identify the solution most appropriate to the country’s
resource endowment & its stage of development

 The borrower examines the technical, institutional, economic

& financial condition necessary to achieve project objective
and,

 The bank provides guidance & makes financial assistance

available for preparation or helps the borrowers obtain
assistance from other sources 7
 III. Project Appraisal
 After a project has been prepared, it is generally
appropriate for a critical review or an independent
appraisal to be conducted.
 This provides an opportunity to re-examine every aspect
of the project plan to assess whether the proposal is
appropriate and sound before large sums are committed.
 With the results of the feasibility study, the decision-
makers - not the analysts - make decisions based on
certain investment criteria that are important to them.
 Appraisal is the comprehensive and systematical
assessment of all aspect of the proposed project.
8
 Involves a comprehensive & systematic review of all aspects of the
project by the bank
 Primarily covers four major aspects- Technical, Institutional, Economic,
Financial
 Lays the foundations for project implementation & evaluation

 During this process:

 The project may be extensively modified or redesigned
 An appraisal report is drafted by the bank outlying the findings of the appraisal
and making recommendation for the terms and conditions of the loan

 An appraisal report serves as a basis for negotiations with the

borrower
 Cont’d
 The
project is viewed from different perspectives; technical,
commercial, financial, economic, managerial and organizational.

 Technical –
here the appraisal concentrates in verifying whether what is
proposed will work in the way suggested or not.

 Financial –
the appraisals try to see if the requirements for money needed by
the project have been calculated property, their sources are all
identified, and reasonable plans for their repayment and other
necessary circumstances are properly identified and calculated.
10
 Commercial

the way the necessary inputs for the project are

conceived to be supplied is examined and the
arrangements for the disposal of the products are
verified.

 Economic

the appraisal here tries to see whether what is

proposed is good from the viewpoint of the national
economic development interest when all project
effects (positive and negative) are taken into account
and check if all are correctly valued.
 Managerial

this aspect of the appraisal examines if the capacity exists

for operating the project and see if those responsible
ones can operate it satisfactorily. Moreover, it tries to see
if the responsible bodies are given sufficient power and
scope to do what is required.

 Organizational

the appraisal examines the project if it is organized

internally and externally into units, contract policy
institution, etc so as to allow the proposals to be carried out
properly and to allow for change as the project develops.
 These issues are the subjects of specialized appraisal
report. And on the basis of this report, FINANCIAL
DECISIONS ARE MADE – whether to go ahead
with the project or not. In practice, there can be quite a
sequence of project selection decisions. Following
appraisal, some projects may be discarded.

 If the project involves loan finance, the lender will

almost certainly wish to carry out his own appraisal
before completing negotiations with the borrower.
Comments made at the appraisal stage frequently give
rise to alterations in the project plan (project proposal).
IV. Negotiation

 Involves discussion between bank& borrower on measures needed to ensure project success

 The agreement reached would be converted into legal obligation set forth in loan documents

 The loan document embody all of the principal issues that would be raised prior to & during
appraisal and,

 Ensure that borrowers & bank are in agreement on objectives, on the actions necessary to achieve
them and on schedules for implementation

 The appraisal report may be amended to reflect the agreement reached before the approval
of loan documents
V. Implementation & Supervision
 Project implementation is the responsibility of the borrower and,
while the bank exercises the supervision function

 Supervision by the bank:-

 Conducted based on the progress report & periodic field visits
 Intended to ensure proper execution of the project by identifying &
correcting implementation problems
 An annual review of bank supervision experience on all projects
underway is intended to stimulate continuous improvement in policies
and procedures

 As final step in supervision, the government prepares a completion

report on a project at the end of disbursement period.
VI. Evaluation

 Follows the final disbursement of bank funds

 Evaluators, usually independent department of the bank, reviews the

completion reports & prepares its own audit of the project, usually by
reviewing materials at head quarters, though field trips to be made when
needed.

 The borrower would be asked to comment the project audit

 This ex post evaluation provides lessons from experience which would be

incorporated in the identification, preparation & appraisal of subsequent
projects.
2. The UNIDO Project Cycle
 The development of an industrial project can be
shown in UNIDO project cycle comprising three
distinctive phases:-- See Fig 2.2
 UNIDO [United Nations Industrial Development
Organization]

 Pre investment Phase

 Investment Phase
 Operation Phase
 Identification Preparation
Operation
Phase

Pre Investment Phase

Commission &
Start Up
Appraisal

Investment Phase

Negotiation& Contracting
Training Engineering design
Preproduction marketing Construction

Fig 2. UNIDO Project Cycle

I- Pre Investment Phase

 The pre investment phase consists of:-

1. Opportunity studies [Identification of investment

opportunities]
2. Pre Feasibility Study [Analysis of project alternatives,
preliminary selection]
3. Preparation [Feasibility study]
4. Appraisal and Investment Decision [Appraisal report]
A. Identification(Opportunity Studies)
 Itis the starting point in series of investment related activities
 To generate information on newly identified viable investment opportunities,
the sector(macro economic) and the enterprise(micro economic) approach to
project identification will be taken
Identification of investment opportunities is the starting point for those who are
interested in obtaining information on newly identified viable investment
opportunities.
 An opportunity study should identify investment opportunities or project ideas
by analyzing the following factors in detail:
 Availability of natural resources
 Future demand for goods, increasing population, purchasing power
 Exports and import substitution
 Environmental impact assessment
 Functioning similar project of other countries
 Possible linkages with other industries
 Extension by backward and forward linkage
 Industrial policies
 General input climate of economy
 Expansions to an existing project to have large scale of economy
 Export potential
 Availability and cost of production factors
In summary, these opportunity studies can be categorized as area
studies, industry studies and resources based studies.
 At the sector level, it will require an analysis of the overall
investment potential of countries
 At the enterprise level, it will necessities identification of
specific investment opportunities.
 Key questions
a. Where is the demand?

b. Is this project consistent with the organization’s expertise, current

plans and strategy for the future?
B. Pre-Feasibility Study/Preselection
 Objective of prefeasibility:
 To examine overall potential of project
 To determine whether
 All possible project alternatives have been examined
 The project concept justifies a detailed analysis by feasibility study
 The project idea ,on the basis of available information, should be
considered as either non viable or attractive enough for a
particular investor or group
 Should maintain information across all variables to analyze that:
 Project or corporate strategies and scope of a project
 All possible alternatives should be examined
 The project concept should be justified with detailed analysis
 A critical area necessitates in-depth investigation is required
 Project idea is either attractive for investment or non-viable
 The environment situation at the site in line with national standards
 Support functional studies to convert specific areas such as:
 marketing
 Raw material and factory supplies
 laboratory and Oliphant testing
 location
 Environmental impact assessment
 Economics of scale and
 Equipment selection

 Wherever possible should use secondary information

C. Feasibility Study
 Provide all data necessary for an investment decision
 The commercial, technical, financial, economic &environmental
dimensions of a project should be defined & critically examined on
the basis of alternative solutions already reviewed in prefeasibility
study

 Focus is on improving accuracy of the key variables

 Although feasibility studies are similar in content to the
prefeasibility, it must be worked out with greatest accuracy in an
iterative optimization with feedbacks & inter linkages

 Some primary data may be needed

 All the assumptions made, data used &solution selected in feasibility
study should be described &justified.
D. Appraisal
 Once feasibility is completed, various parties involved in the project
will carry out their own appraisal of investment project
 Project appraisal as carried out by financial institutions concentrate
on:
 The health of the company to be financed, The return on investment, The
protection of its creditors
 In general, the techniques applied to appraise projects centre around
 Technical, commercial/market, managerial, organizational, financial and possibly
also economic aspects
 Each project proposal is subjected to sensitivity analysis
 In order to take care of multiple adjustments of input &output factors and risk
analysis
 In order to appraise the uncertainties attached to project data &alternatives.
 Appraisal report doesn’t deal with the project but also with the
industries in which it belongs and its implication for the economy as
a whole
II-Investment Phase
Provides wide scope for consultancy and engineering work
The investment phase can be divided in to the following stages.
 Establishing the legal, Financial and organization basis
 Detailed engineering design and contracting , including tendering, evaluation of bids
and negotiations.
 Technology acquiring and transfer
 Acquisition of land for construction work and installation
 Pre-production marketing, including the securing of supplies and setting up the
administration of the firm.
 Recruitment and training of personnel
 Plant commissioning and start- up
Any delay or gaps in planning of one of the above mentioned stages would
have a negative effect on the successful implementation of projects
Hence, there is a need of careful scheduling using various methods such as CPM
& PERT
Monitoring and Control would be required
A continuous comparison of the forecast made in feasibility study with the
actual investment and production cost data occurred during investment phase
would be required
In order to track the resultant change in the overall profitability which may
in turn require adjustment in financing of projects
III-Operation Phase
 This phase concludes the life of project cycle
 Involves day to day operation of the completed project, and
 is expected to yield results which meet the original objectives for which the project
had been conceived, formulated and implemented.
 Problems to be considered in operation phase:
 In the short term view:
 Relates to the initial period after the commencement of production when a
number of problems may arise concerning such as:
 The application of production techniques, operation of equipment or
inadequate labor productivity owing to lack of qualified staff & labor
 Most of these problems have their origin in the investment phase
 In the long term view:
 Relates to the chosen strategies and the associated production costs &
marketing costs as well as sales revenue
 These problems have a direct relationship with the projection made at pre
investment phase.
 Further Reading

 List and discuss all the necessary steps of the

following project cycle models:
1. Integrated Project Planning and
Management Cycle (IPPMC)
2. Development Project Studies Authority
(DEPSA) Life cycle
Project Process Groups

 From initiation/authorization to completion /closure, a project goes through a whole

lifecycle that includes

1. Defining the project objectives,

2. Planning the work to achieve those objectives,
3. Performing the work,
4. Monitoring and controlling the progress, and
5. Closing the project after receiving the product acceptance.
Cont’d...

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Cont’d....

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 3.2. Initiation Process Group
 This stage defines and authorizes( approves) the project.
 The project manager is named, and the project is officially
launched through a signed document called the project
charter[agreement] , which contains items such as:
 the purpose of the project,
 a high-level product description,
 a summary of the milestone schedule
 Another outcome of this stage is a document called the
stakeholder register, which identifies the project stakeholders
and important information about them.

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 3.3. Planning Process Group
In this stage, the project manager, along with the project management team,
 refine the project objectives and requirements and
 develop the project management plan, which is a collection of several plans
that constitute a course of actions required to achieve the objectives and meet
the requirements of the project.
 The project scope is finalized with the project scope statement.
 The project management plan, the outcome of this stage, contains
subsidiary plans, such as:
 a project scope management plan,
 a schedule management plan, and
 a quality management plan.

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 3.4. Executing Process Group
 In this stage, the project manager, implement the project
management plan, and the project team performs the work
scheduled in the planning stage.

 The project manager coordinate all the activities being performed

to achieve the project objectives and meet the project
requirements.

 Of course, the main output of this project is the project

deliverables.

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3.5. Monitoring and controlling Process Group
 Monitoring and controlling includes defending the project against
scope creep (unapproved changes to the project scope), monitoring
the project progress and performance to identify variance from the
plan, and recommending preventive and corrective actions to bring
the project in line with the planned expectations in the approved
project management plan.

 Requests for changes, such as change to the project scope, are also
included in this stage; they can come from you or from any other
project stakeholder. The changes must go through an approval
process, and only the approved changes are implemented. The
processes used in this stage fall into a group called the monitoring and
controlling process group.
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 3.6. Closing Process Group
 In this stage, you manage the formal acceptance of the project
product, close any contracts involved, and bring the project to an
end by disbanding the project team.

 Closing the project includes conducting

 a project review for lessons learned and
 possibly turning over the outcome of the project to another group, such as the
maintenance or operations group.
 Celebration.
 Terminated projects (that is, projects cancelled before
completion) should also go through the closing stage.

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Project Life Cycle Phases
Initiating Planning Executing Monitoring Closing
and
Controlling
•Project •Refine objectives •Implement •Defending •Getting
definition and requirements
• developing
the plan the project acceptance
•Project •Coordination scope •Project
project
authorization management different •Checking for review for
•Project plan.
manger activities progress lessons to be
•Deciding course
appointment of actions to •deliverables •Identify the learned
•Project realize objectives variance with •Celebration
charter and requirements the plan
•Stakeholder • Project
management Plan
register
include subsidiary
plans like Scope
plan
•Schedule plan
•Requirement
plan
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Chapter End!