PROJECT DESIGN & ANALYSIS

ECON 661

Dire Dawa University

2023
 Chapter One
An Overview of Project
Planning Analysis
 Contents
1. The project concept
 Introduction: Why Project
Planning?
 Definition: What is a Project?
 Uniqueness of Projects
2. The Importance of project planning
3. The linkage between projects and
programs
4. The Project Cycle
a. Identification (Opportunity
studies)
b. Project preparation: Analysis and
Appraisal phase
• Pre-feasibility Study (Pre-selection/
Preliminary Screening)
• Feasibility Study
• Opportunity Studies
• Appraisal of an investment Decision
c. Selection of projects/investment alternatives/
d. Implementation/Investment phase/
e. The operational phase
• Ex-post evaluation/part of the operational
phase/
• Replacements/ Rehabilitation
• Expansion/Innovation/
5. Major Questions That Economic Analysis
Should Answer
 Section One

The project concept

4
 1.What is Project?
• Project is a temporary endeavor or undertaking to create a unique
product or service”
• More Specifically, it is an endeavor in which human (or machine)
material and financial resources are organized in a novel way, to
undertake a unique scope of work, of given specification, within
constraints of cost and time, so as to deliver beneficial change
defined by quantitative and qualitative objectives. (J R Turner,
1992)
• Careful & detailed planning help us to reduces risk and in turn
uncertainty in any given.
 What is a Project?
A project is:
• a one-time, multitask job with a definite starting point,
definite ending point,
• has clearly defined scope of work, a budget, and usually a
temporary team.
• A project is a problem scheduled for solution
• It is defined as a unique set of coordinated activities, with
definite starting and ending points, undertaken by an
individual or organization to meet specific objectives within
defined schedule, cost and performance parameters.
 Cont…

• A project features the following characteristics;

Specific start and end date
Series of tasks to achieve a defined outcome or objective
Uses people or resources to achieve that objective
 Comparison of daily Routine Work with Projects


 1. Introduction: Why Project Planning?

What is Project Planning?

A project plan expresses the objectives & requirements of the project in
terms of:
• Project Scope
• Project Schedule
• Resource Requirement
• project cost estimation
• Project Quality and
• Project Risk Management
A project planning enables project manager to translate project requirement
into
• Work breakdown structure (WBS),
• tasks list,
• Gantt charts,
Important/ Unique Characteristics of a Project:
1. It has established objectives.
2. It has a defined life span with a beginning and an end.
3. Usually, it involves several departments and
professionals.
4. It has specific time, cost, and performance
requirements.
• Unique: accomplishment of specific purpose
• Specific deliverable in terms of outputs
• Specific due date
• Multidisciplinary in nature (involves different types of
professionals)
 Cont,,

7. Complex in nature (activities are not routine)

8. Part of programs
9. Needs capital and commitment of other
resources
10. Associated with risk and uncertainty
 Steps Involved In Proper Project Planning

 There are nine steps involved in proper project planning

1. Aims and objectives: The actual aims /objectives/ mile stones to be
reached within a specified time, according to Client requirements
specified
2. Path (strategy) to be followed and actions to be taken to reach the
aims and objectives
3. Schedule.: This is a plan showing when individual /group/ activities
will start and end.
4. Budget (expenses) involved in order to reach the specified objectives.
 Steps Involved In Proper Project Planning

5. Estimate when each activity will take place.

6. Organizing and assigning specific people to specific objectives,
as well as the Specific responsibilities for each task.
7. Policy and general guidance for decision making and individual
actions
8. Strategy and detail plan to execute the actions
9. Standards and determining quality for each action.
 Limitations of a project:

Planned investment decision is also confronted with several

difficulties. Few of them are:
1. Measurement Problem.
• Identifying and measuring the costs and benefits of a capital expenditure
proposal tends to be difficult
2. Uncertainty Issue.
• A capital outlay decision involves cost and benefits that extend far into the future.
It is impossible to predict exactly what will happen in future.
• Hence, there is usually a great deal of uncertainty characterizing the cost and
benefits of a capital expenditure decision.
3. Discounting problem
• The costs and benefits of a capital expenditure decision are spread over a long
period of time especially for industrial and for infrastructural projects.
• Such temporal spread creates some problems in estimating discount rates and
establishing equivalences.
 3. The linkage between projects and programs
• It is important that any programme or project is identified on the
basis of established national and sectoral development policies
and strategies.
• National Policy: is Sets of overall policy objectives e.g. the xxx
and other Government policy statements
• Sectoral Policy: Policy objectives for the various sectors of the
economy e.g. agricultural policy, industrial policy
• Sectoral strategy: Approaches which should be undertaken to
achieve the stated policies
• Although a project will normally emanate from the national
policy framework and the related sectoral development strategy
The Place of a Project as an Agent of
Development
Development Policy

Development Strategy

Development Plan (conventional/strategic)

Development Program

Development Projects

16
DISTINCTIONS BETWEEN
PROGRAMS AND PROJECTS
No Point of distinction Program Project

1 Scope/objective Diverse/wide Narrow/limited

2 Location Diffused Specific

3 Lifetime Open-ended Time-bound

4 Resource Large Limited

Temesgen Walelign, 17-18 August 2006 17

 Cont …
Project Program
• Specific objective • General objectives
• Specific projects area • No specific project area
• Specific beneficiaries group • No specific beneficiaries
group
• Clearly determined and • No clear and detailed
allotted Fund financial resource allocation
• Specific lifetime • No specific lifetime
 Section Two

The project Cycle

19
 Project cycle
• Every project, from conception to completion, passes through various phases of
a life cycle /life cycle of living beings.
There is no universal consensus on the number of phases in a project
cycle.
• An understanding of the life cycle is important to successful completion of the
project as it facilitates to understand the logical sequence of events
• PC provides: -
 An analytical/logical framework & sequence within which data can be
compiled and analyzed,
 Established investment priorities,
 Alternatives considered and sector policy issues addressed.
 Project cycle
 The cycles are closely linked to each other and follow a
logical procession.
 There are Different models of the project cycle- usually
relate to the organisational perspective of the authors.
 The first model was drawn up by Baum (1970) for the World
Bank.
A. Identification
B. Preparation and Analysis
C. Appraisal and Selection
D. Implementation
E. Evaluation, added later in 1978
 UNIDO Approach (modified by DEPSA in 1991
I. Pre Investment phase II. Investment phase
1. Identification(Opportunit 4. Implementation
y studies) a. Tendering, Negotiating
2. Preparation(Formulation) and contracting
a. Pre-feasibility Study b. Detailed Engineering
Design
b. Support Study
c. Construction Erecting
c. Feasibility Study
and Commissioning
3. Appraisal
a. Appraisal
III. Operational phase
b. Investment decision for 5. Operation
selection 6. Ex-Post Evaluation
Development Project Studies Authority (DEPSA) made certain efforts and developed a model for Project life cycle which is
known as DEPSA’s Project life cycle.
 Sources of Prroject Ideas
In Macro level project idea emanate from
National, sectoral or regional plans and strategies supplemented by special studies often called
opportunity studies, conducted with the explicit aim of translating national and sectoral
programmes
Constraints in the development process due to shortage of essential infrastructure facilities,
problems in the balance of payments, etc
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
Multi or bilateral agreement
• 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 complement or expand investment previously undertaken: and
The desire of local groups or organization to enhance their economic independence and
 2. Project preparation/Formulation
• The project idea must be elaborated in a more detailed study.
• However, formulation of a feasibility study that enables a definite decision to
be made on the project is a costly and time – consuming task.
• Therefore, before assigning larger funds for such a study, a further
assessment of the project idea might be made in a pre-feasibility study.
• This is to see if:
All possible project alternatives are examined
The project concept justifies detail study
 Project Formulation involves the following steps (Figure 1).
Opportunity Studies/Support Studies
Pre-feasibility Study
Feasibility Study (Techno Economic Feasibility)
 Pre – feasibility studies :
a. Pre – feasibility studies :
• A pre-feasibility study should be viewed as an intermediate stage between a
project opportunity study and a detailed feasibility. It is the process of gathering
facts and opinions pertaining to the project.
• Under this stage all aspects are critical and need in – depth investigation so as to
ensure the project idea is viable and attractive or not
• the difference between pre-fesibility study and feasibility study is the degree of
detail of the information obtained and the intensity with which project alternative
are discussed.
• The structure of a pre – feasibility study should be the same as that of a detailed
feasibility study.
 C. Feasibility Studies
• Feasibility Study is the backbone of Project Formulation and presents
a balanced picture incorporating all aspects of possible concern.

• It concerned with investigating practicalities, ways of achieving

objectives, strategy options, methodology, and predict likely outcome,
risk and the consequences of each course of action.
 C. Feasibility Studies
• A feasibility study should provide all data necessary for an investment
decision.
• A feasibility study is not an end in itself but only a means to arrive at an
investment decision, and it should contain the following elements:
1. Economic and Market analysis
2. Technical analysis(materials & Inputs, Technology and
engineering works, construction, infrastructure)
3. Organizational /management analysis
4. Financial analysis
5. Social analysis, and
6. Environmental analysis
7. Project Risk and Uncertainty
 3. Project . Appraisal
• A project appraisal is the process of critical examination and analysis of the
proposal in totality.
• The appraisal goes beyond the analysis presented in the feasibility report.
• At this stage, if required compilation of additional information and further
analysis of project dimensions are undertaken
• It has two subistages
a. Appraisal of an investment Decision
• 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.
Independent qualified and experienced team of professionals are needed
 Project . Appraisal
• Appraisal is the comprehensive and systematic assessment of all aspects of
a project study, and the appraisal process generally concentrates on the
following aspects
Specificity of objectives;
 Clarity of problems;
Methodology: type and source and appropriateness of data collection
techniques and analysis techniques;
Project specific factors (Environmental Appraisal , Financial Appraisal, Economic
Appraisal, Managerial Appraisal, and Social Cost Benefit Analysis (SCBA)
 Cont.…
Two categories of appraisal criteria have been developed to judge the
worthwhile of a project.
non-discounting criteria
• payback period
• the accounting rate of return

discounting criteria
• net present value (NPV)
• the internal rate of return (IRR)
• the benefit cost ratio (CBR)
 4. Implementation/Investment phase:
• 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.

• The investment phase can be divided into the following stages:

Establish project coordinating office which involve establishing of the
legal, financial and organizational basis for the implementation of the
project
Final review of project design and implementation plan
Technology acquisition and transfer, including basic and detailed
 Con. …
• tender preparation (hence developing the terms of reference),
tendering, tender analysis, selection of a supplier,
• negotiation and contracting;
• Procurement of major technology for installation and other inputs
necessary for construction and installation of the system;

3. Engineering design;
4. Construction work
5. Installation and erection;
6. Pre-production marketing, including the securing of supplies
and setting up the administration of the firm
 Con. …

7. Recruitment and training of personnel, and

8. Plant commissioning and start-up (Alternatively, this
function may be categorized in the operation phase).
• This implementation basically involves capability in project
management.
• Project management is the planning, organizing, directing, and
controlling of resources for a specific time period to meet a
specific set of one-time-objectives.
 Con. …

• Successful project management can then be defined as

having achieved the project objectives:
Within time
Within cost
At the desired performance/technology level, quality, etc./
• While utilizing the assigned resources effectively and
efficiently
 III. The operational phase
• The operational phase involves the following main functions.
1. Commissioning and starting of commercial production;
2. Post-project evaluation
3. Replacement/rehabilitation
4. Expansion /innovation.
Ex-post evaluation/part of the operational phase
• The final phase of the project is the evaluation phase.
• Helps 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.
 Cont. …
A feedback device, it is useful in several ways:
i. it throws light on how realistic were the assumptions
underlying the project;
ii. it provides a documented log of experience that is highly
valuable in future decision making;
iii. it suggests corrective action to be taken in the light of
actual performance;
iv. it helps in uncovering judgment biases;
v. it induces a desired caution among project sponsors. .

• Evaluation is not limited only to completed projects.

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