CHAPTER TWO
PROJECT
LIFE CYCLE
Concept of Project Cycle
• A project life cycle is the step-by-step process by which a
project is identified, formulated, evaluated,
implemented and completed.
• The Project Life Cycle refers to a logical sequence of
phases to accomplish project goals or objectives.
• 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.
Cont….
• 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
• In summary, dividing project life cycle into phases helps
in better management and control of a project.
Project cycle models
Due to the complex nature and diversity of projects,
there is no agreement about the life cycle of
projects.
Like the definitions of a project, there are different
project life cycle models which differ in their
perspective, emphasis and level of detail. The
commonly known models are:
1. World Bank Project Life Cycle Model
2. UNIDO Project Life Cycle Model
1. World Bank Project Cycle Model
World Bank project life cycle also called Baum
Cycle.
The first basic model of a project cycle is that of
Baum (1982), which has been adopted by the World
Bank.
The World Bank lends money to low and middle-
income countries to support development and change.
Development projects are implemented by borrowing
countries following certain rules and procedures to
guarantee that the money reaches its intended target.
Cont….
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.
Thus, each of Baum’s main stages are discussed
briefly below: (i.e. The World Bank suggested five
stages in the project activities.)
I. Project identification (Pre-feasibility studies)
II. Project preparation(Feasibility study)
III. Project appraisal
IV. Project implementation
V. Project evaluation
I. Project Identification
The search for promising project ideas is the
first step towards establishing a successful
project.
Identifying suitable project ideas is the most
important and crucial step in the whole
process of project preparation.
Identification of opportunities requires
imagination, sensitivity to environmental
changes, and realistic assessment of what the
firm can do.
Cont….
Project identification is the idea stage and
requires systematically monitor the environment
and assess its competitive abilities.
It involves activities concerned with surveying,
reviewing and inventorizing existing data and
information. These include:
Economic condition and infrastructure
(including Emergencies of new technologies and
access to technical know-how )
Cont….
Government policy
Industrial policy
Financing norms
Government programs
Import and export policies
Tax framework
Resource availability
Natural resource data
Human resource data
Socio-economic data
Population trend
Educational profile
Income distribution
Market and Need gap
Cont….
A project idea may originate from multiple sources.
Many of the important projects in developing countries
emerge from:
Political commitment of national leader,
New experiments emerging from previous project
failures,
Expansion and replication of successful projects tested
locally or proven feasible in other developing
countries,
From the discovery of critical economic and social
bottlenecks of shortages, excess or idle resources
Forward & backward linkages with existing projects,
The work of voluntary agencies, non-profit
organizations and foundations has been a catalyst for
new ideas. 10
Cont….
With in the project identification after having a good idea
of project, it is also better to conduct preliminary
screening and pre-feasibility study
Preliminary Screening:
At this stage the screening criteria are vague and rough,
becoming specific and refined as project planning advances.
Project screening is a process of elimination of inferior
alternatives.
Select one or more of them as potentially viable.
This calls from a quick preliminary screening by experienced
professionals who could also modify some of the proposal.
At this stage the analyst should eliminate proposals that are
technically unsound and risky.
The preliminary screening process may includes:
11
Cont….
Compatibility with the promoter:-the idea must be
compatible with the interest, personality, and resources of
the entrepreneur.
Consistency with governmental priorities:- the project
idea must be feasible given the national goals and
governmental regulatory framework with respect to
consistency, environmental effects, foreign exchange
requirements and any other difficulty of a project.
Availability of inputs:-the resources and inputs required
for the project must be reasonably assured. To assess this,
questions of capital requirements, technical know-how,
raw materials required, and power supply for the project
need to be answered.
Adequacy of the market:- the size of the present market
must offer the prospect of adequate sales volume and
further, there should be a potential for growth.
Reasonableness of cost:-the cost structure of the proposed
project must enable it to realize an acceptable profit with a
price. The following should be examined in this regard;
Cost of material inputs
Labor costs
Factory overheads
General administration expenses
Selling and distribution costs
Service costs
Economies of scale
Pre-feasibility Study:
Following the preliminary screening, promising
project options should be investigated in a
systematic manner to suggest which are to be
eliminated.
At this stage, the preparation of brief reports are
required and the report should indicate which of
these aspects deserve particular attention during
the subsequent step. These reports are called pre-
feasibility studies.
Sophisticated analysis of the technical, financial,
social and institutional aspect of the project is
postponed to a later stage. 14
Cont….
A pre – feasibility study should be viewed as an
intermediate stage between a project opportunity study
and a detailed feasibility study, the difference is being in
the degree of detail of the information obtained and
the intensity with which project alternative are
discussed.
Having achieved a good database, the process of
identification of gaps would have been laid. Thus, such
gaps, which lead to project ideas that could be generated
as a SMART project.
Once a project is identified, the next step is to carry
out a project preparation of full document, which is also
called feasibility study.
II. Project Preparation (Feasibility Study)
Once projects have been identified, there begins a
process of progressively more detailed preparation
and analysis of project plans.
At this stage the project is being seriously considered
as a definite investment action.
Project Preparation necessitates a team work.
The better a project is prepared, the easier and faster
its implementation and lowers the probability of cost
over runs.
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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.
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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 properly, their
sources are all identified, and reasonable plans for their
repayment and other necessary circumstances are properly
identified and calculated. 18
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 with 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. 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).
In summary, 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
IV. Project Implementation
This stage is about making the project in reality.
In this stage, funds are actually disbursed to get the
project started and keep running. i.e. the
mobilization of physical and financial resources
are needed.
The recruitment and training of personnel for the
successful implementation and operation of the
projects also required.
The execution of the project should be supervised
closely and progress should be reported regularly.
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It is during implementation that many of the real
problems of projects are first identified. Because of
this, the feedback effect on the discovery and design of
new projects and the deficiencies in the capabilities of
the project actor can be revealed.
Therefore, to allow the management to become aware
of the difficulties that might arise; recording,
monitoring and progress reporting are important
activities during the implementation stage.
Project implementation must be flexible.
Circumstances will change and project managers must
be able to respond intelligently to these changes.
V. Project Evaluation
The final phase in the project cycle is evaluation. Once
a project has been carried out, it is often useful, (though
not always done) to look back over what took place, to
compare actual progress with the plans, and to judge
whether the decisions and actions taken were
responsible and useful.
An important purpose of this stage is to ascertain the
reason for the project’s success or failure.
This is an audit process to assess the extent of
achievement or possible deviation from the objectives
for which the project is undertaken.
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Evaluators, usually independent department
assigned by the sponsors, reviews the completion
reports & prepares its own audit of the project.
The extent to which the objectives of a project are being
realized provides the primary criterion for an evaluation.
Evaluation is not limited only to the completed projects.
It is a most important managerial tool in ongoing projects
and formalized evaluation may take place at several times
in the life of a project.
Evaluation may be undertaken when the project is in trouble,
as the first step in a re-planning effort. Careful evaluation
should precede any effort to plan follow – up projects.
2. The UNIDO project life cycle model
United Nations Industrial Development Organization
project cycle have three distinct phases :
1. Pre-investment phase
I) Opportunity studies
II) Pre-selection
III) Preparation
Iv) Appraisal
2. Investment Phase (Implementation phase)
3. Operating phase
1. Pre-investment studies
I. Opportunity Studies/Project Identification:
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
27
Cont’d
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. 28
Cont’d
II. Pre-feasibility studies/pre-selection:
To analyze that:
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
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III. Feasibility study /preparation/
Feasibility study should provide all data,
define and critically examine the
commercial, technical, financial,
economic and environmental aspects for
each alternative.
The data should be based on investigated
efforts rather than on guess.
A window dressing approach should be
avoided. 30
Cont’d
IV. Appraisal :
When a feasibility study is completed, the
various parties will carry out their own
appraisal of the investment project in
accordance with their individual objectives and
evaluation of expected risks, costs and gain.
Large investment and development finance
institutions usually have formalized project
appraisal procedures and usually prepare an
appraisal report.
This is the reason why project appraisal should
be considered an independent stage of the pre-
investment phase. 31
2. Investment phase
This stage is also known as “The Project in Motion”
While in earlier stages of project planning there was
more thinking and less action, in this stage the
combination switches in favor of the latter: more
action and less thinking is needed.
It is the time when the conclusions reached and the
decisions made are put into action.
Detailed engineering design comprises preparatory
work for site preparation, the final selection of
construction planning and time – scheduling of
factory construction, as well as the preparation of
flow charts, scale drawing and a wide variety of
layouts. 32
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
3. Operating phase
This is the production phase that commences
after commissioning and start-up.
The problems of the operational phase need to be
considered from both a short and a long term view
point.
The short term view relates to initial period after
commencement of production.
Most of the problems have their origin in the
implementation phase.
The long-term view relates to chosen strategies
and the associated production and marketing costs
as well as sales reviews.
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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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1. 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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2. Planning Process Group
In this stage, the project manager, along with the project
management team,
refinethe 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. 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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4. 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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5. 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 and
Celebration.
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Summary:
Initiation Phase: recognizing that a project should
begin to address a problem or a need or capture an
opportunity.
Planning Phase: devising and charting a workable
method or roadmap to execute the project.
Implementation Phase: organizing and coordinating
resources to carry out the project plan.
Monitoring and Controlling Phase: ensuring that
project objectives are being met.
Closure/ Termination Phase: formalizing project
acceptance and bringing a project to an orderly end.
Individual Assignment
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
Chapter End!
