Chapter Two

Project Cycle

Project Cycle Meaning

Project planning proceeds from inception to an implementation. It crosses various stages are often
called “Project Cycle Phases”. It is the life cycle though which a project advances from infancy to
maturity.

Features of a Project Cycle

The main features of this process are information gathering, analysis and decision-mak ing.
Through the project cycle the primary preoccupation of the analyst is to consider alternatives,
evaluate them and to make decisions on which of them should be advanced to the next stage.

Project cycle according to World Bank:

The World Bank suggested, some stages in the project activities. These project cycle is divided
into the following stages.

1. Project identification
2. Project preparation
3. Project appraisal
4. Project implementation
5. Project Evaluation
1. Project Identification: (Pre-feasibility studies)

Project identification is the initial stage of the project. It contributes towards achieving specified
development objectives are identified. A project idea may originate from multiple sources. Many
of the most important projects in developing countries emerge from political commitments of
national leaders, as response to crises, emergencies and external threats or to foreign governme nts
policies and assistance agency priorities. Others are new experiments emerging from previous
project failures or from expansion and replication of successful projects tested locally or proven
feasible in other developing countries or from the discovery of critical economic and Social

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bottlenecks of shortages excess or idle resources and forward and backward linkages with existing
projects.

The work of voluntary agencies, non-profit organizations and foundations in such fields as health
care, education, family planning, social services and housing has been a catalyst for new ideas.
Developing nations are required to link informal processes with formal national planning
systems very closely. Generally, project ideas are born at two levels, the Micro-level and Macro
level. (See Chapter III)

a. Preliminary Screening:

Project planning is process of elimination of inferior alternatives. Once some project ideas have
been put forward, the first step is to select one or more of them as potential viable. This calls fro
a quick preliminary screening by experienced professionals who could also modify some of the
proposals. At this stage the analyst should eliminate proposals that are technically unsound and
risky; have no market for the output; have inadequate supply of inputs are closely in relation to
benefits; assume over ambitious sales and profitability etc.

b. Pre-feasibility study:

Following the preliminary screening, promising options should be investigated in a systematic

manner to suggest which are to be eliminated. Sophisticated analysis of the technical, financ ia l,
social and institutional aspects of the project is postponed to a later stage. However, the report
should indicate which of these aspects deserve particular attention during the subsequent step.
These reports are called pre-feasibility or pre-investment studies. To enable the relevant
authorities to decide on the merits of various project options, the studies should contain:

a) The structure and objective of the project

b) The nature and size of the demand of the output or the needs that it would satisfy.
c) Availability of materials and human inputs.
d) Basic alternative technologies available and their merits and drawbacks.
e) Approximate investment and operation costs.
f) Rough estimates of financial and economic returns.
g) Any major factor that is likely to have an impact on the project and

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h) What further information on the technical, financial, economic or Institutional aspects
of the project should be acquired through special studies and surveys?
2. Project Preparation (Feasibility studies):

Pre feasibility study if indicates that the project, prima facie, promising and further work is
justified, the project enters the next stage for more and Sophisticated analysis supported by
accurate information in the study all aspects, technical and non technical, should receive the
attention to serve without postponing any consideration to a later stage.

Project preparation necessitates a teamwork approach with professionals investigating differe nt

aspects of the project, working closely. They should exchange views and check their conclusio ns
under the coordination of an expert working as team leader.

Time spent on project preparation is not lost time. There is trade off between project preparation
and implementation. The better a project is prepared, the easier and faster its implementation and
lowers the probability of cost over runs. Where a project is to be financed by multilateral or
bilateral aid agencies, their specific requirements and standards of project preparation should be
taken in to account.

There are no basic economic choices to be made in project analysis. The economic dimension of
the project is reflected in its basic objectives and it is the responsibility of authorities to make such
choices. There are two key areas where the analyst have choices to be made, the technological area
and institutional area. Some economic aspects relating to employment and income distributio n
may be placed under these areas if they are not included in the basic objectives. The feasibility
study should give due consideration to the strong interrelation linkages to ensure mutual support
between the technical and institutional components in achieving the objectives of the project.

a) Technological choices:

In the technological sphere the choices to be made through comparative consideration of

alternatives, vary from project to project. It is the function of professionals to scrutinize the merits
of each alternative. Certain technical aspects that seek alternatives considerations may be:

a) Building a new plant or facilities as against improving the capability of existing one.

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b) Indigenous against imported technologies, labor intensive against capital intensive one
and technologies with high initial costs but low maintenance requirements against those
with low initial costs but high maintenance needs and
c) Possibility of implementing the project in stages and the merits of one big plant in the
center versus a number of smaller regional ones.
b) Institutional Choices:

Professionals may consider many institutional aspects where alternative are feasible like:

a) Consider the merits of establishing a new agency to implement and operate the projects
as against using an existing one.
b) Comparative advantages of various degrees of centralization and decentralization of
functions and decision-making.
c) Evaluate alternative types of owner ship and control such as public, private, co-operative,
joint venture, domestic, foreign etc. and
d) Compare alternatives in the supply of inputs (e.g. estate farming vs. out growers) and the
supply chain of out put.
3. Project Appraisal and investment decision:

Appraisal is the comprehensive and systematic assessment of all aspects of the proposed project.
The appraisers are usually the central economic authorities responsible for rafting the overall
development strategy and entrusted with major decisions on matters relating to this strategy. The
project is reviewed to confirm that it accords with the broad development objectives and fits into
the development process of the country. The project is viewed from different perspectives;
technical, commercial, financial, economic, managerial and organizational. It is to ensure that the
project represents a high priority use of country’s resources and in combination with other policies,
contributes the maximum possible towards achieving national development objectives.

4. Project implementation, Supervision and follow up:

It is the stage the conclusions reached and decisions made are put into action. Detailed designs and
specifications should be drawn, tender documents to be prepared, bids should be invited and
evaluated, orders for inputs have to be placed, contract to be signed, workers to be hired and put
to work, materials to be moved to site etc. It is not well-prepared and evaluated but studious ly

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executed projects that deliver the envisaged benefits. The project planning and execution require
high level of managerial skills and adequate administrative capacities, with many developing
countries have proved to be lacking. Many countries are not so expert at implementation as they
are at planning. Any plan is only as good as it achieves. Some implementation problems are
changes in the economic and political situation of the country or the world market while others
project specific.

The execution of the project should be supervised closely and progress should be reported
regularly to ensure that the implementation is progressing without deviating from the envisaged
path. The follow up exercise or ex-post evaluation is considered as continuation of supervision to
assess whether the objectives of the project have been reached.

5. Project Evaluation:

Project cycle according to UNIDO

The following phases from the project cycle:

[Link]-investment phase
 Project identification (Opportunity study)
 Pre-selection (Pre-feasibility study)
 Preparation (feasibility study)
 Appraisal (Appraisal report)
[Link] phase (implementation)
1. Pre-investment phase:

* Opportunity studies / Project identification:

Identification of investment potentials in developing countries generates inter data required to

develop project idea into a proposal is the opportunity study, which should consider analyzing the
following:

1) Availability of natural resources

2) Existing agricultural pattern

3) Future demand for goods, increasing population, purchasing power.

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4) Imports and import substitutions

5) Environmental impact

6) Functioning of similar project in other countries.

7) Possible inters linkage with other industries.

8) Extension by backward and forward linkages

9) Industrial policies of the local government

10) General investment climate in the economy

11) Possible for diversification

12) Expansion of an existing line to have large-scale economies

13) Export potentials and

14) Availability and cost of production factors.

The general opportunity studies can be categorized as, area studies, industry studies and resource
based studies.

Pre-feasibility studies / Pre selection:

To analyze that:

1. All possible project alternatives examined

2. The project concept justifies detailed analysis
3. A critical area necessitates in-depth investigation.
4. Project idea is either attractive for investment or non-viable.
The environment situation at the site is in line with national standards

Support functional studies to cover specific areas such as;

1. Marketing

2. Raw material and factory supplies

3. Laboratory and pilot plan testing

4. Location

5. Environmental impact assessment

6. Economies of scale and

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7. Equipment selection.

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
investigate efforts rather than on guesstimated.

A window dressing approach should be avoided. The supporting data should fulfill the following
minimum reliability standard.

Appraisal report / Appraisal:

When a feasible study is completed the various parties involved in the project will carry out
their own appraisal of the investment project in accordance with their individual objectives and
evaluation of expected a risks, costs and gains. Large investment and development finance
institutions have formalized project appraisal procedures and usually prepare an appraisal report.

The appraisal report will prove whether these pre-production expenditures were well spent.
Project appraisal as carried out by financial institutions concentrates on the health of the
company to be financed, the returns obtained by equity holders and the protection of its creditors.

Appraisal reports as a rule deal not only with the project but also with the industries in which it
will be carried out and its implications for the economy as a whole. Thus, if a car manufactur ing
plant is to be appraised the report will also review the relationship of the plant to its feeder
industry, the transport sector, the availability of highways and the energy supply. For large scale
projects, appraisal reports will require field missions to verify the data collected and to review
all those factors of a project that are conditioned by its business environment, location and
markets and availability of resources.

2. Investment phase:

The investment or implementation phase of a project provides wide scope for consultancy and
engineering work, first and frameset in the field of project management. The investment phase can
be divided into the following stages.

Stablishing the legal, financial and organizational basis for the implementation of the
Project.
Technology acquisition and transfer, including basic engineering

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Detailed engineering design and contracting, including tendering evaluation of bids and
negotiations.
Acquisition of land, 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.

1. Operating Phase:
The problems of the operational phase need to be considered from both a short and a long- term
viewpoint. The short-term view relates to initial period after commencement of production when
a number of problems may arise concerning such matters as the application when a number of
problems may arise concerning such matters as the application of production techniques, operation
of equipment or inadequate labor productivity owing to a lack of qualified staff and labor. Most of
these 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 revenues. These have
a direct relationship with the projections made at the pre-investment phase. If such strategies and
projections prove faculty, any remedial measures will not only be difficult but may prove highly
expensive.

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