Chapter Two

Project Life Cycle

INTRODUCTION
Project Life Cycle

 Project passes through series of activities called stages.

 Project cycle refers to the various stages through which project
planning proceeds from the inception to implementation.

 In other words, it is the life cycle through which a project advances

from infancy to maturity.

 The main features of this cycle are information gathering, analysis,

and decision–making.
The project cycle
Identification

Evaluation Preparation

Proposal
development

Implementation Appraisal

Financing
decision
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Project life cycle Models

 These project cycle models differ in their perspective,

emphasis and level of detail.
 Here we give more emphasis on the basic models:
1. Baum project life cycle

2. UNIDO project life cycle

3. European Commission’s project life cycle

4. DEPSA project life cycle

1. The Baum Cycle (World Bank Procedures)

1. Adopted in 1970 by the World Bank and initially recognized four

main stages:
a. Identification
b. Preparation
c. Appraisal and selection
d. Implementation
 At a later stage in 1978 the author has added another stage called
“Evaluation “thus making the stages 5 in number.
a. Identification Phase (idea generation)
 Project identification is the process of searching for and
subsequently finding potential projects that might be realized to
generate benefits in excess of costs that accrue to the society and
contribute towards the attainment of development objectives.

 Project identification refers to finding project ideas which can

contribute towards achieving specified development objectives.
 It is the first and the most crucial of the stages in the project cycle.
Project idea generation:

Identifying suitable/good project ideas is the

most important step in the whole process of
project preparation.
Any good business ideas could be an invention,
a new product or service, or an original idea or
solution to an everyday problems.

A good business idea does not necessarily have to

be a unique products or services.

Then what are the sources and methods of

such a business idea?

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Project idea generation:
The project idea selection is
selection of project idea • Profitability
from available alternatives • Feasibility
is to be best suited to the
entrepreneurs’ capacity,
• Resource-ability
competence and • Acceptability
willingness. The project
Selection includes:

The basic criterion for

selection of a project could
be existence of a favorable
cost-benefit relationship.
People would like to select a
project which requires a
minimum investment, low
degree of competence,
completed in the shortest
time, and which has the
highest return potential.
Who identifies projects ideas?
Development of projects idea might be identified by
different stakeholders including:
• Individuals
• Groups of individuals (community)
• Local leaders
• NGOs
• Policy makers
• Planners
• International development agencies
• Government pronouncements Etc.
Sources of Project Ideas
Find potentially promising projects.
 Some of the sources of projects are:
 resource based
 market based
 need-based
 local leaders and national development strategies
 Diversification
 Import substitution and export possibilities
 Environmental impact
 Expansion of existing capacity, etc.
Sources of Project Ideas

 We can distinguish two levels from where project ideas are born at:
the micro-level and the macro-level.
Sources of Project Ideas
1. At Micro-level project ideas emanate from:
unsatisfied demand or needs,
existence of unused or underutilized natural or human resources
and the perception of opportunities for their efficient use,
the need to remove shortages in essential materials, services or
facilities that constrain development efforts,
the initiatives of private or public enterprises in response to
incentives provided by the government,
the necessity to complement or expand investments previously
undertaken,
the desire of local groups or organizations to enhance their
economic status and improve their welfare,
Sources of Project Ideas
2. Macro-level: Project ideas emerge from:
National, sectoral, or regional plans and strategies
Constraints in the development process
A government’s decision to correct social and regional
inequalities or to satisfy basic needs of its people
Unusual events such as droughts, flood, earthquakes, hostilities,
etc.
A government’s decision to create local project implementing
capacity in such areas as construction, etc.
Project ideas could also originate from foreign firms.
Workshops and development experiences of other countries
Multilateral agencies or bilateral development organizations
Screening project ideas

Once a list of project ideas has

been put forward, the first step is
select one or more of them as
potentially promising.
• Compatibility with the promoter
• Consistency with government
priorities
• Availability of inputs
• Adequacy of the market

Needs Assessments
2. Project Preparation and Analysis Phase
After the project idea is
identified, a complete So, once the project
project idea profile ideas have been
should be enumerated. identified, the process
of project preparation
and analysis starts.
Title, location, owner,
background and
justifications, objectives,
costs, financing and benefits
should be briefly stated.

Then, preliminary
screening of project ideas
need to be made.
2. Project Preparation and Analysis Phase

So, once the project ideas have been identified, the process of
project preparation and analysis starts.
• Identifying and comparing technical and
institutional alternatives,
• Different use of alternative resource
endowment,
Unde • Judge the use of input and expectation of
r output
• Compare their costs and benefits
proje • Find the more detail alternatives until the
ct most satisfactory solution is finally worked
prep out.
• In addition to this; need, market demand,
arati resource availability, technology, natural
on: calamity, political considerations and etc.
should been seen in this stage.
2. Project Preparation and Analysis Phase

 More detailed analysis or project plans preparation which

includes both the pre-feasibility and feasibility study.

Project preparation covers:
 technical
 economic
 social
 financial
 institutional, and
 environmental feasibility analyses, etc.
Analysis of Project Identification

Project
identification
involves several
analysis.

• Stakeholder Analysis
• Problem Analysis
(image of reality)
• Objectives Analysis
There are 4 steps (image of an improved
to the Analysis situation in the future)
• Strategies Analysis
Phase:
(comparison of
different options to
address a given
situation).
3. Appraisal and selection (Approval or Financing Decision)

 Wide ranges of appraisal criteria have been developed to judge the

worthwhile of a project and re-examine every aspect of the project

proposal (plan)
 Appraisals should cover at least the first seven aspects of the

project:
i. Technical
 proposed project will work in the way suggested or not
ii. Financial
 money calculated properly
 repayment
iii. Commercial
 inputs and disposal of the products are verified
Appraisal (Cont…)
iv. Economic
 national economic development interest
 positive and negative are taken into account
v. Managerial
 the responsible person can operate it satisfactorily or not.
 the responsible persons are given sufficient power and scope to do

vi. Organizational

 organized internally and externally, contract policy institution, etc.

vii. Environmental
 Safeguard against damage, restoration measures.
Appraisal (Cont…)
In general: Project Appraisal can be measured by:
Financial Appraisal

Economic Appraisal
Appraisal (Cont…)

Financial analysis answers the question “is the

project financially profitable to a given individual,
group or business?
In financial analysis costs and benefits are valued
at market prices

Economic analysis answers the question- “is the

project profitable to the society or to a target
population as a whole? what is its impact ( in
terms of job creation and linkages with the other
sectors) on the whole economy?
In economic analysis costs and benefits are valued
at shadow prices
4. Implementation Phase
 It is the stage at which the conclusions are reached & decisions
made are put into action.

 After determining that a particular project is viable, both in term of

its financial and economic returns, decision will be taken to
implement the project.

 Project implementation is a phenomenon by which project studies

are translated into reality within their specified time and budget.
Some of the major activities during project implementation
phase include:
funds are actually
disbursed

actual (real)
Bids are invited and
problems frequently
evaluated
are occurred

Detailed
Tender documents engineering design
are prepared (site preparation,
signing of contracts

Acquisition of land,
Recruitment and
construction work
training of personnel
and installation
5. Project Evaluation
 Implementation phase is followed by supervision and follow up.

 It is a final phase of project cycle

 Evaluate the success or failure of project

 Give lesson for revising of a project

 Compare actual performance with projected performance

 It examines the project plan and what is really happened

 It provides corrective actions which can go with real

 to see resources are efficiently utilized

 to see goals and objectives are effectively achieved, etc.

 It provides document for future decision

Evaluation (Cont…)

 Evaluation is not limited only to completed projects.

 Ongoing projects could also be evaluated to rectify problems when

the project is in trouble.
2. UNIDO (United Nations Industrial Development
organization) project life cycle

 According to the UNIDO approach documented in the UNIDO

manual, the project development cycle comprises three distinct
phases:

a. Pre- investment phase

b. Investment phase and
c. Operational phase
Pre- investment phase

Five stages:
i. Opportunity studies (identification of project ideas)
ii. Pre-feasibility studies (preliminary project formulation)
iii. Support (functional studies)
 as pre-requisites for, or in support of pre-feasibility and
feasibility studies of particularly large scale investment
proposals.
iv. Feasibility studies (Final proposal formulation)
v. Appraisal report (decision making about project availability or
Project promotion or financing)
Cont…

b. Investment phase/Implementation phase

c. Operational phase or Evaluation Phase (expansion innovation,

replacement, rehabilitation)
3. European Commission’s project life cycle
Six Phases:
a. Programming
b. Identification
c. Project formulation and appraisal
d. Financing
e. Implementation and Monitoring
f. Evaluation and Audit
 the relevance of the objectives
 development efficiency
 Effectiveness
 Impact
 Sustainability
Evaluation Questions

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4. The DEPSA Project Life Cycle

In Ethiopia, Development Project Studies Authority (DEPSA).

This life cycle comprises three major phases. They are:

a. Pre-investment Phase
Three Stages:
i. Identification Stage
ii. Formulation Stage (Pre-feasibility study and Feasibility
study)
iii. Appraisal Report (Appraisal and Decision)

b. Investment Phase and

c. Operation Phase
Note: Different authors have described project cycle phases in
different sequential manner but the concept of the cycle is almost
similar in each case.