II: PROJECT CYCLE

PROJECT CYCLE

• Before any project is actually realized it goes

through various phases.
• Therefore, the different phase through which a
project passes constitutes what is often called
“the project cycle”.
• The main features of this process are:
• Information gathering,
• analysis and
• Decision-making.
• There are various models that deal with the
project cycle.
• However, here we give more emphasis on the
Basic Models
• The Baum’s cycle
• DEPSA’s and
• UNIDO project cycle.
The Baum Cycle (World Bank Procedures)

• The first basic model of a project cycle is that of

Baum (1970), which has been adopted by the
World Bank and initially recognized four main
stages, namely.
• Identification
• Preparation
• Appraisal and Selection
• Implementation
• At a later stage (in 1978) the author has added
an additional stage called “Evaluation”
1. Identification

The first stage in the cycle is to find potential

projects. Some sources of projects are given
here.
• Some may be “resource based” and stem from
the opportunity to make profitable use of
available resources.
• Some projects may be “market based” arising
from an identified demand in home or overseas
markets.
.
1. Identification….

• Others may be “need-based” where the

purpose is to try to make available to all people
in an area of minimal amounts of certain basic
material requirements and services.
• Well informed technical specialists and local
leaders are also common sources of projects.
• Technical specialists will have identified many areas
where they feel new investment might be profitable,
• local leaders may also have suggestion about where
investment might be carried out.
1. Identification….

• Ideas for new projects also come from proposals

to extend existing programs.
In general, most projects start as an elementary
idea.
Eventually, some simple ideas are elaborated into a
form to which the title “project” can be formally
applied
2. Preparation (pre – feasibility or feasibility studies)

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 (project formulation) covers the
establishment of;
• A. Technical
• B. Economic and
• C. Financial feasibility
2. Preparation (pre – feasibility or feasibility studies)….

Project design and formulation is an area in which

local and international consultants are very active
especially for big project that cover large areas
and have big budgets
3. 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.
3. Appraisal…..
Appraisals should cover at least seven aspects of
a project, each of which must have been given
special consideration during the project
preparation phase:
• Technical – here the appraisals concentrate in
verifying whether what is proposed will work
in the way suggested or not.
3. Appraisal…..
• 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 are made where necessary.
• 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.
3. Appraisal…..
• Incentive – the appraisals see to it whether things are
arranged in such a way that all those whose
participation is required will find it in their interest to
take part in the project, at least to the extent predicted
in the plan.
• 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.
3. Appraisal…..
• 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 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.
4. Implementation
The objective of any effort in project planning and
analysis clearly is to have a project that can be
implemented to the benefit of the society.
Thus, implementation is perhaps the most
important part of the project cycle.
recording, monitoring and progress reporting are
important activities during the implementation
stage.
project implementation must be flexible
5. 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.
DEPSA’s Project Cycle

• According to the Guidelines to project

planning in Ethiopia (1990) of Development
Project Studies Authority (DEPSA), the
project cycle comprises three major phases.
• Pre – investment
• Investment and
• Operation
Each of these three phases may be divided into stages.
The Guideline has divided the Project cycle into six stages:
• Identification
• Preparation
• Appraisal/decision
• Implementation
• Operation
• Ex-post evaluation

The pre – investment phase consists of the first–three stages, the

investment phase includes the fourth stage and the operation phase
covers the last two stages.
UNIDO – Project Cycle

UNIDO has established a project cycle comprising

three distinct phases.
• The pre – investment
• The investment and
• The operational phases
• Each of these three phases is divided into stages,
some of which constitute important consultancy,
engineering and industrial activities.
Increasing importance should be attached to the
pre – investment phase as a central point of
attention, because the success or failure of a
project ultimately depends on:
• A. the marketing
• B. technical competence
• C. financial and economic findings and
their interpretation, especially in the feasibility study
UNIDO’S PROJECT LIFE CYCLE
The Pre – investment Phase

• According to the UNIDO Manual, the pre –

investment phase comprises several stages:
• Identification of investment opportunities (opportunity
studies).
• Analysis of project alternatives and preliminary project
selection as well as project preparation (pre – feasibility, and
feasibility studies) and Project appraisal and investment
decision (appraisal repot)
• Support or functional studies are also a part of the project
preparation stage and are usually conducted separately, for
later incorporation in a pre – feasibility study or feasibility
study as appropriate.
A. Opportunity Studies

• The main instrument used to quantify the

parameters, information and data required to
develop a project idea into a proposal is the
opportunity study, which should analyze:
• Natural resources
• Future demand for consumer goods.
• Imports substitution and export possibilities
• Environmental impact
• Expansions of existing capacity
• Manufacturing sectors (successful in other countries)
B) Pre – feasibility studies:
• This is to see if:
• All possible project alternatives are examined
• The project concept justifies detail study
• All aspects are critical and need in – depth investigation
• The project idea is viable and attractive or not
• A pre – feasibility study should be viewed as
an intermediate stage between a project
opportunity study and a detailed feasibility
study
C. Support (functional) studies
• Support or functional studies cover aspects of an
investment project, and are required as prerequisites for,
or in support of, pre – feasibility and feasibility studies,
particularly large – scale investment proposals.
• This may include:
• Market studies of products
• Raw material and factory supply studies
• Laboratory and pilot plant tests
• Location studies
• Environmental impact assessment
• Economics of scale studies
• Equipment selection studies
D) Feasibility Studies:
• A feasibility study should provide all data
necessary for an investment decision.
• The commercial
• technical,
• Financial
• economic and
• environment prerequisites for an investment project
should therefore be defined and critically examined on
the basis of alternative solutions already reviewed in
the pre – feasibility study.
E) Appraisal Report
• 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.
The investment/implementation Phase

• The investment phase can be divided into the

following stages:
• Establishing the legal, financial and organizational
arrangements and evaluation of bids and negotiations.
• Technology acquisition and transfer.
• Detailed engineering design and contract, including
tendering, evaluation of bids and negotiations.
– Acquisition of land, construction work and installation.
• Pre – production marketing, including the securing of
suppliers and setting up the administration of the firm.
• Recruitment and training of personnel.
• Plant commissioning and start – up.
The investment/implementation Phase…

it is to be noted that in the pre – investment

phase, the quality and dependability of the
project are more important than the time factor,
while in the investment phase, the time factor is
more critical in order to keep the project within
the forecast made in the feasibility study.
The Operational Phase

• The problem of the operational phase needs to

be considered from both
• a short – and
• a long – term viewpoint
• The short – term view relates to the initial after
commencement of production when a number of
problems may arise concerning such matters as
the applications of
• production
• Techniques
• operation of equipment or inadequate labour productivity
owing to a lack of qualified staff and labour.
Discussion questions

?Compare and contrast, Baum’s,

DEPSA’S and UNIDO’S PM life cycles