Chapter Three: Project cycle.

At the end of this unit students will be able to:

 Explain project cycle

 Project identification

 Project preparation

 Project appraisal

 Project implementation and

 Project evaluation
 The project cycle: d/t stages/phases which a project passes through
is called the project cycle.

 It consist of various stages in which each stage leads into the

subsequent ones.

 There are three basic models of project cycles. they are:

• The Baum project life cycle

• UNIDO project life cycle

• DEPSA project life cycle

 I. Project identification

 The first stage in the project cycle is :to find potential projects.

 Information about potential project could learned from:

 Local leaders: Can provide suggestions about where investment

might be carried out.

 Technical specialists: While performing their professional duties,

they can identify areas where the new investment might be profitable

 Surveys: survey indicate what initiatives are needed in a given

sector.

• E.g. In agricultural & natural resources , the diagnostic surveys &

constraint analysis may result in the identification of priority
 Proposals to extend existing projects: Ideas for new projects can
generated from proposals to extend existing programs.

• E.g.: A program to develop water resources will probably lead to

suggestions of additional areas for irrigation.

 Economic development plans with priority areas: Most countries

have an economic development plan that identifies sectors to be
given priority and areas where investment is needed.

• These generalized areas for priority lead to specific projects.

Also Project ideas conceived by:

 Individuals

 Community

 NGOs

 Policy makers

 International development agencies and

 Government pronouncements
 A project may be designed:

 to solve prevailing problem in a given areas : like intervention against

natural calamity such as flood and drought.

 to satisfy a need : Some may be “need-based “where the purpose is

try to make certain basic materials and service available to people.

 to use available resources: Some may be “resource based “ to make

profitable use of available resources

 Market demand: Some project may be “market based” arising

from an identified demand in home or overseas markets.
 Usually, project is identified from the constraints existing in
activity, a business, a sector, a community or a country.

 The aim of project identification is :

 to undertake preliminary test of project idea before resources are

utilized in detailed (in project design and appraisal).
 II. Project preparation and analysis phase
 Once projects have been identified, the project preparation & analysis
is started.
 This process includes all work brings the project to the point at
which appraisal can be undertaken.
 Project preparation conceders technical, economic, social, financial,
institutional and environmental aspects of the project's.
 D/t alternatives may be available to achieve the project's objective &
thus, resource endowment have been considered in preparation of
projects.
 It require feasibility studies that:
 identify & prepare preliminary designs of technical & institutional
alternatives, compare their costs & benefits, and investigate the
 Preparation and analysis phase involves generally two steps:

1) Pre-feasibility studies
2) Feasibility studies

1) Pre-feasibility Study

 The identification process will give:

 the background information & basic concept about the project.

 Once a project proposal is identified, it needs to be examined by

assessing:

a) Whether the project’s prima facie is worthwhile to justify a

feasibility study and

b) What aspects of the project are critical to its variability.

 At the pre-feasibility study stage the analyst can obtains:
 approximate valuation of the major components of the projects
costs and benefits.
 Some components examined during the pre-feasibility study include:
 Availability of adequate market
 Project growth potential
 Investment costs, operational cost and distribution costs
 Demand and supply factors; and
 Social and environmental considerations

 Using this preliminary data, a preliminary financial & economic

analysis will be conducted.

 If the project appear viable from this preliminary assessment, the

analysis will be carried to the feasibly stage.
2) Feasibility Study

 The major d/c b/n the pre-feasibility and feasibility studies is:

 The amount of work required in order to determine whether a

project is likely to be viable or not.

 If the preliminary screening suggests that the project is prima facie

worthwhile, a detailed analysis of marketing, technical, financial,
economic, and ecological aspects will be undertaken.

 If the project is viable, it should proceed to the project design stage.

• The final product of this stage is a feasibility report.
 The feasibility report should contain the following elements:
 Market analysis
 Technical analysis
 Organizational analysis
 Financial analysis
 Economic analysis
 Social analysis, and
 Environmental analysis
 III. Appraisal

• Appraisal is the comprehensive & systematical assessment of all

aspect of the proposed project.

• The feasibility study would enable the project analyst to select the
most likely project out of several alternative projects.

• Also it provide reports in detail analysis of all aspects of the projects.

• After the reports analysis of all project aspects is completed, a critical

review & appraisal of these aspects are conducted by an independent team.

• This team re-examines every aspect regarding feasibility, soundness

and appropriateness.

• The team may recommend for further preparation work if some data
• The project is viewed from at least seven aspects of a project:

a) Technical – here the appraisals concentrate in verifying whether

what is proposed will work in the way suggested or not.

b) Financial – the appraisals try to see if the money required for

project have been calculated property, the sources are identified,&
reasonable plans for their repayment are made where necessary.

c) Commercial – the appraisal try to see the project's inputs supply &
the arrangements for the disposal of the products are verified.
d) Incentive – the appraisals try to see whether things are arranged in
such a way that participant required ( does projects arranged as the
interest of participant).

e) Economic – the appraisal here tries to see whether what is proposed

is good from the viewpoint of the national economic development

f) Managerial – this aspect of the appraisal examines the existence of

capacity for operating the project.

g) Organizational – this appraisal examines the project whether it

organized internally & externally as units which allow the proposed
project to be carried out properly.
 These issues are the subjects of specialized appraisal report.

 On the basis of this report, decisions are made:-

o whether to go ahead with the project or not.

 The appraisal may change the project plan or develop a new plan if
appraisal team feels that some of the data used at preparation or
some assumptions are faulty.

 After appraisal, the viable project proposals are chosen for

implementation .
 IV. Implementation

• The objective of project planning & analysis is to have a project that

can be implemented and provide benefit for a society.

 Thus implementation is the most important part of the project cycle.

• In this stage ,funds are actually distributed to get project started &
keep running.

• A major priority during this stage is to ensure that the project is

carried out in the way and within period that was planned.

• Problems occurs when the economic & financial environments at

implementation differs from the situation expected during appraisal.

• Many of the real problems of projects are firstly identified during

 Thus to allow the management to become aware of the problems that
might arise: recording ,monitoring &progress reporting are important
activities during the implementation stage.

 Some aspects of implementation that are relevant to project planning

& analysis are:
1) The better & more realistic the project plan is the more likely
carried out and the expected benefits are realized.
2) 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;
environment may change.
V. Evaluation Phase

 The final phase of the project is the evaluation phase.

 Once a project has been carried out, it is often useful :

 To looking back over what took place,

 to compare actual progress with the plans,

 to judge whether the decisions and actions taken were reasonable,

 to see whether the results obtained are optimal with the resources
being utilized and

 whether the project’s goals and objectives are effectively achieved.

 Evaluation is not limited only to completed projects.

 Ongoing projects could also be evaluated to rectify problems

when the project is in trouble.

• Evaluation may undertaken by:

 Project managemener

 The sponsoring agency, or any other bodies.

 2. The UNIDO Project Cycle

• The UNIDO has established a project cycle consist of the

following three distinct phases:

I. The pre-investment phase

II. The investment phase, and

III. The operating phase.

 Each of these three phases is divided into several stages, some
of which constitute important consultancy, engineering and
industrial activities as shown below:
-
 1. The pre-investment phase
A) Identification/ Opportunity Studies:

 Natural resources

 Future demand for consumer goods

 Imports substitution and export possibilities

 Environmental impacts

 Expansions of existing capacity

 Diversification
B) Pre-Feasibility Studies
 A pre-feasibility study 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.
C) Support/Functional/Studies: support (or functional) studies

covers aspects of an investment project, and are required as

prerequisites for, or in support of, pre-feasibility & feasibility

studies, particularly for large-scale investment proposals.

 This may include :
 Market studies of product to be manufactured
 Raw materials and factory supply studies
 Laboratory and pilot plant tests
 Location studies
 Environmental impact assessment.
 D) Feasibility Studies
• Provide all data necessary for investment decision.
 It is detailed study.

• The commercial, technical, financial& economic issues critically

examined.
• The financial part of the study covers:
 the scope of the investment, including the net working capital,
the production & marketing costs, sales revenue & the return on
capital invested.
 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 & evaluation of
expected risks, costs, and gains.
• It is independent
• By financing institutions and other concerned.
 2. The Investment/implementation Phase
• Establishing the legal, financial, and organizational framework
• Technology acquisition and transfer
• Detailed engineering design & contract, including tendering,
evaluation of bids and negotiations
• Acquisition of land, construction work and installation
• Pre-production marketing,
• Recruitment and training of personnel
• Plant commissioning and start-up
 3. The Operating Phase

• Problem of the operating phase needs to be considered from

both a short and a long-term view point.

• The short-term view: applications of production techniques,

operation of equipment, or inadequate labor productivity
owing to lack of qualified staff and labor.

• The long-term view: chosen strategies and the associated

production and marketing costs as well as sales revenues.
 In project cycle
• The results &/or outputs of a given stage serve as the input or
part of the input of the next stage, if it is decided to proceed to
the next stage;

• The output or part of the output of one stage may be used as

new input (feedback) to reconsider or revise, where necessary,
the result of proceeding stages; and

• Most importantly, the results of the implementation, operation,

and ex-post evaluation stages of a project constitute valuable
experienced for the preparation of subsequent projects provided
these inputs are systematically documented and analyzed.
 3.3: Logical Framework Approach (LFA)

 A logical framework is a tool for planning & managing development

projects.

 It provides a structure by specifying the components of an activities,

and the logical linkages b/n a set of means and a set of ends.

 Also it serves as a tool for defining inputs, time tables, assumptions

for success, outputs & measurable indicators for monitoring &
evaluating performance.

 The two Main phases of Logical Framework Approach:

1. Analysis and

2. Planning phases.
 1. The analytical phase

 Analysis enables us to collect & profile the data needed to plan the
intervention.

 A range of d/t groups are involved in development issues, such as:

the target groups, government, the sponsor, the experts carrying out
the surveys, the institution responsible for implementing the
intervention, and so on .

 Each of these parties has some special contribution to make & they
will all seek to put their point of view.

 The problems are written out on charts, which are then displayed.
 The charts (which include negative states or problems) are displayed

in such a way as to highlight the cause-&-effect linkages b/n the d/t

problems which described by “problem tree” as given below.

 By changing the negative states into positive states & arranging in groups
we will obtain objective tree as given below.
Figure 3.2: Developing the Objective Tree
 If the participants accept that the activities-ends linkages are correct &
complete, then they are going to carry out a “strategy analysis”.
 The analytical phase breaks down into three stages:

I. Problem analysis

II. Objectives analysis

III. Strategy analysis

I. Problem analysis (Developing a problem tree)
 This is a methodological step which enables us: to identify the problems ,put them
into order & to highlight the cause-and-effect r/ships in a diagram (problem tree).
 Description of important elements:
What is problem It is establishing cause & effect linkages b/n the negative
analysis? states of an existing situation.
 An entity is: whole group which determines boundaries
What is an entity? of analysis: an economic reality, a geographical region,
a social group etc.

 Problem analysis seeks to identify real, important and

How important is priority bottlenecks for the groups concerned.
problem analysis?  It is vital to the quality of planning since it maps out a
course for the future intervention.

Who takes part in

 The groups affected by the problems & their representatives.
the analysis?
  It looks like a tree.
What does the  The trunk is the core problem.
problem analysis  The branches are the effects and the roots are the
look like? causes of the situation which is perceived as a negative
state.

What is the purpose It aims to shed light on (make clear) the problems posed
of problem analysis? (set) by an entity & the way in which the relate to each other.

 The actual negative situations recorded by the experts

Which problems
and the groups affected.
are selected?
 Priority problems of the target group.

 All problems mentioned are clearly formulated and

What do we do with checked against the views and problems of the other
the problems thus groups involved.
identified?  We then try to find a single, which satisfies all the
groups concerned.
• The example given below show problems experienced with the transportation of
sugar from a production site to the processing site.
II. Objectives analysis: The objective tree
 This is a methodological step enables us :

 To describe the future situation which will be achieved when the

problems are solved;

 To identify the objectives & pinpoint their position in the hierarchy;

 To show the activity-ends linkages in a diagram (objectives tree).

  Description of important elements:
 What is objectives  Establishing resources-end linkages b/n positive
analysis? states achieved in a targeted future situation.
 It looks like a tree.
 What does an
objectives analysis  The trunk is the core objective.
look like?
 The branches are “ends” & roots are “resources”
 Why do we make an  In order to obtain a clear overall picture of a targeted
objectives tree? positive situation in the future.
• Example of an objectives tree (from the previous problem tree)
III. Strategy analysis
 This is a stage which enables us:
o to identify the d/t possible strategies to achieve the objectives &
o to select the strategy to be adopted by the intervention (project) we are planning.

 Description of important elements:

What is
 Pooling interlinked objectives to form an ensemble of
strategy
objectives.
analysis?

 Choices must be made since budget, time & other resources are
limited.
Why do we  Therefore groups of objectives must be clearly specified &
need strategy compared to select which will produce or achieve the
analysis? purposes of the future intervention.
 We refer to a group of interlinked objectives as the
“intervention strategy”.
 Steps for strategy analysis:

1. Choose the goal, i.e.. the objective to which several interventions will contribute.

2. Specify the activity-ends chains (intervention strategies) which will

contribute to achieving the goal.

3. Determine the most favorable and feasible chains, using, for example, the
following criteria:

 the availability of resources,

 the chances of success

 the time frame available

4. Choose an activity-ends chain which will become the strategy of the future
intervention, i.e.. the major focus of the planned project.
• Example of strategy analysis
 II.The Planning Stage: The Logframe Matrix

 The results of the logical framework analysis are presented & further
analysed in the Logframe matrix.

 A logframe matrix provides a summary of project down to the activity level.

 It consists a matrix with four columns & four (or more) rows, summarising
the key elements of a project:

 The planning phase involves the further development into a practical,

operational plan ready to be implemented of the outcome of the analysis phase .

 In this stage there are two steps:

1. Completing the log frame

2. Outlining an operational plan based on log frame (activity and resource

 II.The Planning Stage: The Logframe Matrix

 The results of the logical framework analysis are presented & further
analysed in the Logframe matrix.

 A logframe matrix provides a summary of project down to the activity level.

 It consists a matrix with four columns & four (or more) rows, summarising
the key elements of a project:

 The planning phase involves the further development into a practical,

operational plan ready to be implemented of the outcome of the analysis phase .

 In this stage there are two steps:

1. Completing the log frame

2. Outlining an operational plan based on log frame (activity and resource

 When to use LFA
 LFA is used during the define phase to analyze the existing situations and
investigating the relevance of the project and identifying potential strategies.

 The logical framework plays a role in each phase of the project cycle, from
planning to implementation to evaluation.

 It is master tool for creating other tools, such as the project monitoring plan,
the breakdown of responsibilities, the implementation time table, and the
detailed budget.

 It can became an instrument for managing each stage of the project and as
such, it should be updated regularly.
 Limitation of the Logical Framework Analysis

a. It isn't a substitute for other technical, economic, social & environmental analyses.

 It cannot replace the use of professionally qualified and experienced staff.

b. Rigidity in project management may arise when objectives and external

factors specified during design are over emphasized.

c. It requires a team process with good leadership and facilitation skills to be

most effective.

d. The whole culture of the Logical Framework can be alien (jargon).

06/05/2024