PROJECT CYCLE OVERVIEW

Md. Al-Amin Parvez

Hongliang Yang
PhD (Cantab)
 Contents
• What is a Project
• MDBs’ Project Cycle
• Six Major Stages
• Risk Assessment of An Infrastructure Project
• AIIB’s Project Cycle
• Conclusion

This PPT is not intended to cover all aspects of AIIB’s policies,

procedures, products, and financing modalities. Rather, it will
use a typical public-sector infrastructure project to illustrate
the general features of the project cycle at different stages.
 What is a project?
• Definition:
A temporary endeavor undertaken to create a
unique product, service or result
• Features:
 temporary in that it has a defined beginning and end in
time, and therefore defined scope and resources
 unique in that it is not a routine operation, but a specific
set of tasks designed to accomplish a singular goal
• Objectives: SMART criteria – specific, measurable,
achievable, realistic and time bounded
 Project Cycle
• Definition: the framework used to design, prepare,
implement and supervise projects

• Project Management: A process to plan, organize,

motivate and control resources to achieve specific
goals and meet specific success criteria

• Challenges:
 to achieve all of the project goals or objectives within the
preconceived constraints;
 to optimize the allocation of necessary inputs and
integrate them together
 IBRD Project Cycle

Source: www.worldbank.org
AfDB’s Project Cycle
 ADB’s Project Cycle

Source: www.adb.org
 IFC’s Project Cycle
Business Appraisal Investment
Early review
development (due diligence) review

Board Public
Commitment Negotiations
approval notification

Disbursement Project
Evaluation Closing
of funds supervision

Source: www.ifc.org
 Common Features of MDBs’ P-C (1)
• Regardless of the methodology or terminology used,
basic tasks are more or less the same;

• Highly structured process with defined activities;

• Actual stages typically follow common steps to

problem solving —"defining the problem, weighing
the options, choosing a path, implementing designed
activities and evaluating the results.”
 Common Features of MDBs’ P-C (2)
Strengths:
• Strong capacity to address investment and policy risks
• Emphasis on environmental and social sustainability
• Open and transparent public communication policy

Weaknesses:
• Insufficient attention to project identification
• Cumbersome and costly preparation and appraisal
requirements
• One-size-fits-all inflexible policies and procedures
 Six Major Stages

Evaluation Identification

Implementatio
Preparation
n

Negotiation
Appraisal
and approval
Six Major Stages: Identification

Identification
Identification:
stage where one
Evaluation
project proposal
out of several
Implementa
Preparation
tion alternatives is
Loan chosen and
negotiation
and
Appraisal
defined.
approval
Six Major Stages: Preparation

Preparation:
Identificatio
Evaluation
n the proposal
chosen is further
Implementa
Preparation
developed; initial
tion
due diligence is
Loan conducted.
negotiation
and Appraisal
approval
Six Major Stages: Appraisal

Appraisal:
every aspect of
Evaluation
Identificati
on
the project is
subjected
Implementa
tion
Preparation to systematic and
comprehensive
Loan
negotiation evaluation, and
and
approval a project report is
Appraisal
prepared.
Six Major Stages: Negotiation and approval

Negotiation and
Evaluation
Identificati
on
approval:
detailed design of
Implementa
tion
Preparation the loan is
negotiated and
Appraisal submitted for
Negotiation approval.
and approval
Six Major Stages: Implementation

Implementation:
Evaluation
Identificati
on
with necessary
approvals and
Implementation Preparation financing in place,
the project plan is
Loan
negotiation
Appraisal
implemented.
and
approval
Six Major Stages: Evaluation

Evaluation Evaluation:
Identificati
on
upon completion,
the project is
Implementa
Preparation
reassessed in
tion
terms of its
Loan
negotiation
Appraisal
efficiency and
and
approval performance.
Schematic Project Cycle of An Exemplified
Infrastructure Project by a MDB
 Risk and Financing Considerations of An
Illustrative Infrastructure Project
Main risks Preparation
•Macroeconomic & political risks
•Technical risks to project viability
•Environmental and planning risks
Construction Operation
•Macroeconomic & political risks •Macroeconomic & political risks
•Construction risks (e.g. overrun, •Operating risks
delay.) •Policy risks (e.g. tariff changes)

Cash flows

Financing Once project is ‘bankable’ Once construction is

moments the developer will seek complete and started to
equity investors and debt operate, project can be
providers to finance the refinanced to reflect the
project. changing risk profile.

Source: Bhattacharya, Romani and Stern (2012)

 Cost Curve During Project Cycle

Source: http://www.project-management-basics.com/images/risk/big/Project_Life_Cycle.png
 Risk Level and Cost of Change at
Different Stages (1)
Degree
Starting the Preparing & Construction Closing
project designing Cost of
Change

Risk and
uncertainty

Time
 Risk Level and Cost of Change at
Different Stages (2)
• Project risk and uncertainty are high at initial stage;
• Big changes in project design and implementation
are uneconomical after certain time point (e.g.,
after construction is started, or main equipment is
purchased);
• This implies the importance of project identification

• Spending more resources on project identification

will generate considerable benefits later on.
 Project Cycle (P-C)
Guiding Principles
• Being outcome-oriented (or output-oriented);
• Flexibility in project identification, preparation,
appraisal, and implementation;
• Delegation of authority to the lowest optimal level,
simplification of project documents;
• Efficiency and optimal use of resources while
maintaining high quality delivery; and integration of
IT in internal procedure.
 P-C: Identification (1)
• Clients are responsible for preparing project
proposals;
• Proposals submitted will be preliminarily assessed
by sector departments according to predefined
criteria;
• Only projects passing the preliminary assessment
will be investigated by a field visit; only projects
passing field investigation will be finally identified
for AIIB’s financing.

• Clients are encouraged to propose projects at

relatively mature stage for AIIB’s financing.
 P-C: Identification (2)
AIIB will provide project preparatory assistances
through its special operation facility in the following
occasions:

• Low-income countries lack of capacity to prepare

project

• Cross-border projects to promote regional

integration
 P-C: Preparation
• Initial due diligence on a project and its
components, financing plan, likely risks, etc.

• Project risk screening and initial safeguard

categorization

• Project concept paper is prepared and approved

by management at this stage
 P-C: Appraisal
• Fact-finding mission conducted;
• Comprehensive due diligence on the project, such as
technical, economic & financial, environmental and
social aspects;
• Confirmation of risk categorization;
• Lessons from previous projects or other MDBs are
summarized;
• Project administration manual is prepared and
agreed with clients;
• Project paper is prepared and approved at this
stage.
P-C: Negotiation and Approval (1)
• Actions after approval and before implementation
• Negotiation
– Documentation cleared at departmental review and
sent to clients prior to negotiations
– Documentation agreed at negotiations and discussion
recorded in minutes

• Approval
– Negotiated documents in final form
– Management consideration and approval
 With full discussion for larger and some
specifically-defined operations
 On a no-objection basis for other projects
 P-C: Negotiation and Approval (2)

• Loan signing – typically 3 months after approval, but

can be less

• Loan effectiveness – the event that permits loan funds

to be used for their intended purpose, dependent on:
– Standard legal condition – a legal opinion
– Project specific conditions, as agreed (examples)
 Sector-specific activities
 Safeguard related activities
 Counterpart funding availability
 Others as agreed during processing
 P-C: Implementation (1)
• Establish project office – if not done
• Select project consultants – 8 months
– Detailed technical design (?)
– Update resettlement plans if required
– Training, if part of project scope
• Procure civil works – 8-12 months
– Prequalification
– Bidding
– Evaluation and award
 P-C: Implementation (2)
• Construction – it depends, typically 36-60 months
– Progress reports
– Routine review missions
 Schedule – delays and recovery plans
 Disbursement
 Quality
 Safeguards monitoring
 Compliance with loan covenants
 Others
– Mid-term review
 Assess project design and implementation – change if required
– Project completion, final accounts, loan closure
– Benefit monitoring
 P-C: Evaluation (1)
• Self Evaluation
– Clients prepare their own Project Completion
Report (PCR)
– AIIB’s operation departments are responsible
for preparing the final PCR – typically 1-2 years
after project completion
– PCR summarizes and evaluates for the project:
 Preparation and implementation history
 Actual costs, relative to the costs estimated at appraisal
 Real benefits – EIRR & FIRR – relative to appraisal estimates
 Overall assessment, if it was successful in achieving the
outcome and outputs defined
 Lessons learned for future projects, for the country, and
for the sector.
 P-C: Evaluation (2)
• Post Evaluation
– Carried out by Independent Evaluation
Department (IED)
– IED reports directly to the Board
– IED evaluates selected projects, not all
– Evaluation is carried out 2-3 years after
project completion
– Draft reports are provided to Management for
comment, prior to submission to the Board (?)
P-C: Flow Chart (1)
 P-C: Flow Chart (2)
• The Bank has to find ways to cut down the high
transaction costs, reduce the long response time,
and enhance the quality of lending portfolios, in
order to perform better in the rapidly changing
development environment.

• During the P-C, withdrawal of financing support

should be allowed. A sound withdrawal mechanism
will ensure a high-quality portfolio for the Bank in
the long term.
 Conclusions
• The project cycle of an infrastructure project
can be quite long;
• Typically several projects in a country and
sector are being implemented in parallel;
• Project design and implementation have
to rely on good project management
systems;
• Lessons are learned throughout the
project cycle, and fed into new projects as
they are developed and implemented.