CHAPTER TWO

PROJECT
LIFE CYCLE
 Concept of Project Cycle
• A project life cycle is the step-by-step process by which a
project is identified, formulated, evaluated,
implemented and completed.
• The Project Life Cycle refers to a logical sequence of
phases to accomplish project goals or objectives.
• A Project life cycle is the series of phases that a
project passes through from its initiation (start) to
its closure.
• Project phases are a collection of logically related
project activities that culminates in the completion of
one or more deliverables.
 Cont….

• Regardless of scope or complexity, any project goes through

a series of stages during its life.
• A project may be divided into any number of phases.

• Different phases typically have a different duration or effort.

• Phases are generally time bounded, with a start and ending

or control point.

• Usually project phases are completed sequentially, but can

overlap.

• Dividing project life cycle into phases helps in better management

and control of a project.
Project cycle models

Like the definitions of a project, there are different

project life cycle models which differ in their
perspective, emphasis and level of detail. The
commonly known models are:
1. World Bank Project Life Cycle Model
2. UNIDO Project Life Cycle Model
1. World Bank Project Cycle Model

World Bank project life cycle also called Baum

Cycle.
The first basic model of a project cycle is that of
Baum (1982), which has been adopted by the World
Bank.
The World Bank lends money to low and middle-
income countries to support development and change.

Development projects are implemented by borrowing

countries following certain rules and procedures to
guarantee that the money reaches its intended target.
 Cont….
Throughout the project cycle the primary
preoccupation of the analyst is to consider
alternatives, evaluate them, and to make decisions as
to which of them should be advanced to the next stage.
Thus, each of Baum’s main stages are discussed
briefly below: (i.e. The World Bank suggested five
stages in the project activities.)
I. Project identification (Pre-feasibility studies)
II. Project preparation(Feasibility study)
III. Project appraisal
IV. Project implementation
V. Project evaluation
I. Project Identification

The search for promising project ideas is the

first step towards establishing a successful
project.
Identifying suitable project ideas is the most
important and crucial step in the whole
process of project preparation.

Identification of opportunities requires

imagination, sensitivity to environmental
changes, and realistic assessment of what the
firm can do.
 Cont….

Project identification is the idea stage and

requires systematically monitor the environment
and assess its competitive abilities.

It involves activities concerned with surveying,

reviewing and inventorizing existing data and
information. These include:

 Economic condition and infrastructure

(including Emergencies of new technologies and
Access to technical know-how )
 Cont….
 Government policy
 Industrial policy

 Financing norms

 Government programs

 Import and export policies

 Tax framework

 Resource availability
 Natural resource data

 Human resource data

 Socio-economic data
 Population trend

 Educational profile

 Income distribution

 Market and Need gap

 Cont….
A project idea may originate from multiple sources.
Many of the important projects in developing countries
emerge from:
 Political commitment of national leader,
 New experiments emerging from previous project
failures,
 Expansion and replication of successful projects tested
locally or proven feasible in other developing countries,
 From the discovery of critical economic and social
bottlenecks of shortages, excess or idle resources
 Forward & backward linkages with existing projects,
 The work of voluntary agencies, non-profit
organizations and foundations has been a catalyst for
new ideas.
10
 Cont….
With in the project identification after having a good idea
of project, it is also better to conduct preliminary
screening and pre-feasibility study
Preliminary Screening:
 At this stage the screening criteria are vague and rough,
becoming specific and refined as project planning advances.
Project screening is a process of elimination of inferior
alternatives.
Select one or more of them as potentially viable.
This calls from a quick preliminary screening by experienced
professionals who could also modify some of the proposal.
At this stage the analyst should eliminate proposals that are
technically unsound and risky.
The preliminary screening process may includes:
11
 Cont….
Compatibility with the promoter:-the idea must be
compatible with the interest, personality, and resources of
the entrepreneur.
Consistency with governmental priorities:- the project
idea must be feasible given the national goals and
governmental regulatory framework with respect to
consistency, environmental effects, foreign exchange
requirements and any other difficulty of a project.
Availability of inputs:-the resources and inputs required
for the project must be reasonably assured. To assess this,
questions of capital requirements, technical know-how,
raw materials required, and power supply for the project
need to be answered.
Adequacy of the market:- the size of the present market
must offer the prospect of adequate sales volume and
further, there should be a potential for growth.
Reasonableness of cost:-the cost structure of the proposed
project must enable it to realize an acceptable profit with a
price. The following should be examined in this regard;
 Cost of material inputs

 Labor costs

 Factory overheads

 General administration expenses

 Selling and distribution costs

 Service costs

 Economies of scale
 Pre-feasibility Study:
 Following the preliminary screening, promising
project options should be investigated in a
systematic manner to suggest which are to be
eliminated.
 At this stage, the preparation of brief reports are
required and the report should indicate which of
these aspects deserve particular attention during
the subsequent step. These reports are called pre-
feasibility studies.
 Sophisticated analysis of the technical, financial,
social and institutional aspect of the project is
postponed to a later stage. 14
 Cont….

A pre – feasibility study should be viewed as an

intermediate stage between a project opportunity study
and a detailed feasibility study, the difference is being in the
degree of detail of the information obtained and the
intensity with which project alternative are discussed.
Having achieved a good database, the process of
identification of gaps would have been laid. Thus, such
gaps, which lead to project ideas that could be generated as
a SMART project.
 Once a project is identified, the next step is to carry out a
project preparation of full document, which is also called
feasibility study.
 II. Project Preparation (Feasibility Study)

 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 necessitates a team work.

 The better a project is prepared, the easier and faster

its implementation and lowers the probability of cost
over runs.
16
III. Project 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.
 With the results of the feasibility study, the decision-
makers - not the analysts - make decisions based on
certain investment criteria that are important to them.
 Appraisal is the comprehensive and systematical
assessment of all aspect of the proposed project.
17
 Cont’d
The project is viewed from different perspectives; technical,
commercial, financial, economic, managerial and organizational.

 Technical –
here the appraisal concentrates in verifying whether what is
proposed will work in the way suggested or not.

 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 and
other necessary circumstances are properly identified and
calculated.
18
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.

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.
 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 bodies 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.
These issues are the subjects of specialized appraisal
report. And on the basis of this report, financial
decisions are made – whether to go ahead with the
project or not. In practice, there can be quite a
sequence of project selection decisions. Following
appraisal, some projects may be discarded.

If the project involves loan finance, the lender will

almost certainly wish to carry out his own appraisal
before completing negotiations with the borrower.
Comments made at the appraisal stage frequently give
rise to alterations in the project plan (project
proposal).
 IV. Project Implementation
 This stage is about making the project in reality.
 In this stage, funds are actually disbursed to get the
project started and keep running. i.e. the
mobilization of physical and financial resources
are needed.
 The recruitment and training of personnel for the
successful implementation and operation of the
projects also required.
 Monitoring and supervision to ensure the project’s
adherence to the plan are essential during this stage.
 The execution of the project should be supervised
closely and progress should be reported regularly.
22
It is during implementation that many of the real
problems of projects are first identified. Because of this,
the feedback effect on the discovery and design of new
projects and the deficiencies in the capabilities of the
project actor can be revealed.
Therefore, to allow the management to become aware of
the difficulties that might arise; recording, monitoring
and progress reporting are important activities during
the implementation stage.

Project implementation must be flexible. Circumstances

will change and project managers must be able to
respond intelligently to these changes.
 V. Project 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.
An important purpose of this stage is to ascertain the
reason for the project’s success or failure.
This is an audit process to assess the extent of
achievement or possible deviation from the objectives
for which the project is undertaken.
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The extent to which the objectives of a project are being
realized provides the primary criterion for an evaluation.
Evaluation is not limited only to the completed projects.

It is a most important managerial tool in ongoing projects

and formalized evaluation may take place at several
times in the life of a project.

Evaluation may be undertaken when the project is in

trouble, as the first step in a re-planning effort. Careful
evaluation should precede any effort to plan follow – up
projects.
 2. The UNIDO project life cycle model

United Nations Industrial Development Organization

project cycle have three distinct phases :
1. Pre-investment phase
I) Opportunity studies
II) Pre-selection
III) Preparation
Iv) Appraisal
2. Investment Phase (Implementation phase)
3. Operating phase
1. Pre-investment studies
I. Opportunity Studies/Project Identification:
Identification of investment opportunities is the starting
point for those who are interested in obtaining
information on newly identified viable investment
opportunities.
 An opportunity study should identify investment
opportunities or project ideas by analyzing the
following factors in detail:
 Availability of natural resources
 Future demand for goods, increasing population,
purchasing power
 Exports and import substitution
 Environmental impact assessment
27
 Cont’d

 Functioning similar project of other countries

 Possible linkages with other industries
 Extension by backward and forward linkage
 Industrial policies
 General input climate of economy
 Expansions to an existing project to have large scale of
economy
 Export potential
 Availability and cost of production factors

In summary, these opportunity studies can be categorized

as area studies, industry studies and resources based
studies.
28
 Cont’d
II. Pre-feasibility studies/pre-selection:
 To analyze that:
 All possible alternatives should be examined
 The project concept should be justified with detailed
analysis
 A critical area necessitates in-depth investigation is required
 Project idea is either attractive for investment or non-viable
 The environment situation at the site in line with national
standards
 Support functional studies to convert specific areas such as:
 marketing
 Raw material and factory supplies
 laboratory and Oliphant testing
 location
 Environmental impact assessment
 Economics of scale and
 Equipment selection

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III. 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 investigated

efforts rather than on guess.

A window dressing approach should be

avoided. 30
 Cont’d
IV. Appraisal :
 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.
 Large investment and development finance
institutions usually have formalized project
appraisal procedures and usually prepare an
appraisal report.
 This is the reason why project appraisal should be
considered an independent stage of the pre-
investment phase.
31
 2. Investment phase
 This stage is also known as “The Project in Motion”
 While in earlier stages of project planning there was
more thinking and less action, in this stage the
combination switches in favor of the latter: more
action and less thinking is needed.
 It is the time when the conclusions reached and the
decisions made are put into action.
 Detailed engineering design comprises preparatory
work for site preparation, the final selection of
construction planning and time – scheduling of
factory construction, as well as the preparation of
flow charts, scale drawing and a wide variety of
layouts. 32
The investment phase can be divided in to the following
stages.
 Establishing the legal, Financial and organization
basis
 Detailed engineering design and contracting , including
tendering, evaluation of bids and negotiations.
 Technology acquiring and transfer
 Acquisition of land for 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
3. Operating phase
 This is the production phase that commences
after commissioning and start-up.
 The problems of the operational phase need to be
considered from both a short and a long term view
point.
 The short term view relates to initial period after
commencement of production.
 Most of the 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 reviews.
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 Individual Assignment (10%)
List and discuss all the necessary steps of the
following project cycle models:
1. Integrated Project Planning and Management
Cycle (IPPMC)
2. Development Project Studies Authority
(DEPSA) Life cycle
Chapter End!