Fundamentals of Project Management

By Warkaw Legesse (Ph.D)

Sheger College

September 2023

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Chapter 2: Aspects of project preparation and
analysis
• To design and analyze effective projects, those
responsible must consider many aspects that
together determine how remunerative a proposed
investment will be.
• All aspects are related. Each touches on the other,
and a judgment about one aspect affects judgments
about all the others.
• All must be considered and reconsidered at every
stage in the project planning and implementation
cycle.

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• A major responsibility of the project analyst is to keep
questioning all the technical specialists who are
contributing to the project plan to ensure that all
relevant aspects have been explicitly considered and
allowed for.
• Here we will divide project preparation and analysis
into six aspects:
 technical,
 institutional-organizational-managerial,
 social,
 commercial,
 financial and
 economic.
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1. Technical aspects
• The technical analysis concerns the project’s inputs
(supplies) and outputs (production) of real goods
and services.
• It is extremely important, and the project
framework must be defined clearly enough to permit
the technical analysis to be thorough and precise.
• The other aspects of project analysis can only
proceed in the light of the technical analysis,
although the technical assumptions of a project plan
will most likely need to be revised as the other
aspects are examined in detail.

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• Good technical staff is essential for this work; they
may be drawn from consulting firms or technical
assistance agencies abroad.
• They will be more effective if they have a good
understanding of the various aspects of project
analysis, but technical staff, no matter how
competent, cannot work effectively if they are not
given adequate time or if don’t have the
sympathetic cooperation and informed supervision
of planning officials.

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• The technical analysis will examine the possible
technical relationship in a proposed agricultural
project:
 the soil in the region of the project and their
potential for agricultural development;
 the availability of water, both natural ( rainfall and
its distribution) and supplied (the possibilities for
developing irrigation, with its associated drainage
works);
 the cropping varieties and livestock species suited
to the area;
 the production supplies and their availability;

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 the potential and desirability of mechanization; and
 pest endemic in the area and the kinds of control that
will be needed.
• On the bases of these and similar considerations, the
technical analysis will determine the potential yield in
the project area,
 the coefficient of production,
 potential cropping patterns, and
 the possibility for multiple cropping. The technical
analysis also determines the marketing and storage
facilities required for successful operation of the
project, and the processing systems that will be
needed.
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• The technical analysis may identify the gaps in
information that must be filled either before the
project planning or early stages of implementation
(if allowance is made for the project to be modified
as more information becomes available).
 There may need to be soil surveys, groundwater
surveys or collection of hydrological data.
 More may need to be known about the farmers in
the project, their current farming methods and their
social values to ensure realistic choices about
technology.
 Field trails may be needed to verify yields and other
information locally.
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• As technical analysis proceeds, the project analyst
must continue to make sure that the technical work
is thorough and appropriate, that the technical
estimates and projections relate to realistic
conditions, and the farmers using the proposed
technology on their own fields can realize the results
projected.

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  Soils
 Water availability
 Rainfall
 Irrigation and drainage
 Crops and varieties
 Livestock species
 Inputs
 Mechanization
 Pest control
 Yield and production
 Cropping patterns
 Marketing and storage facilities
 Processing systems

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2. Institutional-Organizational-Managerial Aspects
 Customs and Culture of farmers
 Extent of new cultivation practices and skills
 Communication system
 Rate of acceptance
 Land tenure and size of holding
 Use of local institutions
 Management ability of farmers
 Government policies

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• A whole range of issues in project preparation
revolves around the institutional, organizational,
and managerial aspects of projects which clearly
have an important effect on project implementation.

 Does the project design take into account the

customs and culture of the farmers who will
participate?
 If it does, what provisions are made to help them
shift to new patterns?
 What communication systems exist to bring farmers
new information and teach them new skills?
Changing customary procedures is usually slow.
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• Has enough time been allowed for farmers to accept
the new procedures, or is the project plan overly
optimistic about rate of acceptance?
• A project must relate properly to the institutional
structure of the country and region.
• What will be the arrangements for land tenure?
What size holding will be encouraged?
• Does the project incorporate local institutions and
use them to further the project?

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• Enough time must be allotted for the farmers to
gain their new skills; the project design cannot
assume that they will be able to make the shift
overnight.
 There must be extension agents who help farmers
learn the new skills, and provision must be made for
these agents in the organizational design and in the
administrative costs of the project.

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3. Social aspects
 Income distribution
 Job creation
 Regional development
 Social effects
 Role of women
 Improvement of rural living
 Environmental impact

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• Project analysts are also expected to examine
carefully the broader social implications of proposed
investments.
• Social considerations should also be carefully
considered to determine if a proposed project is as
responsive to national objectives as it can be.
• The project analyst will want to consider carefully the
adverse effects a project may have on particular
groups in particular regions.

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• Changes in technology or cropping patterns may
change the kind of work done by men and women.
• In some areas the introduction of mechanical
equipment or of cash crops has deprived women of
work they needed to support their children.
 Will a proposed project have such an adverse effect
on the income of working women and their families?

 There are also considerations concerning the quality

of life that should be a part of any project design.

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4. Commercial aspects
 Market and demand forecasts
 Marketing system
 Marketing – Input
 Marketing – Output
 Price policies

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• The commercial aspects of a project include the
arrangements for marketing the output produced
by the project and the arrangements for the supply
of inputs needed to build and operate the project.
• On the input side, careful analysis of the proposed
market for the project’s production is essential to
ensure that there will be an effective demand at a
remunerative price.

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 Where will the products be sold?
 Is the market large enough to absorb the new
production without affecting the price?
 Will the project still be financially viable at the new
price?
 Are there suitable facilities for handling the new
production?
 Does the proposed project produce the grade or
quality that the market demands?
 Since the product must be sold at market prices, a
judgment about future government price supports
or subsidies may be in order.

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• On the input side, appropriate arrangements must
be made for farmers to secure the supplies of
fertilizers, pesticides, and high yielding seeds they
need to adopt new technology or cropping patterns.
 What about financing for the suppliers of inputs and
credit for the farmers to purchase these supplies?
 Should new channels be established by the project or
should special arrangements be made to provide
marketing channels for new inputs?
 These aspects must be considered under the heading
of commercial aspects.

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Market and Demand Analysis
The key steps in market and demand are as follows:
1. Situational analysis and specification of objectives
2. Collection of secondary information
3. Conduct of market survey
4. Characterization of the market
5. Demand forecasting
6. Market planning

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Situation analysis and Specification of Objectives
• In order to get a "feel" for the relationship between
the product and its market, the project analyst may
informally talk to customers, competitors,
middlemen, and others in the industry.

Collection of Secondary Information

• Secondary is already available. It provides the base
and the starting point for market and demand
analysis.

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Conduct of Market Survey
The market survey may be a census survey or a sample
survey.
Steps in a Sample Survey
1. Define the Target Population
2. Select the Sampling Scheme and Sample Size
3. Develop the Questionnaire
4. Recruit and Train the Field Investigators
5. Obtain Information as per the Questionnaire from
the Sample of Respondents
6. Data cleaning
7. Analyze and Interpret the Information
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5. Financial aspects
 Market prices
 Incentive effects
 Financing policies of institutions
 Taxes
 Subsidies
• The financial aspects of project preparation and
analysis encompass the financial effects of a
proposed project on each of its various participants.
• Finance analysis must judge whether the family will
then have sufficient cash to repay the production
credit for fertilizer.
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• If they are not able to repay, the analyst may have
to make a policy judgment about how much to
subsidize families with very low incomes.
• Finally, the fiscal impact of some projects will need
to be considered.
 Will the increased output yield significant new tax
revenues, perhaps from an export tax?
 Will new subsidies be needed to encourage farmers
to participate, and how much will subsidies have to
grow as project implementation proceeds?
 If the administrative costs of the project are not to
be met from revenues, how will this affect the
national budget in the future?
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 If the project investment is to be financed by a
grant or by borrowing from abroad, while the
operation and maintenance cost is to be financed
from domestic resources, how will this affect the
treasury?
• These aspects are to be considered in the heading of
financial analysis.

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• To judge a project from the financial angle, we need
information about the following:
 Cost of project
 Means of financing
 Estimates of sales and production
 Cost of production
 Working capital requirement and its financing
 Estimates of working results
 Projected cash flow statements
 Projected balance sheets

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6. Economic aspects
 Economic benefits and costs
 Traded items
 Non-traded items
 Import and export
• The economic aspect of the project preparation and
analysis require a determination of the likelihood
that a proposed project will contribute significantly
to the development of the economy and its
contribution will be great enough to justify using
the scarce resources it will need. The point of view
taken in the economic analysis is that of the society
as a whole.
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• The financial and economic analyses are thus
complementary.
 the financial analysis takes the viewpoint of the
individual participants and the economic analysis
that of the society.
 However, because the same discounted cash flow
measures are applied in the financial analysis to
estimate returns to a project participant and in the
economic analysis to estimate returns to the
society, confusion between the two analysis easily
arises.
 There are three very important distinctions between
the two that must be kept in mind.
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• First, in economic analysis taxes and subsidies are
treated as transfer payments.
• Second, in financial analysis market prices are
normally used.
• Third, in economic analysis interest on capital is
never separated and deducted from the gross return
because it is part of the total return to the capital
available to the society as a whole and because it is
that total return, including interest, that economic
analysis is designed to estimate.

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Writing a Successful Project Proposal
• Here are some tips to help you prepare a better
proposal.
• Before we begin preparation of the proposal, we
must carefully read the “Request for Proposals” to
clearly understand the issues to be addressed and
the information we are required to submit.
• If funding agency uses an application form, be sure
to get a copy and follow the instructions.

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• Proposal writing is a skill which requires some
knowledge and practice.
• We must always remember that there will be many
other organizations and individuals competing for
the funds.
• So, we must use clear concise and simple language
which says exactly what is meant.
• We can use appendix to avoid crowding the body of
the proposal and flow of the narrative.

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Basic Information
• All proposals must include basic information. The
basics include:
 Why do we undertake this project?
 How and why are we doing this project?
 Who will be doing it?
 Where will it be done?
 How long will it take?
 How much will it cost?

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• The following generic proposal template is provided for
guidance only.
 Executive Summary
 Organization Information
 Problem/Need/Situation/Description
 Work plan/Specific activities
 Outcomes/Impact of activities
 Methods
 Evaluation
 Timetable
 Budget
 Income
 Supplementary materials
 Putting it all together
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