CHAPTER -2 PROJECT LIFE CYCLE

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 Definition of Project Cycle

The PLC refers to a series of activities which are necessary to fulfill

project goals or objectives. Projects vary in size and complexity, but, no
matter how large or small, all projects can be mapped to the following
life cycle structure:

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 Cont.
 The different phases of development in an investment proposal or project are called

project life cycle.

 A clear understanding of these phases permits entrepreneurs, development agent,

managers and executives to have better control over existing and potential resources in

the achievement of the desired goals.

 Project life cycle is complex process consisting of different steps arranged in a

sequential order.
 Different authors have described these steps in different sequential manner but the

concept of the cycle is almost similar in each case.

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 PROJECT LIFE CYCLE MODEL

1. BAUM’s Project Cycle (BAUM’s Model, 1978)

2. UNIDO’s Project Cycle (UNIDO Model)
3. Sadhan Choudhury’s Project Life Cycle (1988)---Reading
Assignment

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 2. UNIDO’s Project Cycle (UNIDO Model)

 According to United Nations Guidelines for Rural Centre Planning, there

are 7 steps in the project life cycle such as project identification and
appraisal, pre-feasibility study, feasibility study detailed design project
implementation, operation maintenance, monitoring and evaluation.
These steps can be reorganized into three phases
1. Pre-investment phase (consisting of identification, preparation and
appraisal)
2. Implementation phase and
3. Operational phase

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 I- Pre Investment Phase
 The pre investment phase consists of:-

Identification of investment opportunities (Opportunity

studies)
Analysis of project alternatives, preliminary selection and

project preparation(Pre-feasibity & Feasibility study)

Project Appraisal &Investment decision( Appraisal report)

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 Opportunity study
 The identification of investment opportunities is the starting point in

a series of investment that potential investors try to see the

opportunities of :
 Natural resource.

 The existing agriculture.

 Future demand for consumer goods.

 Import substitution and export possibilities.

 Environmental impact.

 Expansion of existing capacity. Etc.

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 Pre-feasibility studies
 Project idea must be elaborated in a more detailed study.

 It refers further assessment of the project idea.

 All possible project alternatives are examined.

 The project concept justify detailed study.

 Depth investigation.

Feasibility studies: Provide all necessary data for an investment

decision relates to Commercial, technical, financial and
economical
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 Appraisal report
 Large investment and development finance institution have

formalized project appraisal procedures and prepare

appraisal report.
 Project appraisal report carried by financial institution

concentrates on-
 The health of the company to be financed.

 The returns to be obtained by equity holders.

 The protection of its creditors.

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 II-Investment Phase
o Provides wide scope for consultancy and engineering work

o Divided into the following stages:

 Establishing the legal, financial & organizational basis for

implementation of projects
 Technology acquisition and transfer.

 Detailed engineering design & contracting.

 Acquisition of land, construction work and installation.

 Preproduction marketing, Recruitment & Training of personnel.

 Plant commissioning & Start Up

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 Cont.
o Any delay or gaps in planning of one of the above mentioned stages would

have a negative effect on the successful implementation of projects

 Hence, there is a need of careful scheduling using various methods such as CPM

& PERT

o Monitoring and Control would be required

 A continuous comparison of the forecast made in feasibility study with the actual

investment and production cost data occurred during investment phase would be
required.
 In order to track the resultant change in the overall profitability which may in

turn require adjustment in financing of projects.

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 III-Operation Phase
 This phase concludes the life of project cycle
 Involves day to day operation of the completed project, and
 is expected to yield results which meet the original objectives for
which the project had been conceived, formulated and implemented.
 Problems to be considered in operation phase:
 In the short term view:
 Relates to the initial period after the commencement of
production when a number of problems may arise concerning
such as:
 The application of production techniques, operation of
equipment or inadequate labor productivity owing to lack of
qualified staff & labor
 Most of these problems have their origin in the investment phase

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 Cont.
 In the long term view:

 Relates to the chosen strategies and the associated production

costs & marketing costs as well as sales revenue
 These problems have a direct relationship with the projection

made at pre investment phase.

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