CHAPTER TWO

THE PROJECT CYCLE

2.1. Introduction
Sometimes it may be difficult to think that a project cycle as a successive stage overtime,
since there is much feedback between each stage in project cycle and as some stages are
undertaken simultaneously. Mr. W.C.Baum has coined the term project cycle and develop
a model of project cycle which advances from infancy to maturity. The separate stages of
project planning are: Identification, preparation, appraisal, implementation and
evaluation.

Objectives
The main objectives of this unit are to:
 Identification
 Determine project Preparation
 Understand the project Appraisal
 Identify the Implementation and Evaluation
 Differentiate World Bank Project Cycle and UNIDO Project Cycle

2.2. Meaning and Definition of Project Cycle

Projects usually go through a series of identifiable stages. The various stages through which
project planning proceeds from inception to implementation are often called "the project
cycle." It is the project's life cycle through which the project advances from infancy to
maturity. There are a number of models of the project cycle. One of the most known
models of project is developed by Mr. W.C. Baum of the world Bank has coined the term
"project cycle", and his model of project cycle refer Baum's model of project cycle.

However, it is naïve to think that a project cycle as a successive stages overtime. There are
in fact, much feedback between the project cycle stages, and sometimes, some stages have
to be undertaken simultaneously. It is preferable, therefore, to think of the project cycle in
the form a computer program, which describes the process more accurately.

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 2.3. World Bank Project Cycle
The Baum Cycle (World Bank Procedures) model
Baum 1970 model is the first basic model of a project cycle which has been adopted by
the World Bank.

According to this model a project cycle consists of the following six stages

Identification, Preparation, Appraisal and Selection, Promotion, Negotiations, Board

presentations, Implementation and supervision and Evaluation.

The separate stage of project planning is: Identification, Preparation, Appraisal,

Implementation and Evaluation

2.3.1. Project Identification

Project identification amounts to finding projects, which could contribute toward
achieving, specified development objectives. Or the first stage in project cycle is to identify
an idea, which enables to launch a project. The question at this stage is where do project
ideas come from?

Sources of project ideas

We can distinguish two levels where projects ideas are born: the macro level and the micro
level.

 At the macro level project idea comes from:

• National, sectoral or regional plans and strategies supplemented by special studies often
called opportunity studies, conducted with the explicit aim of translating national and
sectoral programs into specific projects.

• Constraints in the development process due to shortage of essential infrastructure

facilities, problems in the balance of payments, etc.

• A government's decision to correct social and regional inequalities or to satisfy basic

needs of the people through development projects.

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• Unusual events such as drought, floods, earthquake, etc.

• A possible external threat that necessitates projects aiming at achieving, for example, self-
sufficiency in basic materials, energy, transportation etc.

• Multi or bilateral agreement

 At the micro level, project idea emanates from:

• The identification of unsatisfied demand or need

• The existence of unused or underutilized natural or human resources and the perception
of opportunities for their efficient use

• The initiative of private or public enterprise in response to incentives provided by the

government

• The necessity to complement or expand investment previously undertaken: and

• The desire of local groups or organization to enhance their economic independence and
improve their welfare.

Once to some project ideas have been put forward, the first step is to select one or more
of them as potentially viable. This calls for a quick preliminary screening by experienced
professional who could also modify some of the proposal. Following the preliminary
screening, promising project options should be investigated in a systematic manner. This
requires the preparation of brief reports that clearly indicates in sufficient and detail those
project versions that are promising and suggests those projects options that should be
eliminated.

Reports of this type are often called pre-feasibility or pre investment studies.

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Content of the pre-feasibility study

The pre-feasibility study should briefly discuss

 The objectives of the project

 The nature and size of the demands for the output or the needs that it would satisfy,
together with the foreseen beneficiary groups
 The availability of the most important materials and human inputs
 Basic alternative technologies available and their merits and weakness
 Approximate investments and operation costs as hell as expected revenue
 Rough estimate of financial and economic return
 Any major factors that is likely to have an important effect on the project

2.3.2. Project Preparation

A "project brief” is prepared for each project, describing its objectives, identifying principal
issues, and establishing the timetable for its further processing.

If the pre-feasibility study indicates that the projects is, prima facie, promising and further
work is justified, the project enter the stage of preparation.

The project is now being seriously considered as a definite investment action and detailed
planning of the idea can begin project preparation (sometimes called project formulation)
covers the establishment of technical, economic and financial feasibility. Decision has to be
made on the scope of the project, location, and site etc. Complete technical specifications
of distinct proposals accompanied by full details of financial and economic costs and
benefits are the outcomes of the project preparation stage. The project now exists as a set
tangible proposal.

Project preparation is probably the most important stage in project planning. Crucial
choices relating to the structure of the project are made at this stage and some of them are
virtually irreversible. Crucial choices at the stage of preparation should be made properly
by employing the right criteria.

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 2.3.3. Project Appraisal
Appraisal is solely the Bank's responsibility. It is conducted by Bank staff, sometimes
supplemented by individual, consultants, who usually spend three to four weeks in the
field.

Project appraisal can be defined as second look at a project report by a person or an

institution that is in no way involved in its preparation. It helps in taking an entirely
independent view of the project. Appraisal is the comprehensive and systematic assessment
of all aspects of the proposed projects.

Appraisal highlights wide area in the project with the ultimate objective of strengthening
them adequately so as to ensure final success of the project. The main objective of the
appraisal is to improve and renovate the project with the cooperation of the promoter
(financing agencies). It's in this stage that the bank will judge whether the project is
acceptable or unacceptable.

Appraisals should cover at least seven aspects of a project, each of which must have been
given special consideration during the project preparation phase:

1. Technical analysis: does the proposed project work in the way suggested?

The Bank has to ensure that projects are soundly designed, appropriately engineered, and
follow accepted agronomic, educational, or other standards. The appraisal mission looks
into technical alternatives considered, solutions proposed, and expected results.

2. Financial: have the financial requirement of the project been properly calculated, their
sources identified and reasonable plans made for their repayment? Where this is necessary?

Financial appraisal has several purposes One is to ensure that there are sufficient funds to
cover the costs of implementing the project The Bank does not normally lend for all project

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costs typically, it finances foreign exchange costs and expects the borrower or the
government to meet some or all of the local costs.

3. Commercial: how will the necessary inputs for the project be supplied and are the
arrangements for the disposal of the product satisfactory?

4. Incentives: does things go as they are planned?

5. Economic: does the proposed project consistent from the view point of national
development?

Through cost benefit analysis of alternative, project designs, the one that contributes most
to the development objectives of the country may be selected

This analysis is normally done in successive stages during project preparation, but appraisal
is the point at which the final review and assessment are made

6. Managerial: does them exist capable manager to run the planned project successfully
and are they given sufficient power and scope to do what is required?

7. Organizational: is the project organized internally and externally into units, etc so as to
allow the proposals to be carried out properly, and to allow for change as the project
develops?

It covers the borrowing entity itself, its organization, management, staffing, policies, and
procedures, and also the whole array of government policies that conditions the
environment in which the institution operates.

Frequently these questions are the subjects of a specialized appraised report. On the basis
of this report, final decisions are made about whether to go ahead with the project or not.
Following appraisal, some projects may be discarded.

2.3.4. Project Implementation

Implementation of course, is the responsibility of the borrower, with whatever assistance
has been agreed upon with the Bank in such forms as organizational studies, training of

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staff, expatriate managers, or consultants to help supervise construction and The Bank's
role is to supervise the project as it is implemented.

In this stage, funds are actually disbursed to get the project set up and running. Translating
project plan into actual investment and operation is one of the most critical and difficult
tasks. No matter how sophisticated or detail the project preparation work, it has no value
unless it is transformed into action or implemented.

Implementation can be defined as a project stage which covers the actual development or
construction of the project up to the point at which it becomes fully operational. It includes
monitoring of all aspects of the work or activity as it proceeds. It's where the earlier
preparations and designs, plans and analysis are tested in the highlight of reality. The
project's objectives are realized only when it is successfully implemented.

Implementation stages begins immediately after the final decision on the project and ends
when it starts rendering the benefit envisaged. While in earlier stages of project planning
there was more thinking and less action, in this stage more actions and less thinking is
needed.

Project implementation, even though it may involve complex decisions, is essentially a

logical and systematic approach. Now a days planning the implementation stage of a
project explicitly is one of the activities in project preparation. The better and more realistic
a project implementation plan is, the more likely it is that the plan can be carried out
effectively and the expected output or benefit realized.

Project analysts generally divide the implementation phase into three different time
periods. These are:

1. The investment period: when the major project investments are undertaken.

2. The development period: when the project's production builds up.

3. The life of a project: when full development is reached.

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 2.3.5. Project Evaluation
Once a project has been carried out, it is often useful (but 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 reasonable and useful. This we call evaluation.

Evaluation can be defined as a systematic and periodical gathering, analyzing and

interpreting of inputs, information to see the effects and impacts of a development
program/project in order it may be adjusted where necessary.

This kind of analysis can help not only in the management of the project after the initial
construction phase, but will also help in the planning of future project. Experience with
one project can give rise to new ideas for extension of the project. Generally, evaluation
of a project helps to determine whether the objectives sets were realistic, given the
capacities with which and the circumstances in which they had to be fulfilled, to assess the
impact of the project activities.

2.4. UNIDO Project Cycle

The UNIDO project lifecycle model
The United Nations Industrial Development organization (UNIDO) is the most devoted
institution towards the development and the standardization of the concept, context and
content (CCC) of industrial project management system. According to the UNIDO
approach documented in the UNIDO manual, the project development cycle comprises
three distinct phases, they are:

 Pre- investment phase

 Investment phase and Operational 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. Pre- investment phase

• Opportunity study (identification of project ideas): Sources of Project ideas, Screening

Projects and Project Selection

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• Pre-feasibility study (preliminary project formulation, selection of alternatives)

• Feasibility study (techno-economical project back ground, final project formulation

stage)
• Evaluation report (decision making about project availability)

2. Investment phase

• Project design stage

• Construction stage

• Pre-production marketing stage

• Training

• Start-up stage

3. Operational phase

• Replacement of equipment

• Development, invasion or liquidation

Before dealing with pre –investment phase, the various stages of the investment and
operational phases are considered since these impacts on the nature and scope of pre-
investment studies. The project investment or implementation phase for a large industrial
business project will be different as compared to that of a small non- industrial project.

Assuming that a projected industrial activity involves the construction of a factory and the
installation of machinery and equipment, the project investment phase could be divided
in to the following stages:

• Project engineering designs

• Negotiations and contracting
• Construction and training and
• Plant starts up

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An adequate importance should be given to the pre investment phase, because the success
or failure of an industrial project ultimately depends upon the marketing, technical,
financial and economic feasibility study findings and their interpretation. To reduce
wastage of scarce resources, a clear comprehension of the sequence of events is required
when developing an investment proposal from the conceptual stage by way of active
promotional efforts to the operational stage.

2.5. DPSA'S PROJECT CYCLE

According to the Guidelines to Project Planning in Ethiopia (1990) of Development Project
Studies Authority (DEPSA), a project cycle comprises three major phase.

 Pre-investment
 Investment and
 Operation

Each of these three phases may be divided into stages. The guideline has divided the cycle
into 6 stages.

Identification

Preparation pre-investment phase Pre investment phase

Appraisal/decision

Implementation investment phase investment phase

Operation Operation phase

Ex-post Evaluation operation phase

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