Chapter Two

Project Life Cycle

• Project life cycle – is the stages through which a
project passes from time of its inceptions up to its
implementation and realization of the objectives.
• Usually most projects commonly follow the following
phases:
●Conceptual- Creation and evaluation of an idea.
● Planning- of time, cost…
● Testing-
● Implementation
● Closure or completion
 Project Life Cycle Models

• There are various models developed by different

authors related to sponsor organizations.
• The models are
– Models used in the World Bank
– United Nations Industrial Development Organization
(UNIDO)
A. World Bank Project Life Cycle
• Baum (1978), an employee for the World
Bank, has developed the following five
project cycles.
– Identification
– Preparation (feasibility study)
– Appraisal
– Implementation
– Evaluation
• Baum initially developed the first four stages
in 1970. Later on(1978) he added the last
stage which is evaluation of the project
implementation
 1. Project Identification(pre feasibility study)

• it is the initial stage of a project.

• It involves identifying problems to be addressed
and identifying the needs of beneficiaries and
stakeholders
• A project idea may originate from multiple
sources.
• In general, project ideas can be generated from
micro level and macro level sources.
 For instance;
• Many of the most important projects in developing
countries emerge from
– political commitment of leaders in a response to crises
– emergencies and foreign government policies
– assistance agency priorities
– replication of projects proven feasible in other countries
– previous project failures, and so on.
 Project Identification under this includes:
i. Situational analysis
• A situation analysis should include analyses of
needs, interests, strengths and weaknesses of key
stakeholders and beneficiaries
• Situational analysis can be done based on
statistics prepared by Governments or
international organizations about relevant
environmental, social and economic issues,
including gender and poverty
ii. Preliminary screening
• Once some project ideas have been generated, the
next step is to select one or more of them as
potential viable which is called preliminary
screening
• preliminary screening involves either rejecting or
accepting a project to reduce projects to a
manageable number
• The following Projects Should be rejected.
– technically unsound and risky
– have no market for the output
– have inadequate supply of inputs
– assume over ambitious sales and profitability
iii. Pre-feasibility study
• should indicate which of project which has been
accepted deserve particular attention during the
subsequent step
• Generally, the identification stage would
include:
– Analyzing of existing situation
– Selection of project ideas
– Definition of the project ideas
– Prioritization of ideas
– Consultations with stakeholders
– Establishing of overall objectives
 2. Project Preparation (feasibility study)
• is a set of tangible proposals with an associated
set of costs and benefits.
• involves the detailed planning of the project with
respect to a supply of raw materials, finance,
choice of technology, economic, social and
institutional aspects of the project
• this stage is one that define who will do it, what
resources are available, and how it will be
divided in to different tasks.
 3. Project Appraisal
• appraisal is the comprehensive and systematic
assessment of all aspects of the proposed project
in order that a decision can be made as to
whether to proceed
• When appraisal is completed, an appraisal report
is prepared which contains the findings and final
recommendations.
• The recommendations may be to approve,
reformulate, postpone or abandon the project
under review.
• The following questions are often the subject of
an appraisal report:
– Technical: is the project design appropriate.
– Financial: Is the financing planning adequate?
– Economic: is the project advantageous from the
point view of the economy?
– Social: is the project both advantageous and
acceptable to the people affected by it?
– Institutional: are there suitable organizations in
place to implement the project?
– Environmental: have the environment impacts on
the project been properly considered?
– Sustainable: will the project be sustainable in the
long term both financially and institutionally?
 4. Project Implementation
• Project implementation is translating project plan
into actual investment and operation
• Project implementation involves performing the
project and ensuring the objectives are met and the
out puts made. This includes:
– Mobilization of resources for each task and objectives,
– Project marketing,
– Ongoing monitoring and reporting arrangement,
– Identifying problems,
– Addressing failures,
– Modification of the planned results and project
objectives as appropriate
 5. Project Evaluation
• Project evaluation is the process of reviewing
the completed project to see whether the
intended objectives are achieved.
• This includes:
– Assessing whether the contractor has truly completed
the task,
– Identifying best practice for further projects,
– Identifying what resources are required for future,
– Identifying the need for future projects.
• If a given project fails, it should be a natural part
of the process and not seen as a punishment for a
project.
 B. UNIDO’s Project Life Cycle
• UNIDO gives emphasis to industrial projects.
• It is more practical than conceptual.
• Beherens and Hawranck (1991) in collaboration
with UNIDO, identifies three phases:
– pre-investment
– investment and
– operational phases
• They are commonly known as UNIDO Project
Life Cycle
 1. Pre-investment Phase:
• The pre investment phase comprises several
stages:
– Identification of investment opportunities
normally called opportunity studies,
– Pre-feasibility study (preliminary project
selection and definition)
– Feasibility studies (project preparation )
– Project appraisal and investment decisions.
A. Project Identification(opportunity study)
• Project Identification- is finding projects which
could contribute towards some specified
development objectives.
• Where does Projects Originate?
• In general, there are two levels where project
ideas are born: the macro-level and the micro-
level.
At the macro-level, project ideas emerge
from(General)

– national, sectorial, or regional plans and strategies

– constraints in the development process due to
shortages of essential infrastructure facilities,
problems in the balance of payments, etc.;
– a government’s decision to correct regional
inequalities or to satisfy basic needs of the people
through development projects;
– a possible external threat that necessitates projects
aiming at achieving, for example, self-sufficiency in
basic materials, energy, transportation, etc.;
– unusual events such as droughts, floods, earth-
quakes, hostilities, etc.; and
• At the micro-level, Project ideas emanate
from(specific)

– the identification of unsatisfied demand or needs;

– the existence of unused natural or human resources
– the need to remove shortages in essential materials,
services or facilities
– the initiative of private or public enterprises in response
to incentives provided by the government;
– the necessity to expand investments previously
undertaken; and
– the desire of local groups or organizations to enhance
their economic independence and improve their welfare.
 B. Preliminary Screening
• Is the process of selecting one or more of the
projects as potentially viable
• During preliminary selection, the analyst
should eliminate project proposals that:
– Are technically unsound and risky;
– have no market for the output;
– have inadequate supply of inputs;
– are very costly in relation to benefits;
– assume overambitious sales and profitability; etc.
C. Pre-feasibility Studies- study of availability of
raw materials, technical, financial and
economic feasibility is conducted.
• Promising project options should be investigated
in a systematic manner
D. Project Preparation (Feasibility Studies): a
proposals with an associated set of costs and
benefits.
• Sophisticated analysis of the project’s marketing,
technical, financial, economic aspect.
The difference between a pre-feasibility
and a feasibility study?

• The answer is simple: they differ only with

respect to the amount of work needed to
decide if a project is viable.
• The table of contents is the same in both; it
is the details and the sophistication that vary.
• Sophisticated analysis of the project’s is done
in the case of feasibility study.
E. Appraisal and Investment Decision-
Appraisal is the comprehensive and
systematic assessment of all aspects of the
proposed project.
• After appraising the project, decision should
have to be made whether it will be
implemented or not.
• During appraisal, project should be viewed from
different perspectives.

– Technical: Ensuring whether alternatives selected

provides sound solutions to the problems
– Commercial: verifying whether the markets for the
output of the project have been investigated.
– Financial: ensuring whether the necessary funds for
implementation of the project are available timely.
– Economic: Verifying cost-benefit analysis of a given
project.
– Managerial: checking whether proposed top
management and key staff are adequate for the
implementation and smooth operation of the
project.
 2. The Investment Phase:
• This is the actual implementation of the project
• In the pre investments phase of project
planning, there was more thinking and less
action where as under investment phase, there
is more action and less thinking is needed
• documents have to be prepared, bids should be
invited, orders for inputs have to be placed,
contracts to be signed, workers should be hired
and materials have to be moved to the site etc
 3. The Operational Phase
• This is the production phase that commences
start-up
• challenges of operational phase:
• The short term view point relates to:
– Application of products
– Operation of equipment's
– Labor productivity and skill etc.
• The long-term view point relates to:
– Production cots,
– Income from sales.
– Chosen strategies
– production and marketing costs