Introduction

Project Monitoring and Evaluation (M&E) is intended to measure the progress and success of a
project according to agreed indicators. They may be quantitative or qualitative values which
describe reality and indicate degree of change. Ideally, these indicators will be measured at the
beginning of the project, during the project, at the end of the project, and perhaps several years later.
Documenting conditions at the beginning of the project is important because it provides a picture
of the status quo or a baseline from which to measure progress. While the need for M&E is general
to all projects, the specific tools - indicators, data collection procedures, analytical methods, etc. -
applied must be adapted to the specific local conditions and to the needs of stakeholders.
Although the term “monitoring and evaluation” tends to get run together as if it is only one thing,
monitoring and evaluation are, in fact, two distinct sets of organisational activities, related but not
identical.
The main differences between monitoring and evaluation are the timing and frequency of
observations and the types of questions asked. However, when monitoring and evaluation are
integrated as a project management tool, the line between the two becomes rather blurred.
Purpose of Monitoring and Evaluation
• To assess project results: To find out if and how objectives are being met and are resulting
in desired changes.
• To improve project management and process planning: To better adapt to contextual and
risk factors such as social and power dynamics that affect the research process.
• To promote learning: to identify lessons of general applicability, To learn how different
approaches to participation affect outcomes, impact, and reach, to learn what works and
what does not, and to identify what contextual factors enable or constrain the participatory
research.
• To understand different stakeholders' perspectives: To allow, through direct participation
in the monitoring and evaluation process, the various people involved in a project to better
understand each other’s views and values and to design ways to resolve competing or
conflicting views and interests.
• To ensure accountability: To assess whether the project is effectively, appropriately, and
efficiently executed to be accountable to they key agencies supporting the work.
What to Monitor and Evaluate?
• Outputs describe the concrete and tangible products of the project as well as the occurrence
of the project activities themselves.
• Processes describe the methods and approaches used for the project.
• Outcomes describe the changes that occur within the community or with the project
managers that can be attributed, at least in part, to the project process and outputs.
 • Impact describes overall changes that occur in the community to which the project is one
of many contributing factors. One such impact often expected from project is positive
transformation of the community.
Reach describes who is influenced by the project and who acts because of this influence.
Efficiency, Effectiveness and Relevance
❖ Efficiency refers to the amount of time and resources put into the project relative to the
outputs and outcomes. A project evaluation may be designed to find out if there was a less
expensive, more appropriate, less time-consuming approach for reaching the same
objectives. (getting more output from minimum input – do less & accomplish more)
❖ Effectiveness describes whether or not the process was useful in reaching project goals and
objectives, or resulted in positive outcomes.
❖ Relevance or appropriateness describes the usefulness, ethics, and flexibility of a project
within the particular context
❖ Combined, these criteria enable judgment about whether the outputs and outcomes of the
project are worth the costs of the inputs. Effectiveness, efficiency and appropriateness can
be considered for the different methods, tools and approaches rather than questioning the
value of the research approach as a whole.
Steps in Monitoring:
• Identifying the different units involved in planning & implementation
• Identifying items on which feedback is required.
• Developing proforma for reporting.
• Determining the periodicity of reporting.
• Fixing the responsibility of reporting at different levels.
• Processing and analyzing the reports.
• Identifying the critical / unreliable areas in implementation.
• Providing feedback to corrective measures.
Monitoring tools and techniques
• First-hand information.
• Formal reports
• Project status report
• Project schedule chart
• Project financial status Report
• Informal Reports
• Graphic presentations
• Field visit
• Spot-check visit
• Observations
• Participants meetings
 • Stakeholder meetings
Project Evaluation
Evaluation is the comparison of actual project impacts against the agreed strategic plans. It looks at
what you set out to do, at what you have accomplished, and how you accomplished it. Evaluation
seeks to measure project effects, i.e., whether and to what extent the project’s inputs and services
are improving the quality of people’s lives. As with project monitoring, however, evaluations may
also reveal unexpected findings, both positive and negative, which can be used to alter and improve
project design and implementation.
Evaluation involves:
• Looking at what the project or organisation intended to achieve – what difference did it want
to make? What impact did it want to make?
• Assessing its progress towards what it wanted to achieve, its impact targets.
• Looking at the strategy of the project or organisation. Did it have a strategy? Was it effective
in following its strategy? Did the strategy work? If not, why not?
• Looking at how it worked. Was there an efficient use of resources? What were the
opportunity costs of the way it chose to work? How sustainable is the way in which the
project or organisation works? What are the implications for the various stakeholders in the
way the organisation works.
Purpose of Evaluation
From an accountability perspective:
 The purpose of evaluation is to make the best possible use of resources by the project
managers who are accountable for the worth of their projects.
 Measuring accomplishment in order to avoid weaknesses and future mistakes.
-Observing the efficiency of the techniques and skills employed
-Scope for modification and improvement.
-Verifying whether the benefits reached the people for whom the project was meant.
From a knowledge perspective:
• The purpose of evaluation is to establish new knowledge about social problems and the
effectiveness of policies and programs designed to alleviate them.
• Understanding people’s participation & reasons for the same.
• Evaluation helps to make plans for future
Types of Evaluation
Evaluation can be characterized as being either formative or summative. Broadly (and this is not a
rule), formative evaluation looks at what leads to the (the process), whereas summative evaluation
looks at the short-term to long-term outcomes of a project.
 Formative evaluation takes place in the lead up to the project, as well as during the project in order
to improve the project design as it is being implemented (continual improvement). Formative
evaluation often lends itself to qualitative methods of inquiry with the intention of improving the
strategy or way of functioning of the project.
Summative evaluation takes place during and following the project completion, and is associated
with more objective, quantitative methods. It draws learning from a completed project. Someone
once described this as the difference between a check-up and an autopsy!
It assesses whether the project has met its goals, whether there were any unintended consequences,
what were the learnings, and how to improve.

Approaches to Project Evaluation:

Approach Major purpose Typical focus question Likely methodology

Goal-based Assessing achievement of Were the goals achieved? Comparing baseline and
goals and objectives. Efficiently? Were they the progress data; finding ways to
right goals? measure indicators

Decision-making Providing information Is the project effective? Assessing range of options

Should it continue? related to the project context,
How might it be modified? inputs, process, and product.
Establishing some kind of
decision-making consensus.

Goal-free Assessing the full range of What are all the outcomes? Independent determination of
project effects, intended What value do they have? needs and standards to judge
and unintended. project worth.
Qualitative and quantitative
techniques to uncover any
possible results.
Expert judgement Use of expertise. How does an outside Critical review based on
professional rate this project? experience, informal
surveying, and subjective
insights.

Project Evaluation Techniques

Evaluation
Techniques

Non-
Discounting
discounting
Criteria
criteria
Net Present Benefit Cost Internal Rate Profitability Accounting
Payback Period
Value Ratio of Return Index Rate of Return

Discounted Cash Flow (DCF) Criteria or Techniques

1. Net Present Value (NPV):
The NPV method is the classic economic method of evaluating investment proposals. It is one of
the discounted cash flows (DCF) techniques explicitly recognizing the time value of money. It
correctly postulates that cash flows arising at different time period differ in value and are
comparable only when their equivalent present values are found out.
The following steps are involved in the calculation of NPV:
• Cash flows of the investment project should be forecasted based on realistic assumption.
• Appropriate discount rate should be identified to discount the forecasted each flow.
The appropriate discount rate is the firm’s opportunity cost of capital which is equal to the required
rate of returns expected by investors on investments of equivalent risk.
• Present value of cash flows should be calculated using opportunity cost of capital as the discount
rate.
• Net present value should be found out by subtracting present value of cash outflows from present
value of cash inflows. The project should be accepted if NPV is positive (i.e. NPV> 0)
NPV = X1 + X2 + X3 + X4 + X5 -C
(1+ r)1 (1+r)2 (1+ r)3 (1+ r)4 (1+ r)5

NPV = ∑ Xi
(1+r)n
Xi …. Xn = represents cash flows
r = represents the firm’s cost of capital or interest rate
c = represents cost of investment proposal
n = represents expected life of the project or investment
Example 21.1: assume that project X cost ₦2,500 now and is expected to generate year-end cash
inflow of ₦900, ₦800, ₦600, ₦500, in year 1 through 5. The opportunity cost may be assumed to
be 10%
The net present value for project X can be calculated by referring to the value

NPV = ₦900 + ₦800 + ₦700 + ₦600 + ₦500 - ₦2,500

(1+0.10)1 (1+0.10)2 (1+0.10)3 (1+0.10)4 (1+0.10)5

NPV = (900(NPF1.10)-1+ (800(NPF1.10)-2+(700(NPF1.10)-3+(600(NPF1.10)-4 + (500(NPF1.10)-

5
- ₦2,500

NPV = ₦2,725 – 2,500 = ₦225

Project X’s present value of cash inflows (₦2,725) is greater than that of cash outflow (₦2,500).
Thus, it generates a positive net present value (NPV = ₦225). Projects X adds to the wealth of
owners; therefore, it should be accepted.
Example 21.2: Calculate the NPV for project X which initially cost ₦5000 and generates years
and cash inflows of ₦1,800, ₦1,600, ₦1,400, ₦1,200 and ₦1,000 for a period of five years. The
required rate of return is assumed to be 10%.
Solution
Table 21.1
 Year CF(N) DCF@10% Present value
(1 – r)-n (PV) (₦)
0 (5,000) 1.000 (5,000)
1 1,800 0.9091 1638
2 1600 0.8264 1322
3 1400 0.7570 1052
4 1200 0.6830 820
5 1000 0.6309 643

The NPV of ₦453 can be interpreted to mean the amount the firm can rate at the required of interest
(10%), to distribute immediately to its shareholders and by the end of the projects life to have paid
off all the capital raised plus interest on it (Bierman, 1980).
A positive NPV represents the amount by which the shareholders’ wealth shall be increased if the
project is undertaken. The NPV represents an unutilized capital gain that becomes realized when
project is undertaken. Unlike other techniques, the NPV considers various factors such as risk,
inflation, etc., when computing it.
Acceptance/Decision rule NPV
It should be clear that the acceptance rule using the NPV method is to accept the investment or
project if its net present value is positive (NPV > 0) and to reject it, if the net present value is
negative (NPV<0). The positive net present value will result only if the project generates cash
inflows at a rate higher than the opportunity cost of capital. A project may be accepted if NPV =
0. A zero NPV implies that investment or project generate cash flow at a rate just equal to the
opportunity cost of capital. Thus, the NPV acceptance rules are:
i. Accept if NPV > 0
ii. Reject if NPV< 0
iii. May accept if NPV = 0.
Merit of NPV method
i. It recognizes the time value of money
ii. It considers all the cash flows over the entire life of the investment to arrive at NPV.
iii. It is consistent with the objectives of maximizing the wealth of the shareholder or owners.
iv. It is claimed for the investment that the ranking of investment is independent of the discount
rate chosen for the analysis.
Limitation of the NPV method
i. It is difficult to use and there may be a need to use costly and sophisticated computers for
appraisal of complex investment using NPV method.
ii. The calculation of NPV assumes that the discount rate is known. But the discount rate, i.e. cost
of capital is quite a difficult concept to understand and measure in practice.
iii. It may not give an optimal result when the investment being compared involved different
amount of investment.
iv. It may mislead when dealing with alternative investments or limited funds under the condition
of equal lives
2. Profitability Index (PI):
This is another time adjusted method of evaluating the investment proposal is the benefit cost
(B/C) ratio or profitability Index (PI). It is the ratio of the present value of cash flows, at the
required rate of return, to the initial cash outflow of the investment. It may be gross or net; net
being simply gross minus one. The formula to calculate benefit-cost ratio or profitability index is
as follows:

PI = PV of cash inflows = PV(Ct)

n Initial cash outlay Co
PI = ∑ Ct
i=1 (1+r)n : C0

Example 21.3: The initial cash outlay of investment is ₦100,000 and it can generate cash inflow
of ₦40,000, ₦30,000, ₦50,000and ₦20,000 in year 1 through 4. Assume a 10% rate of discount.
The PV of cash inflows at 10 percent discount rate is:
Solution
PV=40,000(PVF1.10)-1+30.000(PVF1.10)-2+50,000(PVF1.10)-3+ 20,000(PVF1.10)-4
PV = (40,000x0.909) + (30,000 x 0.86) + (50,000 x 0.75) + (20,000 x 0.68)
PV = ₦112,350 – 100,000 = ₦12,350
PI = ₦112,350 = 1.1235
N100,B000
Using table method
Table 21.2
Year Cash inflows (₦) DCF @ 10% PV (₦)
(1–r)-n
1 40,000 0.9091 36.360
2 30,000 0.8260 24780
3 50,000 .07513 37,550
4 20,000 0.6830 13,660
Total 112,350

PI = NPV
outlay

PI = ₦112,350 = 1.1235
₦100,000

Gross = ₦ 1, 1235
PI (Net) = 1.1235 – 1.0 = 0.1235
DECISION
Accept PI > 1
Reject PI < 1
May accept PI = 1
When the PI > 1, then the investment will have positive NPV.
Evaluation of Profitability Index
i. PI is a conceptually sound method of project/investment appraisal.
ii. PI gives due consideration to time value of money.
iii. It can be used to choose between mutually exclusives projects by calculating the increments
B/C ratio.
3. Internal Rate of Return (IRR):
This is also known as the Hurdle Rate/Cut-off rate/Target rate/DCF yield/Break Even Rate/Cost
of capital and the Marginal Efficiency of capital.
IRR method is another discounted cash flow technique which takes account of the magnitude and
timing of cash flows.
This is the rate that equates the NPV of inflows to zero. The concept of internal rate of return is
quite simple to understand in the case of a one-period project.
It can be calculated using a two-step approach;
1. Trial and error
2. Interpolation using the formula

IRR = LR + NPV(LR) (HR – LR)

NPVLR + NPVHR

Where,
LR = Lower Rate
HR = Higher Rate
NPVLR = NPV of lower rate
NPVHR = NPV of high rate
Example 21.4: Gate of knowledge consult is considering whether to undertake a project whose
initial outlay is ₦20,000, and is expected to generate cash inflows of ₦10,000, ₦4,000 and
₦16,000 for three consecutive years. If the hurdle rate is 10%. Find the IRR of the project.
Solution
Table 21.3
Year CF DCF@ 10% PV DCF@ 25% PV
(1+r)-n (1+r)-n
0 (20,000) 1.000 (20,000) 1.000 (20,000)
1 10,000 0.9091 9,092 0.8000 8,000
2 4,000 0.8264 3,306 0.64 2,560
3 16,000 0.7513 12,020 0.512 8,192
NPV 4,418 (1,248)

Interpolation:
IRR = LR + NPV(LR) (HR – LR)
NPVLR + NPVHR
IRR = 10% + 4,418 (25 - 10) %
1,248 + 4,418

IRR = 10% + 4,418 x 15%

5,666
IRR = 10% + (0.75) (15%)
IRR = 10% + 11.7% = 21.9%
Decision/Acceptance Rule of IRR
The accept or reject rule, using the IRR method, is to accept the project if its internal rate of return
is higher than the opportunity cost of capital (IRR≥ k).
Note that K is also known as the required rate of return or hurdle rate. The project shall be rejected
if its internal rate of return is lower than the opportunity cost of the capital (r < K). The decision
maker may remain indifference if the internal rate of return is equal to the opportunity cost of
capital.
Thus, the IRR acceptance rules are:
i. Accept IRR ≥ rate of return i.e. discount rate.
ii. Reject IRR ≤ rate of return

Interpretation of IRR
The interpretation of IRR may be interpreted as the highest rate of interest a firm would be ready
to pay on the funds borrowed to finance the project, without being financially worse off, by
repaying the loan, i.e., principal + interest, out of each inflows generated by the project, thus, in
the above example, if the firm is able to borrow from a bank at 15% rate of interest to finance the
project, it would be able to pay off the principal and interest on the above loan using the cash flows
generated by the project and break-even on the transaction. This is substantiated by the following
computation.
Merits of IRR
i. It considers time value of money
ii. It considers cash flows over the entire life of the project
iii. The IRR suggests the maximum rate of return and gives a fairly good idea regarding the
profitability of the project, even in the absence of the firm’s cost of capita
iv. It satisfies the users in terms of the rate of return on capital
v. It is compatible with the firm’s owners’ welfare.
Demerits of IRR
i. It is difficult to understand because of its complexity
ii. It implies that the intermediate cash flows generated by the project are reinvested at the IRR of
the project
iii. It may not give unique answer in all situations. It may yield negative or multiple rates under
certain circumstances.
iv. Its results differ in the expected duration or magnitude of cash outlays or timings of cash flows.

21.2.2 Non-Discounting or Traditional Criteria/Techniques

1. Ranking by Inspection
This is a rule of thumb method and is applicable in a few limited cases. This is where product to
be selected is determined by mere cursory inspection of their cash flow pattern. There are two
basic situations where this can occur.
Example 21.5: Assume A and B have the following cash flows:
Table21.4: cash flow in Naira from period of 0 to 5
Project 0 1 2 3 4 5
A -1100 650 450 320 - -
B -1100 650 450 320 200 100

Solution
Simple inspection shows that both projects have identical cash flow pattern up to year 3 of the
project. But project B still has cash inflows in year 4 and 5, which project A lacks, have terminated
in year 3. So, project B is superior to project A using the ranking by inspection criterion.
Merit of Ranking by Inspection
i. It is easy to use ranking the order of preferences of two/more projects
ii. It is simple to use and understand.
Demerit of Ranking by Inspection
i. Choosing a project by cursory inspection of flows could be to execution of unviable projects
since time value of money is not taken into consideration.
ii. It can only be used in situations where cursory inspection would reveal differences in cash flow
patterns.
2. Payback Period (PBP)
The payback period is defined as the number of years required to recover the original cash outlays
invested in a project or investment. It can also be defined as the length of time required for the
stream of cash flow generated by an investment to equal original cash outlay required by the
investment. If project generates constant annual cash flows, the payback period can be computed
by dividing the cash outlay by the annual cash flows.
This is calculated using the formula:
Payback period = cash outlay (investment) = Co
Annual cash flow Cf

Example 21.6: Assume that a project required an outlay of ₦50,000 and yields an annual cash of
₦12,500 for 7 years. The payback period for the project is
Solution
PB = ₦50,000 = 4 years
₦12,500
The project will take 4 years to recover the original cash outlay invested in it. There are cases
where the cash flows are unequal/irregular. This is solved by adding up cash inflows until is equal
to the initial outlay.
Example 21.7: Calculate the payback period for a project which requires a cash outlay of ₦20,000
and cash inflows of ₦8,000, ₦4,000, ₦3,000, ₦2,500, ₦2,000 and ₦3,000
Solution
Table 21.5
Year Cash flow (₦) Balance (₦)
0 (20,000) (20,000)
1 8,000 (12,000)
2 4,000 (8,000)
3 3,000 (5,000)
4 2,500 (2,5000)
5 2000 (500)
6 3,000

Time required to recover ₦500 = 500

3,000 x 12months
 = 2months
Therefore, the total payback period is 5years and 2 months
Acceptance Rule of PBP
The payback period can be as an accepted or rejected criterion, as well as a method of ranking
projects. If the payback period calculated for a project is less than the maximum payback period
setup by the management, it would be accepted; if both. It will be rejected. As a ranking method,
it gives highest ranking to the project, which has the shortest payback period. Thus, if the firm has
to choose among two mutually exclusive projects, the project with shorter payback period will be
selected.
Merit of PBP
i. It is simple to use and understand
ii. It is based on cash flows, not subjective accounting profit
iii. It provides a clear indication of the time required to convert a risky investment into a safe one.
iv. It reduces loss through obsolescence because of the short-term approach.
v. If a business has liquidity problem, it is essential that capital invested should be recovered as
early as possible.
vi. This approach can be an overriding consideration when there are large differences between the
various options.
vii. A company can have more favourable short –run effects on earnings per share by setting up
shorter payback periods.
Demerit of PBP
i. It ignores time value of money
ii. It does not consider the totals profits of the project.
iii. It does not consider the situation after the payback period
iv. It does not consider the return on capital invested
v. It does not consider the facts that totals profit from different projects may accrue at an uneven
rate, as it does not consider the entire cash inflows yielded by the period.
vi. It fails to consider the pattern of cash inflows
vii. Payback period is not consistent with the objectives of maximizing the market value of the
firm’s share.
3. Accounting Rate of Return (ARR)
The accounting rate of return (ARR) also known as the Return on investment (ROI), uses
accounting information, as revealed by financial statements, to measure the profitability of an
investment. The accounting rate of return is found out by dividing the average as – tax-profit by
the average investment. It can be found out by dividing the total of the investment’s book values
after depreciation by the life or the project. This method recognizes that profitability of a project
is as important factor in the investment decision and that this must be related to the amount of
capital investment (Brockington, 1993; Pandey, 2005).
ARR can be calculated in any of the following ways:
ARR = Average Income
Average Investment

ARR = Total profit

X 100
Initial Investment

ARR = Total Profit X 100

Average Investment

ARR = Average profit

Average InvestmentX 100

The best approach however, is:

ARR = Average profit
X 100
Average Investment

Example 21.8: A firm is to undertake a project having a 5 years life-span. The sum of ₦1million
is to the project and the estimated NPV after the project life is ₦200,000 profits before depreciation
over the 5 years life span are stated below:
Table 21.6
Year ₦
1 360,000
2 420,000
3 510,000
4 530,000
 5 600,000

Required: Calculate the Project ARR?

Solution
1. Profit from year 1 to 5
= ₦ (360,000 + 420,000 + 510,000 + 600,000) = ₦2,420,000
₦ ₦
Gross profit
2,420,000
Depreciation cost 1,000,000
Net Bank value (200,000) (800,000)
Profit after Depreciation 1,620,000
1,620,000
Average Profit 5 years = ₦324,000

2. Initial Investment 1,000,000

Add Net Book Value (NBV) 200,000
1,200,000
Therefore, Average Investment 1,200,000
2
= ₦600,000
3. Therefore, ARR = Average profit
Average Investment

= ₦324,000
₦600,000
= 54%
Example 21.9: Oladewah Nig Ltd, is considering between two projects A and B that have the
following information available.
Table 21.7
Project A Project B
Cost of project ₦200,000 ₦300,000
 Life of project 4 years 4 years
Residual value ₦10,000 ₦30,000
Estimated future profits before depreciation and tax
Table 21.8
Year 1 ₦70,000 ₦86,000
Year 2 ₦10,000 ₦104,000
Year 3 ₦120,000 ₦120,000
Year 4 ₦120,000 ₦160,000

Assuming a straight-line depreciation, a tax rate of 35% and company’s target rate of return of
20% which of the projects should be company select?

Solution
Table 21.9
Project A project B
1. Annual depreciation ₦200,000 - ₦10,000 ₦300.000 - ₦30,000
4 years = ₦190,000 = ₦270,000
= ₦190,000 ÷ 4 = ₦270,000 ÷ 4
= ₦47,500 = ₦67,500
Total profits before depreciation and tax.
Table 21.10
Total profit ₦410,000 ₦464,000
Depreciation (₦47,500) (₦67,500)
₦362,500 ₦396,500
Tax @ 35% ₦126,875 ₦138,775
Profits after depr. & ₦235,625 ₦257,725
tax/Ap
Average profit (÷4) 58,906.25 64,431.25
 Average investment (₦200 + ₦10) ÷2 (₦300 + ₦30) ÷ 2
(‘0000)
= ₦105,000 = ₦165,000

Therefore, ₦58,906.25 64,431.25

₦105,000 ₦165,000
= 56.1% = 39.05%
The company should accept Project A, because it has the higher ARR.
Decision Rule of ARR
As an accept or reject criterion, this method will accept all those projects whose ARR is higher
than the minimum rate established by management and rejects those projects which have ARR less
than the minimum rate. It can also be used to compare two or more projects, which are mutually
exclusive. The project with highest ARR would be selected provided this project has an ARR
higher than the company’s target.
Merit of ARR
i. It is very simple to understand and used.
ii. It was the entire streams of profits throughout its operating life.
Demerit of ARR
i. It uses accounting profit and not cash flows in appraising the projects.
ii. It ignores the time value of money; profits acquiring in different period are valued equally.
iii. It does not consider the length of project live.
iv. It does not allow for the fact that profits can be reinvested.
v. It is incompatible with the firm’s objective of maximizing the market value of shares. Share
value does not depend upon accounting.

Project finance

Project finance is an approach to funding major projects through a group of investment partners,
who are repaid based on the cash flow generated by the project. The investors in a project finance
arrangement are known as sponsors, and often include financial institutions with a high tolerance
for risk. Sponsors may also include organizations in the same industry, a contractor interested in
the project, and government or other public entities.
Project finance is most often used to fund large-scale industrial or infrastructure projects that
involve a construction phase, such as building a transportation system addition or a power
generation facility. Projects like these require significant upfront capital, and they do not generate
a return until the construction phase is complete. They are also relatively high risk, as unforeseen
problems during the construction phase can lead to project failure. Project finance is a good fit for
initiatives like these because it provides access to a significant amount of cash to cover initial
expenses.

Stages of Project Financing

Pre-Financing Stage:

▪ Identification of the Project Plan - This process includes identifying the strategic plan of
the project and analyzing whether its plausible or not. In order to ensure that the project
plan is in line with the goals of the financial services company, it is crucial for the lender
to perform this step.
▪ Recognizing and Minimizing the Risk - Risk management is one of the key steps that
should be focused on before the project financing venture begins. Before investing, the
lender has every right to check if the project has enough available resources to avoid any
future risks.
▪ Checking Project Feasibility - Before a lender decides to invest on a project, it is
important to check if the concerned project is financially and technically feasible by
analyzing all the associated factors.

Financing Stage

Being the most crucial part of Project Financing, this step is further sub-categorized into the
following:

▪ Arrangement of Finances - In order to take care of the finances related to the project, the
sponsor needs to acquire equity or loan from a financial services organisation whose goals
are aligned to that of the project
 ▪ Loan or Equity Negotiation - During this step, the borrower and lender negotiate the loan
amount and come to a unanimous decision regarding the same.
▪ Documentation and Verification - In this step, the terms of the loan are mutually decided
and documented keeping the policies of the project in mind.
▪ Payment - Once the loan documentation is done, the borrower receives the funds as agreed
previously to carry out the operations of the project.

Post-Financing Stage

▪ Timely Project Monitoring - As the project commences, it is the job of the project
manager to monitor the project at regular intervals.
▪ Project Closure - This step signifies the end of the project.
▪ Loan Repayment - After the project has ended, it is imperative to keep track of the cash
flow from its operations as these funds will be, then, utilized to repay the loan taken to
finance the project.

What is a Project Proposal?

• A project proposal is a project management document that’s used to define the objectives and
requirements of a project. It helps organizations and external project stakeholders agree on an
initial project planning framework.
• The main purpose of a project proposal is to get buy-in from decision-makers. That’s why a project
proposal outlines your project’s core value proposition. It sells value to both internal and external
project stakeholders. The intent of the proposal is to grab stakeholder and project sponsor attention.
Once you have people’s attention, the next step is getting them excited about the project summary.
Types of Project Proposals
• Solicited Project Proposal: A solicited project proposal is sent as a response to a request for
proposal (RFP). Here you’ll need to adhere to the RFP guidelines of the project owner.
• Unsolicited Project Proposal: You can send project proposals without having received a request
for proposal. This can happen in open bids for construction projects, where a project owner
receives unsolicited project proposals from many contractors.
• Informal Project Proposal: This type of project proposal is created when a client asks for an
informal proposal, without an RFP.
• Renewal Project Proposal: You can use a renewal project proposal when you are reaching out to
past customers. The advantage is that you can highlight past positive results and future benefits.
• Continuation Project Proposal: Sent to investors and stakeholders to communicate project
progress.
• Supplemental Project Proposal: This proposal is sent to investors to ask for additional resources
during the project execution phase.
How to Write a Project Proposal
Triple Constraint: How can we address the triple constraint of project scope, schedule and cost?
Core Problem: What is the core problem we’re trying to solve?
Resources: What resources will be available?
Timeline: What project timeline are we working within?
Budget: What project budget do we have to work with? How does this affect our goal setting?
Strategic Goals: What are the strategic goals of our client, and how does our proposal align with
those goals?
Responsible Parties: Who are the people responsible for the project? What are their goals and
motivations?
Client Benefit: How will the client benefit from the completion of our project? What is their
primary goal?
Project Deliverables & Success: How will success of the project be measured? What deliverables
do our stakeholders expect to see at closure?
Sample Project Proposal Outline
Executive Summary
• The executive summary provides a quick overview of the main elements of your project proposal,
such as your project background, project objectives, project deliverables, among other things. The
goal is to capture the attention of your audience and get them excited about the project you’re
proposing. It’s essentially the “elevator pitch” for the project life cycle. It should be short and to
the point.
• The executive summary should be descriptive, and paint a picture of what project success looks
like for the client. Most importantly, it should motivate the project client; after all, the goal is
getting them to sign on the dotted line to get the project moving!
Project Background
• History: The history section outlines previously successful projects. It also outlines those that
could have run more smoothly. By doing so, this section establishes precedents. Namely, how the
next project can be more effective using information from previous projects.
• Solution: The solution section addresses how your project will solve the client’s problem.
Accordingly, this section includes any project management techniques, skills and procedures your
team will use to work efficiently.
Project Approach
• Your project approach defines the project management methodology, tools and governance for
your project. In simple terms, it allows project managers to explain to stakeholders how the project
will be planned, executed and controlled successfully.
• Requirements: Requirements are the items, materials and resources needed for the project. This
section should cover both internal and external needs.
• Authorization: This section covers who the decision-makers are on the project team. It also covers
which stakeholders have sign-off authority on the client’s side.
• Project Scope: The project scope refers to all the work that will be executed. It defines the work
items, work packages and deliverables that will be delivered during the execution phase of your
project life cycle. It’s important to use a work breakdown structure (WBS) to define your tasks,
subtasks and prioritize them.
• Project Resources: Resources are critical for the execution of your project. The project proposal
briefly describes what resources are needed and how they’ll be used. Later, during the planning
phase, you’ll need to create a resource management plan that will be an important element of your
project plan.
• Project Timeline: Once you’ve defined your project scope, you’ll need to estimate the duration
of each task to create a project timeline. Later during the project planning phase, you’ll need to
create a schedule baseline, which estimates the total length of your project. Once the project starts,
you’ll compare your actual project schedule to the schedule baseline to monitor progress.
• Project Budget: All the resources that you’ll need for your project will have a price tag. That’s
why you need to estimate those costs and create a project budget. The project budget will need to
cover all your project expenses, and as a project manager, you’ll need to make sure that you adhere
to it.
• Financial Statements: If you want to convince internal stakeholders and external investors, you’ll
need to show them what are the financial benefits that your project could bring to their
organization. You can use a cost benefit analysis and projected financial statements to demonstrate
why your project is profitable.
• Appendix: Information not included in the project proposal is part of the appendix. It’s where
many of the more interesting details of a project are located. Also, it’s where team members and
stakeholders can do a deep dive to learn more.