CHAPTER TWO

PROJECT LIFE CYCLE

Introduction
• Project passes through series of activities called stages.
• There are different approaches to describing the project cycle.
• The World Bank (WB) and
• United Nations Industrial Development organizations (UNIDO).
• Choudhury (1988) Project Life Cycle
Definition of Project Cycle
• Project cycle refers to the various stages through which project planning proceeds
from the inception to implementation.
• In other words, it is the life cycle through which a project advances from infancy to
maturity.
• The main features of project cycle are
• information gathering,
• analysis, and
• decision–making.
• Throughout the project cycle, the primary preoccupation of the analysis is to
• consider alternatives,
• evaluate them and
• to make decisions on which of them should be advanced to the next stage.
2.3. Project Life cycle – Baum (World
Bank) Approach – Five stages
• Project identification
• Project preparation
• Project appraisal
• Project implementation, and
• Project evaluation.
1. Project identification
• This stage is also called pre-feasibility studies.
• In this stage, projects that can contribute towards achieving the specified
objectives are identified (listed).
• Project ideas may come from:
• New experiments from previous project failures
• New experiments from expansion
• Replication of successful project tested elsewhere
• New experiments from shortages or excess of resources
• External threats
• Opportunities
• Internal strengths and/or weaknesses
• Project identification is also concerned with elimination of inferior
alternatives (projects) from the identified ones.

• The output of this stage is project that is prima-facie (at first sight or
based on first impression) promising and further work is justified.
2. Project preparation (aka feasibility
study)
• Project preparation is the most important stage in project planning.
• Project preparation stage, also called feasibility study, is concerned with the
detailed study of all aspects of the projects.

3. Project Appraisal
• Appraisal is the comprehensive and systematic assessment of all aspects of the
proposed project
• The project is reviewed (appraised) to confirm that it accords with the broad
objectives.
• It is to ensure that the project represents a high priority use of the firm’s resources.
• The project is appraised from different perspectives: technical, commercial (market),
financial, economic and ecological.

4. Project implementation
• It is the stage at which the conclusions are reached & decisions made are put into action
• Some of the major activities in during project implementation phase include:
• Detailed designs and specifications are drawn;
• Tender documents are prepared;
• Bids are invited and evaluated,
• Orders are placed;
• Contracts are signed; workers are hired, trained and put to work;
• Materials are moved to sites etc.
5. Project Evaluation
• Implementation phase is followed by supervision and follow up.
• The execution of the project should be supervised closely and
• Progress should be reported regularly to ensure that the
implementation is progressing without deviating from the envisaged
path and the objectives of the project have been reached
• Project evaluation is a monitoring (checking) activity in order to:
• Find out how things are going
• Encourage the project team
• Check that promised resources are in fact working on project tasks
• Rapidly learn about concerns and difficulties
• Show concern for the success of the project
• Take corrective action if things go wrong
2.4. Project Life cycle – UNIDO Approach
• According to UNIDO, project cycle involves three major phases. These
are:
• Pre-investment phase
• Investment phase (Implementation phase)
• Operation phase (operation and ex-post evaluation)
2.4.1 Pre-investment phase
• The pre-investment phase includes four major activities; namely,
1. project identification,
2. pre–selection,
3. project preparation, and
4. appraisal.
Project Identification / opportunity study/
• Opportunity study is the main instrument used to quantity the parameters, information and
data required to develop a project idea in to a proposal.
• In opportunity study, the firm is required to analyze the following:
• Availability of resources
• Future demand for goods, increasing population and increasing purchasing power.
• Import and export substitutions
• Environmental impact
• Success of similar projects elsewhere
• Possible inter-linkage with other industries
• Expansion through backward linkages (Backward integration) and forward linkages (Forward integration)
• Industrial policies of the government
• General investment climate of the country
• Export potentials
• Availability and cost of production
Pre-selection /pre-feasibility study/
• This phase involves the analysis of the following factors:
• Examination (investigation) of all possible project alternatives
• Ensure that the detailed analysis of the project is justified.
• In-depth investigation of critical areas of the project
• Examine the attractiveness (viability) of the project
• Investigate the stability of the environmental situation at the location site
Preparation (feasibility study)
• The projects justified by pre-feasibility study enter this phase for
detailed analysis based on investigated efforts than on guess-
estimated.

• This stage
• Provides all data,
• Define, and critically examine the commercial, technical, financial, economic,
and environmental aspects for each projects
The components of feasibility study are:
1. Project Background and history
• Name and address of the promoter
• Project Background
• Project objectives
• Outline of the proposed basic project strategies
• Project location
• Economic and industrial policies supporting the project
• 2. Summary of market analysis and marketing concepts
• 3. Raw materials and supplies
• 4. Location, site, and environment
• 5. Engineering and Technology
• 6. Organization and Management
• 7. Implementation planning & budgeting
• 8. Financial Analysis and investment appraisal
Project Appraisal
• After feasibility studies are completed, the projects should be
presented to the appraising parties.
• The appraisal of project is based on the objectives set earlier, the
expected risk, costs, and gains.
• The quality of feasibility studies makes easier the appraisal work.
• If the objective of the appraiser is Return on investment, the project is
appraised on this base.
 Decision Type of study Decision goal

Identification Opportunity Identify opportunity

studies Determine critical areas for
support studies
Determine area for pre-
feasibility or feasibility study.
Types of decisions
to be taken during Pre-selection Support study Determine which of the possible
each pre- choices is the most viable
investment phases
Pre- feasibility study  Determine provisional viability
of the project
 Appraise whether the
feasibility study should be
launched.
  Support studies Investigate in detail selected criteria requiring in-
  depth study
Final analysis

   Make the final choices of project characteristics

   Determine the feasibility of the project and
Feasibility study selected criteria

Project evaluation Evaluation study Make final investment decision

Project Appraisal Appraisal report  

Investment Phase
• The investment phase, also called implementation phase, includes the following
activities:

• Establish legal, financial and organizational basis

• Technology acquisition and transfer
• Detailed engineering, design, contracting, tending & negotiations.
• Acquisition of land, construction works, and installations
• Pre- production marketing, securing of supplies, and setting up
administration.
• Recruitment, training, and placement of workers.
• Plant commissioning and startup
Operating phase
• Once activities listed under investment phase are completed, the project will go
in to actual operation.
• The operation involves
• Producing the envisaged goods, and sale to the target market, or renders the envisaged
service to the target market.
• The project also needs evaluation, which deals with the review of whether the
project is being implemented as per expectation.
• The necessary corrective actions should also be taken if deviation is identified.
2.4.3 CHOUDHURY’s PROJECT LIFE
CYCLE
• The project life cycle has five phases:
• Conception,
• Definition,
• Planning and
• Organizing,
• Implementation and
• Clean-Up.
a. CONCEPTION
• It is the phase where the project ideas germinate or conceived. This
could be because of two reasons:

• i) Growth- expansion, modernization, diversification, etc.

• ii) Solve a problem- to remove constraints.

• Project ideas examined in the light of projective constraints,

opportunities, and what finding shows a green light may become the
future project.
DEFINITION
• It defines the conception phase and therefore works to define the
idea generated during the conception phase.
• This phase prepares a document using sufficient details and on the
basis of this documents all customers, or financial institutions, or
government may say yes or no to the project idea.

• This project report is called a Detailed Project Report (DPR).

c) PLANNING AND ORGANIZING
• It involves in the planning of the projects and organizing the human
and non-human resources required to implement the project.
• It looks in to organizing or arranging for items needed, like purchase
of technology, machines and equipments, inviting tenders, say, from
construction company for construction of plan, call for issue of shares,
call for appointment of specialized personnel, etc.
d) IMPLEMENTATION
• It is the phase where the conceived project idea takes shape
gradually, in this fieldwork starts.

• For capital equipment projects, it includes actual ordering and

receipts, equipment and machine erections, civil construction of the
plant, electrical piping, fitting, etc, trial and run, and final
commissioning.
e) CLEAN-UP
• It is where the plant commission is handed over to different agency
for production.
• This is where the BOT (Built, Operate, Transfer) or BOLT (Built,
Operate, Lease, Transfer) works and hence known as Transaction
Phase.
• This includes closing of all accounts, etc.
2.4. PROJECT CLEARANCE REPORT
(PCR)
• Whenever project is identified it is often done with reference to the
countries development strategies and economic policies.
• Therefore, even if a private entrepreneur is identifying a project, the
project must serve to fulfill the social and economic need of the
country.
• This has to pass through at least the under mentioned three stages of
scrutiny and clearances
• Government may have a three-stage project scrutiny. These three
stages are often known as:
• First stage: Pre Feasibility Report (PFR)
• Second stage: Techno-Economic Feasibility Report (TEFR)
• Third stage: Detailed Project Report (DPR)
1. PRE FEASIBILITY REPORT (ALSO CALLED
PROJECT FORMULATION REPORT OR PROJECT
OPPORTUNITY STUDY REPORT)
• PFR is a document that elicits the preliminary sanctions of the first stage clearance
by the government and this has a specified outline to supply information.
• Objectives:
• Market demand for the project or a product exist
• Plant capacity
• Materials and inputs used
• Location and site
• Project engineering and investment cost
• Plant organization and over head cost
• Manpower requirement
• Implementation schedule
• Financial and economic evaluation 􏰀 Statutory clearances
2.4.2: TECHNO-ECONOMIC
FEASIBILITY REPORT (TEFR)
• In this stage, project scope is defined, capacity or size is identified, and
also the method to be used is determined.

2.4.3: DETAILED PROJECT REPORT (DPR)

• This is the last and most important stage for project pre investment phase.
• The DPR and Detailed Cost Estimates (DCE) are together for scrutiny and
clearance.
• The outline and the items for DPR remains the same as TEFR; however, the
level of accuracy increases because this is a period only when basic
engineering, process design, and equipment listing is complete.
• To prepare DPR from the TEFR:
• Breakdown all the project components, time phase them, schedule
them, with accurate cost estimates along with explanations by giving
reasons for your assumptions and calculations.
• Develop base line for controlling time and cost during the
implementation of the project components.
• Prove preparedness with all the technical and resource requirements
to implement the project.
MANAGEMENT APPROACH TO PROJECT
CYCLE
• From identification through evaluation of the project cycle is a process that
can and should be managed.
• The five managerial functions (planning, organizing, staffing, directing, and
controlling) shall be applied for accomplishing each successive project cycle.
• Each successive cycle calls for a distinctive planning of its activities to be
done; organizing of its structure, planned activities and the various
resources required; staffing of its structure with the right people who are fit
for the purpose; directing of its people involved in towards attaining the set
goals; and controlling (monitoring and evaluating) of its performance so
that to take corrective as well as preventive measures when needed
• Therefore, each project cycle has to be managed; it is a process for
decision-making, not an end in itself.
• As more information is gathered during the various phases, the
project is modified and reshaped, with consequent changes in its cost
estimates, implementation schedule, and so on.