WOLLEGA UNIVERSITY

SCHOOL OF GRADUATE STUDIES

AGRICULTURAL ECONOMICS
AGRICULTURAL PROJECT PLANNING
AND ANALYSIS (AGEC 522)
BY ADMASSU T (PHD FELLOW)
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AND
DEREJE F (MSC)
CHAPTER 2: THE PROJECT LIFE CYCLE

 Definition: refers to the various stages through which a

project passes from time of its inceptions up to its
implementation and realization of the objectives.
 There are many models which differ in their perspective,
emphasis and level of detail.
 But, there are main features of project life cycles which
are common for all models.
 information gathering
 analyzing the information
 decision making

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PROJECT LIFE CYCLE
 The Most common Models are:
1. The Baum Cycle (World Bank 1970)
2. New Project Cycle
3.UNIDI Project Life Cycle

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THE BAUM CYCLE (WORLD BANK 1970)
 The traditional project cycle in development was formulated in
1970 by Baum based on the processes of the World Bank at the
time.
 It included four major components in linear progression:

 identification → preparation → appraisal → implementation .

 This traditional project cycle emphasis top down approaches to

development project planning.
 In 1978 Baum revised his formulation of the project cycle and
included a fifth component, evaluation.

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1. THE BAUM CYCLE (WORLD BANK 1970)

Identification

Preparation
Evaluation

Implementation

Appraisal

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1. THE BAUM CYCLE…

 It is traditional project cycle emphasis top down approaches to

development project planning.
 Community participation in project idea generation, alternative
identifications, project implementation, controlling as well as
utilization was marginalized.
 Individuals were considered as mere recipients of orders and
benefits,
 The projects were facing implementation problems, and could
not be sustained, if ever implemented as planned.

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1. THE BAUM CYCLE…

 It is traditional project cycle emphasis top down approaches to

development project planning.
 Community participation in project idea generation, alternative
identifications, project implementation, controlling as well as
utilization was marginalized.
 Individuals were considered as mere recipients of orders and
benefits,
 The projects were facing implementation problems, and could
not be sustained, if ever implemented as planned.

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2. NEW PROJECT CYCLE
 During 1994 the World Bank changed its approach from top
down planning to bottom up, which emphasis on the need of
beneficiary participation in project planning.
 But, what level of beneficiary participation is required?

 According to the new project cycle (World Bank 1994), project

cycles have four phases:
 Listening to the stakeholders
 Piloting the project
 Demonstrating
 Mainstreaming the project

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3. UNIDO APPROACH
1. Pre –investment phase
The major activities are:
 Identification of investment opportunities ( opportunity studies )
 Analysis of project alternatives and preliminary project selection

 Project preparation (pre feasibility and feasibility studies).

 Project appraisal and investment decision (appraisal report)

2. Investment phase
The major activities are:
 Negotiation and contracting
 Engineering design

 Construction

 Reproduction marketing

 Training

 Commissioning and start up

3. Operational phase
The major activities are:
 Replacement and rehabilitation 9
 Expansion and innovation
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3. UNIDO APPROACH…
 The diagrams are oversimplified, in reality, the cycles and the
stages are not discrete but continuous and iterative.
 There is a possibility of referring back and modify previous
works done in the planning stage if we encounter with
unforeseen problems during implementation stages.
 there are several activities undertaken in more than one phase
and the transfer is very slow and gradual.
 The output of the first cycle can be considered as input of the
next cycle and help as feedback to consider the former one.
 All phases of the project cycle lend themselves important
consultancy from different disciplines and expertise.
 Not all projects should necessarily pass through all stages
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described in the diagram.
1. THE PRE –INVESTMENT PHASE
 Identification of project idea and opportunity studies
 Identification is finding project which could contribute
towards achieving specific development objectives.
 Project ideas may originate from various sources with
the aim of:
1. National and sectoral plans (main source?)
2. Overcoming the constraints to the national development
efforts, and/or
3. Meeting unsatisfied needs and demands for goods and
services.
 Identification of such opportunities requires imagination,
sensitivity to environmental changes, and realistic assessment
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of what the firm can do.
THE PRE –INVESTMENT PHASE…
 Sources of project ideas
 Depending on the level of details, project ideas can be
categorized as;
 Macro Level
 Micro Level

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 Macro Level

 National policies, strategies and priorities as pronounced by government

 National, sectoral, sub-sectoral and regional plans and strategies as supplemented by
special opportunity studies with objective of translating the plans and strategies in to
actions.
 General survey, resource potential survey regional studies, master plans, and
statistical publications which directly or indirectly indicate investment opportunities.
 Publications of Minister of Trade and Industry, etc

 Constraints on the development processes due to shortage of critical materials

infrastructures, or facilities.
 Government decisions to correct social and economical imbalances or inequalities.

 External threats which necessitates projects aiming at achieving self-sufficiency in

some critical materials such as fuel, energy, transportation etc.
 Unusual events such as drought, floods, earth quakes and other natural calamities
and events.
 Government decision to create project implementation capacity of some areas

 Agreements between bilateral or multilateral development agencies, etc.

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MICRO LEVEL PROJECT IDEAS
 Some possible sources at this level include:
 Identification of unsatisfied needs and demands.
 Perception of unused or underutilized resources and initiation
to make use of them.
 Initiatives of private or public enterprise in response for
incentives provided by a government.
 The necessity to supplement or expand the already
undertaken projects.
 The desires of local group to enhance their economic status
and living standards (social welfares).
 Foreign firms initiatives for incentives provided by a
government.
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PRELIMINARY SCREENING

 It is a process of eliminating project ideas (least

desirable projects) with a minimum cost without
devoting more time and money.
 The essences of preliminary screening:

 Project ideas could be too many in number to make

detail study of all
 Resources to make the feasibility study are limited i.e.
only few projects could be implemented simultaneously
due to resource limitations

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PRELIMINARY SCREENING…

 preliminary screening is required to reduce the number of

project ideas to a manageable number so that more working
time can be devoted to the remaining alternatives for their
feasibility study to select the most desirable ones.
 General considerations at the preliminary screening may
include the following:
 Compatibility with the promoter
 Consistency with government priorities,
 Availability of inputs,
 Adequacy of market,
 Reasonableness of cost,
 Acceptability of risk level

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PRELIMINARY SCREENING…

 As the preliminary screening is completed, the

professionals prepare project profile (opportunity study
report) showing which project alternatives should be
rejected and which ones may be advanced to the next
stages.
 much depends on the experiences and personal
imagination of individual (professional) who conducts
the preliminary screening.

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PRE FEASIBILITY STUDIES

 The principal objectives of pre feasibility study are to

determine whether:
 All possible project alternatives have been examined ;
 The project concept justifies a detailed analysis by a
feasibility study
 The project idea, on the basis of the available information,
should be considered either non viable or attractive enough
for a particular investor or investor group.
 The environment situation at the planned site and the
potential impact of the projected production process are in
line with national standards.

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PRE FEASIBILITY STUDIES …

 An intermediate stage between a project opportunity

study and a detail feasibility study,
 the difference being in the degree of detail of the
information obtained and the intensity with which
project alternatives are discussed.
 a well prepared and comprehensive opportunity study
may justify bypassing the pre feasibility study stage.

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PROJECT PREPARATION –FEASIBILITY STUDY

 should provide all data necessary for an investment

decision.
 The commercial, technical, financial, economic and
environmental assessment is perquisites for an
investment project.
 Therefore these aspects need to be defined and critically
examined on the basis of alternatives solutions already
reviewed in the pre- feasibility study.
 The financial part of the study covers the scope of the
investment, including the net working capital, the
production and marketing costs, sales revenues and the
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return on capital invested.
APPRAISAL – APPRAISAL REPORT

 a comprehensive and systematic assessment of all

aspects of the proposed project.
 project appraisal is made at higher level in more broad
prospective.
 At the early stages of project cycle, project evaluation
criterion are manly, but not only, technical and micro-
economic in character.

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APPRAISAL – APPRAISAL REPORT…

 at the appraisal stage, the project will be evaluated in

depth in terms of macro-economy, sectoral and non-
economic.
 At this stage, however, the project should be reviewed
and revised to confirm that it accords with broad
development objectives and fits into development
strategy of the country.
 This means the framework within which a project is
appraised is broad and multifaceted.

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APPRAISAL – APPRAISAL REPORT…

 to ensure that the project represents high-priority use of

the country’s resources.
 To this end, the following questions are relevant:
 Does the project belong to a sector where the country needs
additional investment?
 Does the project meet the urgent needs of the sector?
 Does the project represent the least-cost alternative?
 Is the project of optimum size (not too big or too small)?
 Is the timing of the project right?
 Is the project well designed with reasonably accurate cost and
benefit estimates?
 If the proposed project is not implemented, what other 24
opportunities do exist to use the same resources?
APPRAISAL – APPRAISAL REPORT…

 Upon completion of the appraisal, a report is prepared

endorsing recommendations of approval, reformulation,
postpone or outright rejection of the proposed project.
 If the recommendation is to implement the project, the
government provides the final decision of go ahead by
arranging its financial requirements and the necessary
conditions.

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2. INVESTMENT PHASE

 Implementation
 After go a head decision is received, inter organizational
linkage is streamlined and project office inset up.
 The major activities in this phase are:-

  Revising the feasibility study in case the estimated and

forecasts in the feasibility study becomes out-dated due to
long delays.
 Preparations of tender documents and invitation of bids for
supply of plants and machinery and necessary technical
services, including detailed engineering design, erection and
supervision services.
 Receiving responses to bid invitations and evaluating the 26
documents
2. INVESTMENT PHASE …

 Negotiation and contracting,

 On the bases of the negation results, signing contract with all
the organizations selected to be involved in the executions of
the project.
 Engineering design – site probing and prospecting,
preparation of blueprints, and plant designs, plant
engineering, selection of specific machineries and equipment.
 Acquisition of land and construction – site preparation,
construction of building and civil works, erection and
installation of machineries and equipment.
 Preproduction marketing – promotional campaigns before
production .This may include the securing of supplies and 27
setting up the administration of the firm.
2. INVESTMENT PHASE …

 Acquisition of land and construction – site preparation,

construction of building and civil works, erection and
installation of machineries and equipment.
 Preproduction marketing – promotional campaigns
before production .This may include the securing of
supplies and setting up the administration of the firm.
 Recruitment and Training of personnel – training of
engineers, technicians, and workers.
 Commissioning and start up – is a usually a brief but
technically critical span in project implementation.
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2. INVESTMENT PHASE …

 During implementation, careful programming, close

control of cost, time and quality and regular reporting is
indispensable for the success of the project and in order
to lay a learning-ground for future better project
implementation capacity.
 Careful programming is required in order to avoid any
delay or gaps in supply of critical materials required for
smooth implementation.

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2. INVESTMENT PHASE …

 Controlling and supervision covers the period when

physical facilities are constructed, equipment is installed,
institutional arrangements are made, and programs and
policies formulated, up to the commencement of
operation.
 Upon the completion of controlling and supervision, a
completion report should be prepared.
 The completion report should cover the entire
implementation period and is more of analytical and
explanatory.

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2. INVESTMENT PHASE …

 the implementation report should re-estimate the financial

and economic returns of the project on the basis of actual
costs and update the information on the expected operating
costs and benefits.
 At the end, project commissioning is undertaken.

 Commissioning is usually brief but technically critical

span in project cycle.
 It links the implementation with operation and
demonstrates the degree of effectiveness of project
planning and execution.
 Commissioning includes individual unit testing, start-
up(system operation), and performance trial as appropriate. 31
3. OPERATIONAL PHASE

 Operation:
 It involves integrations of management and assets and
running and maintaining the new economic entity in
accordance with planned objective.
 What has been planned and physical setup is gradually
translated into output of goods and services.

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3. OPERATIONAL PHASE…

 At this point:
 top, middle and supervisory management groups are
brought together and placed in positions;
 reliable arrangements are made for steady flow of critical
inputs;
 reliable marketing outlets and distribution channels are
established;
 regulations and procedures for personnel, financial and
material management are set up, and put in to practice;
 adequate working capital is provided and maintained etc.

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3. OPERATIONAL PHASE…

 This stage is concerned with operational management, a

problem hidden area, filled with a long list of failures
and disappointments.
 The problems of operation may be considered from both
short and long-term view points.
 Short tem problems such as application of the
production techniques, operation of equipment or
inadequate labor productivity owing to lack of qualified
staff and labor are common.

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3. OPERATIONAL PHASE…

 The long-term view relates to chosen strategies and the

associated production and marketing costs as well as
sales revenue (as appropriate).
 These have a direct relationships with projections made
during the project feasibility study.
 If these projections and estimations are proved to be
irrelevant, any remedial action should be taken although
it could be expensive.

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3. OPERATIONAL PHASE…

 To handle such problems, set up a strong management

with appropriate structure, capable of adapting and
reshaping schemes to accommodate rapidly changing
circumstances.
 A visionary and experienced management is needed to
make right decisions at right times concerning the
following activities which are common in the operation
phase:
 Replacement and Rehabilitation, and
 Expansion and Innovations.

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2. EX-POST EVALUATION

 to assess whether the, objectives of the original project

have been attained, and if not way.
 For this purpose the nature, magnitude and timing of the
envisaged benefits specified in the feasibility study is
used as standards to measure the actual achievements.
 Physical performance assessment (impact evaluation) :
the most difficult evaluation!

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EX-POST EVALUATION…

 physical performance assessment is not easy and straight

forwarded as that of financial auditing mainly due to:
 Evaluating systems may not properly design during the
feasibility study.
 Delay and missing of completion and progress reports.
 Lack of institutional evaluation procedures
 Impact assessment by its very nature is not straight forward
since many factors may influence a given variable at a time.
This calls for controlling for others variable to effectively
assess the effect of the project separately.

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 THE END OF
CHAPTER II
 

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