Fundamentals of

Project
Management
Chapter 2: Project
Life cycle
CHAPTER II - PROJECT CYCLE

• Meaning and Definition of Project

Cycle
• World Bank Project Cycle
• UNIDO Project Cycle
 CHAPTER II - PROJECT CYCLE

It is the stages through which the project passes from inception to its

completion.

• Is a continuous process made up of

– separate stages each with its own characteristics and

– complementary stages (phases) and each setting a ground for the

next one.
All projects are divided into phases, and all projects,

large or small, have a similar life cycle structure.

• Starting the project ,organizing and preparing ,

carrying out the project work and closing the project

• At a minimum, project will have a beginning or

initiation phase, an intermediate phase or phases,

and an ending phase.

• Each phase has a defined endpoint.

 .

• The way in which projects are planned and carried out follows
a sequence that has become known as the project cycle

A project cycle is a collection of project phases that defines:

• What work will be performed in each phase?
• What deliverables will be produced and when?
• Who is involved in each phase?
• How management will control and approve work produced in
each phase?
 .
• Project cycle is a phase by phase definition of a project from its start to completion.

• Number of phases within the project varies as the project sponsors requirements

or as project fields’ requirements.

• According to UNEP , united nations Environment programme(2005) a

project in general has five phases:

1. Identification

2. Preparation and formulation

3. Review and approval

4. Implementation

5. Evaluation
1. Project identification
• Project identification starts from an understanding of
objectives .
-It involves identifying environmental problems and interests of
beneficiary.

2. Project preparation and formulation

This comprises of :
 Feasibility study
 Establishment of baseline and target data
 Project implementation plan
• 3.Project Review and Approval
• A project review and approval mechanism comprising of inter-
divisional review.
4.Project Implementation
Comprises of monitoring and risk assessment.
5. Project Evaluation

• Assessing the project to identify what has been achieved, and to

identify lessons that have been learned. Evaluation findings are

used to improve the design of future projects.

 Generic Project Cycle (EU )
• .
 Project phases

• During the Programming phase, the situation is analyzed to identify problems,

constraints and opportunities which development cooperation could address.

• During the Identification phase, ideas for projects and other development actions are

identified and screened for further study.

• During the Formulation phase, relevant project ideas are developed into operational

project plans.
• During the Financing phase, project proposals are examined and a decision is taken on

whether to fund the project.

• During the Implementation phase, the project is mobilized and executed

• During the Evaluation phase, assessing the project to identify what has been

achieved, and to identify lessons that have been learned. Evaluation findings are

used to improve the design of future projects

 World Bank Project Cycle

• The concept of the project cycle was first popularized by a World Bank

publication by Warren Baum in 1970 with four elements

(identification, preparation and analysis, appraisal and

implementation) and evaluation was added in a later version in 1978.

1. Identification

2. Preparation and analysis

3. Appraisal

4. Implementation

5. Evaluation
 The project cycle
.
1.Identification

5. Evaluation 2. Preparation &

& closure Appraisal

Proposal
Appraisal development

4. Implementation
Financing
decision
3. Project
planning

12
Identification  Potential projects emerge from specialists, local leaders and national development
strategies.


.
Identification of potential stakeholders, particularly primary stakeholders.
Carry out problem assessment and decide upon key objectives.
 Assess alternative strategies for meeting objective.

 The technical, institutional, economic, environmental, and financial issues facing the
Preparation and
project studied and addressed —including whether there are alternative methods for
Appraisal
achieving the same objectives.
 Assessing feasibility as to whether and determining whether to carry out more advanced
planning.
 Evaluation of all of the feasibility studies to determine the ability of the project to succeed

Detailed Planning  The project solution is further developed in as much as detail as possible

Implementation and  The project plan is implemented over a specified time period.
monitoring  Monitoring of project performance with a management information
system to enable correction of implementation problems as they arise.

Evaluation  On-going and final assessment of the success of the project against
& closure original objectives, to learn lessons to help improve future projects.
 World Bank Project Cycle- typical examples
• The recipient country proposes an idea for a project or program and signals the need
for funds. for example , Ethiopia as a recipient country receives loan from world bank
construct infrastructure projects like electricity
• The recipient and WB (often the country office) then discuss and design the project.
• It is important to be well connected to the World Bank country offices as external
consultants are often needed in the design phase of a project, along with technical
expertise, knowledge, and innovations brought in from the WB office in Washington,
DC.
• Once the Board approves a project, the recipient receives the funds and has to prepare
the implementation.
• The recipient then publishes the tenders, and selects the winner to execute the
project.
• To increase your chances of success with the World Bank it is important to not only
reply to tender notices, but to also start a dialogue with the World Bank country office
early on in the project cycle.
 Continued…..

• Country Assistance Strategy (CAS): The CAS takes as its starting point the country’s own vision for its

development and is developed in consultation with country authorities, civil society organizations, development

partners, and other stakeholders. The aim is to set out a selective program of support based on the WBG’s

comparative advantage and in collaboration and coordination with other donors.

• Project Identification: Ideas for creating meaningful change are discussed. Borrower and Bank weigh

development objectives and project impacts, risks, alternatives, and timetable.

• Project Preparation: The borrower conducts studies and prepares detailed project documentation.

• Project Review: The WBG assesses the economic, technical, institutional, financial, environmental and social

aspects of the project and proposes changes and additions.

• Loan Negotiation: The borrower and WBG agree on the terms of a loan or credit, such as timeframe for

repayment and interest rate.

• Loan approval: The project is presented to the WB Board of Directors for approval.
 Continued….
• Implementation: The borrower receives the funds and implements the
project, issuing contracts through a competitive bidding process.
• Project Oversight: WBG staff periodically supervises the project to ensure
that funds are used for the intended purposes.
• Evaluation: A completion report identifies project results, problems, and
lessons learned. The WBG Independent Evaluation Group (IEG) measures
the outcomes against original objectives and whether the results are
sustainable.
• ‘Go local’- to boost success-rate! Building a relationship with the World
Bank country office will get you involved at an earlier stage in the project,
thereby increasing your chances of winning tenders.
 UNIDO Project Cycle
United Nations Industrial Development Organization

1. The pre investment phase,

– Project identification

– Project preparation

– Appraisal & investment decision

2. Investment phase, and

– Acquisition phase

– Commissioning phase

– Test production & marketing phase

 .

OPPORTUNITY STUDIES
# Extension by backward and forward linkage
# Industrial policies
# General input climate of economy
# Expansions to an existing project to have large scale of
economy
# Export potential
# Availability and cost of production factors

These opportunity studies can be categorized as area studies, industry studies and
resources based studies
 .
Pre-feasibility studies/pre-selection:
 To analyze that:
• All possible alternatives are examined
• The project concept justifies detailed analysis.
• A critical area necessitates in-depth investigation.
• Project idea is either attractive for investment or non-viable
• The environment situation at the site in line with national standards
• Support functional studies to convert specific areas such as:
• marketing
• Raw material and factory supplies
• laboratory and testing
• location
• Environmental impact assessment
• Economics of scale and
• Equipment selection
 .

Appraisal report/Appraisal:
 The appraisal report will prove whether the pre-production
expenditures were well spent, project appraisal as carried out by
financial institutions concentrates on the health of the company to
be financed, the returns obtained by equity holders and the
protection of its creditors.
 Appraisal reports as a rule deal with the industries in which it will
be carried out and its implications for the economy as a whole.
 2. Investment phase
• The investment phase can be divided in to the
following stages.
– Establishing the legal, Financial and organization basis
– Technology acquiring and transfer
– Detailed engineering design and contracting
– Pre-production marketing, including the securing of
supplies and setting up the administration of the firm.
– Recruitment and training of personnel
– Plant commissioning and start- up
 3. Operating phase
• The problems of the operational phase need to be
considered from both a short and a long term view point.
• The short term view relates to initial period after
commencement of production.
• Most of the problems have their origin in the
implementation phase.
• The long-term view relates to chosen strategies and the
associated production and marketing costs as well as sales
reviews.
 Chapter III: project Identification
• What is project Identification?
 Idea generation or project identification

.
Preliminary screening or pre feasibility study

• . Project feasibility or feasibility study

Market & demand Technical Financial Social cost benefit Environmental

Analysis Analysis Analysis Analysis & risk analysis

Detailed project reporter formal approval from sponsors

Planning, organizing & scheduling of project activities

Direction & controlling of activities

Termination of project (commissioning)

 Continued….

PROJECT IDENTIFICATION- is the conception stage in a

project’s life cycle
• At this stage, there are main activities that should take
place.
 Idea conception
 Identification of needs and
 problem recognition
 Formulation of objectives
 Idea conception
3.1 Project Idea – meaning

• A good business idea is a prerequisite for a successful project venture.

• It needs to be developed and transformed into a viable project

opportunity.

• A project idea is the response of a person’s or organization to solve an

identified problem or to meeting perceived needs in the environment .

• Finding a good idea is the first step in transforming a project idea into

implementation.
 Ideas are the response of :

• Need –based i.e. solving a person or organizational

problem……
• demand based i.e. need to get product or service

• Resourced based i.e. a need to use resources-

Utilizing strategic resources like rivers for generating
Hydro electric power.
 Identification-Introduction
• Project conception is forming or developing ideas regarding a
required intervention in a specific area to address a problem
or take advantage of opportunities.
• Identification of project idea requires imagination, sensitivity
to environmental changes and realistic assessment of what
the firm can do.
• Project identification is interrelated with the government
policies, infrastructural developments and skill of people.

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 Project Identification
• The first step in the project cycle is to identify candidate
project ideas and develop project portfolios from which
feasible projects are going to be selected.
• Project identification is the first phase in the Project Life Cycle
and essentially involves starting up the project.
• This is a stage where one project-idea out of several
alternatives is chosen and defined.
• It involves identifying environmental /societal/ economical
problems to be addressed and the needs and interests of
possible beneficiaries and stakeholders.
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 Continued….
• Projects can be conceived on the basis of:
 Needs – to avail certain goods and services to peoples in a
locality. Examples housing need
 Market demand – domestic or overseas …..example steel demand
of the people
 Resource availability – to make profitable use of available
resources…..example we have strategic resource of water …..
 Technology – to make use of available technology
 Natural calamity …….we need to craft projects required to cope
up these …..drought can be solved by crafting irrigation projects.
 Political considerations
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 Project Identification

• Projects are identified because either …

There is a problem/need or an opportunity

• Need is a condition or situation in which something is required or wanted.

• Problems are undesirable situations that prevent the organization from

fully achieving its purpose, goals and objectives.

• Opportunities are chances to improve the organization even in the absence

of specific problems.

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 Sources of project Ideas

• What sources of project idea do you

know?

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 Sources of project Ideas

• Generally, project ideas are born at two levels, the micro-level

and macro-level.
• Micro level sources- Project ideas originated at individual or
household level that can be further developed through
discussion with friends and colleagues.
• Macro Sources: Project ideas originated by institutions

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 Sources of Project Ideas

1. SWOT analysis
2. Need and Problem analysis
3. Stakeholder analysis
4. Objective analysis
5. Alternative analysis

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 Sources of Project Ideas

What does SWOT analysis mean?

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 SWOT Analysis for identifying ideas
 Government strategic plan
• Strength
 Tremendous demands on industrial boilers
 Strong back up and support from

University and Government • Threats

 Steady customer base  Many competitors in market


• Weakness Other product substitution

 Limited product range and product

differentiation
 Poor Management and quality control
 Insufficient awareness to the technology
application and safety sense is at primitive
stage

 Lack of certified trained and qualified

technician, engineers or other staff

• Opportunity
 Sources of Project Ideas

1. SWOT Analysis: Periodic SWOT analysis facilitates and

stimulates the flow of ideas.
• SWOT is an acronym for strengths, weaknesses, opportunities
and threats.

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 Sources of Project Ideas

• It represents a conscious , deliberate and systematic effort by

an organization to identify opportunities that can be
profitably exploited by it.
• Periodic SWOT analysis facilitates the generation of idea.
• Once the problem is defined and formulated, both internal
and external environment shall be analyzed to define and set
achievable objectives of the project.
• SWOT analysis is used to analyse the internal strengths and
weaknesses of an organization and the external opportunities
and threats that it faces.

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 Sources of Project Ideas
• The aim of any SWOT analysis is to identify the key internal
and external factors that are important to achieve project
objectives.
• SWOT analysis groups key pieces of information into two main
categories:
 Internal factors – The strengths and weaknesses— internal to
the organization.
External factors – The opportunities and threats presented by
the external environment to the organization.

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 Sources of Project Ideas

• Strengths: characteristics of the business or team that give it

an advantage over others in the industry.
• Weaknesses: are characteristics that place the firm at a
disadvantage relative to others.
• Opportunities: external chances to make greater sales or
profits in the environment.
• Threats: external elements in the environment that could
cause trouble for the business.

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 Sources of Project Ideas

• Identification of SWOTs is essential because subsequent steps

in the process of planning for achievement of the selected
project idea may be derived from it.
• First, the decision makers have to determine whether the
objective is attainable, given the SWOTs. If the objective
sounds NOT attainable a different project idea must be
selected and the process shall be repeated.

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 Sources of Project Ideas
2. Need and Problem analysis :
• Need and Problem analysis is a critical step in the project
identification process and is an important sources of project
idea.
• On the basis of available information, the existing situation is
analysed: that is, the major needs and problems are identified
and the main causal relationships between these are
visualized.
• In formulating problems, needs and existing problems should
be identified and will serve as source of project idea.
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 Sources of Project Ideas
The following are possible sources of project ideas related to
need/opportunity and problem Analysis and some times with
opportunity sensing
A. Analysis of the performance of existing industries
B. Examination of the inputs and outputs of various industries
C. Reviewing import and exports
D. Analyzing Economic and Social Trends
E. Drawing Clues from Consumption and experiences Abroad
(Benchmarking)
F. Attend trade fairs
G. Stimulate Creativity for Generating New Product Ideas
H. Government policy
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 Sources of Project Ideas

A. Analyze the performance of existing industries:

• A study of existing industries in terms of their profitability and
capacity utilizations indicates promising investment
opportunities.
• An examination of capacity utilization of various industries
provides information about the potential for further
investment.
• Such a study becomes more useful if it is done region wise,
particularly for products which have high transportation costs.

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 Sources of Project Ideas
B. Examine the inputs and outputs of various industries: An analysis of the
inputs required for various industries may throw up project ideas.
Opportunities exist when:
a) materials, purchased parts or supplies are presently being procured
from distant sources with attendant time lag and transportation cost and
b) several firms produce internally some components/parts which can be
supplied at a lower cost by a single manufacturer who can enjoy
economies of scale.
c) Similarly, a study of the output of the existing industries may reveal
opportunities for adding value through further processing of the main
outputs.

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 Sources of Project Ideas

C. Review Import and Exports: An analysis of import statistics for a

period of years is helpful in understanding the trend of imports
of various goods and the potential for import substitution.
• Indigenously manufacturing of goods, currently imported, is
advantageous for several reasons:
• (i) it improves the balance of payments situation,
• (ii) it generates employment, and
• (iii) it provides a market for the supporting industries and
services.
• Likewise an examination of export statistics is useful in learning
about the export possibilities of various products.
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 Sources of Project Ideas
D. Analyze Economic and Social Trends:
A study of economic and social trends is helpful in projecting demand
for various goods and services. Changing economic conditions and
consumer performances provide new business opportunities.
• Example: Increasing desire for leisure and recreational activities. This
has caused a growth in the market for recreational products and
services.
• Exercise: Make a group of four and identify one project idea that can
be only implemented under current economic and social
developments achieved in Ethiopia.(Absolutely not realizable during
the Derg regime)
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 Sources of Project Ideas
E. Draw Clues from Consumption Abroad: Entrepreneurs willing to take higher
risks may identify projects for the manufacture of products or supply of
services which are new to the country but extensively used abroad.
F. Attend trade fairs: National and international trade fairs provide an excellent
opportunity to get to know about new products and developments.
G. Stimulate Creativity for Generating New Product Ideas: New product ideas
may be generated by thinking along the following lines: Modification,
rearrangement, reversal, magnification, reduction, substitution, adoption
and combination.
H. Government policy: In the planned economy, the government plays a major
role in the industrial development and spells out priorities for the economy
and lays the framework for development and resource allocation, which in
turn can serve as sources of project ideas
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 Sources of Project Ideas

3. Customer Analysis/who are our customers and what do they need

• Analyzing the stakeholders who need to be involved is one of the most crucial elements
of any project planning.
• Stakeholder analysis is a useful tool or process for identifying stakeholder groups and
describing the nature of their stake, roles and interests.
• A stakeholder can be defined as: ‘any person, group, organization or institution with a
direct interest or ‘stake’ in something.’
• The aim of stakeholder analysis is to:
 Identify and define the characteristics of key stakeholders.
 Assess the manner in which they might affect or be affected by the proposed outcomes.
 Understand the relationship between stakeholders.
 Assess the capacity of different stakeholders to participate.
 Ultimately to identify their unfulfilled needs.
 Mainly useful to identify niche market.
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 Sources of Project Ideas
• Stakeholder analysis helps to identify unfulfilled
Psychological needs: For well-established, multi-
brand products, the question to be asked is
whether there are certain psychological needs of
the consumers which are presently unfulfilled.

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 Continued…..
• The individuals who can initiate project ideas from the above sources include:
1. Technical Specialists
• Technical specialists can initiate project ideas from their experiences through their
research findings. This usually is common in manufacturing firms where mechanical
and industrial engineers working there to generate new expansion and/or new
industrial projects. These projects usually either improve the products being
produced currently or produce new products.
• Entrepreneurs
• Entrepreneurship includes the characteristics of the perception of managerial
competence and motivation to achieve results.
• These characteristics make entrepreneurs the major sources of industrial and
commercial projects.
• Although entrepreneurship skills have been passed on from one generation to
another along family and socio-economic circles, it has been recognized that
programs for entrepreneurship development will help individuals to come up with
useful ideas.
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 Continued….
• Governments
-Government guidelines such as national development plans that
spell out what the government is likely to do to achieve its targets in
different sectors of the economy are the sources of many projects by
the government and entrepreneurs.
• Local leaders
-Social and community projects could emanate from the suggestions
made by local leaders regarding the problems prevailing in the area.
-Local leaders could also initiate project ideas from already identified
or implemented projects. For instance, project ideas on irrigation
could be initiated from an already constructed hydro-electric dam.
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 Sources of Project Ideas

• Some potential groups who may be considered are:

Users groups - people who use the resources or services of the
firm.
Interest groups - people who have an interest in or opinion
about or who can affect the use of a resource or service of a
firm.
 Winners and losers
 Beneficiaries
Intermediaries

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