UNIT TWO

PROJECT LIFE CYCLE

The ‘project cycle’ is a way of viewing the
main elements that projects have in
common, and how they relate to each other
in sequence.
The cycle starts with the identification of an
idea and develops that idea into a working
plan that can be implemented and evaluated.
Project planning proceeds from inception to
an implementation.
It crosses various stages are often called
“Project Cycle Phases.
It is the life cycle though which a project
advances from infancy to maturity.
 2.1 Features of project Life Cycle
 Most project life-cycle descriptions share a
number of common characteristics.
1. Cost and staffing levels are low at the start,
higher toward the end, and drop rapidly as
the project draws to a conclusion.
2. The probability of successfully completing
the project is lowest, and hence risk and
uncertainty are highest, at the start of the
project.
3. The probability of successful completion
generally gets progressively higher as the
project continues.
 The ability of the stakeholders to
influence the final characteristics of the
project’s product and the final cost of
the project is highest at the start and
gets progressively lower as the project
continues.
 N.B. Care should be taken to distinguish
the project life cycle from the product
life cycle For example, a project
undertaken to bring new banking.`
 2.3 .1 World Bank Project Cycle
• A series of activities carried out by the
World Bank in collaboration with
government to ensure that the most
important development issues for the
country and that loans are used for
purposes for which they were intended
activities collectively are referred to as
the World Bank’s “project cycle.
• The World Bank suggested some stages
in the project activities.
• This project cycle is divided into the
 Stage 1: Project Identification
 Project identification is the initial stage of a
project.
 Identification of promising investment
opportunities requires imagination, sensitivity to
environmental changes, and a realistic
assessment of what the firm can do.
 A project idea may originate from multiple
sources.
 Many of the most important projects in
developing countries emerge from political
commitments of national leaders, as response to
crises, emergencies of external threats or to
foreign government’s policies and assistance
 Identified projects can be for infrastructure,
housing, education, health, and government
financial management, among others.
 The World Bank and governments agree on an
initial project concept and its beneficiaries,
and the Bank’s project team outlines the basic
elements in a Project Concept Note.
 Once some project ideas have been put
forward, the first step is to select one or more
of them as potential viable.
 A. Preliminary Screening
• Project planning is process of elimination of
inferior alternatives.
• Once some project ideas have been put forward, the
first step is to select one or more of them as potential
viable.
 At this stage, the analyst should
eliminate proposals that:
 are technically unsound and risky;
 have no market for the output;
 have inadequate supply of inputs in
relation to benefits;
 assume over ambitious sales and
 B. Pre-Feasibility Study
• Sophisticated analysis of the technical,
financial, social and institutional
aspects of the project is postponed to
a later stage.
• To enable the relevant authorities to
decide on the merits of various project
options, the studies should contain:
 The structure and objective of the
project.
 The nature and size of the demand of
the output or the needs that it would
 Basic alternative technologies available and
their merits and drawbacks.
 Approximate investment and operation costs.
 Rough estimates of financial and economic
returns.
 Any major factor that is likely to have an
impact on the project .
 What further information on the technical,
financial, economic or institutional aspects of
the project should be acquired through
special studies and surveys?
 Stage 2 :Project Preparation
(Feasibility Studies)
• the project enters the next stage for
more and sophisticated analysis
supported by accurate information in
the study all aspects, technical and
non-technical, should receive the
attention to serve without postponing
any consideration to a later stage.
• Project preparation necessitates a
teamwork approach with professionals
investigating different aspects of the
 They should exchange views and check
their conclusions under the coordination
of an expert working as team leader.
 Time spent on project preparation is not
a lost time.
 There is tradeoff between project preparation and
implementation.
 The better a project is prepared, the
easier and faster its implementation and
lowers the probability of cost over runs.
• There are two key areas where the
analyst has choices to be made, the
technological area and institutional
area.
• World Bank staff may determine that
a proposed project could have
environmental or social impacts
that are included under the World
Bank’s Safeguard Policies.
 (a) Technological Choices
• Certain technical aspects that seek alternatives
considerations may be:
i. Building a new plant or facilities as against
improving the capability of existing ones.
ii. Indigenous against imported technologies, labor
intensive against capital intensive one and
technologies with high initial costs but low
maintenance requirements against those with
low initial costs but high maintenance needs and
iii. Possibility of implementing the project in stages
and the merits of one big Plant in the center
versus a number of smaller regional ones.
 (b) Institutional Choices

• Professionals may consider many institutional

aspects where alternatives are feasible like.
• Consider the merits of establishing a
new agency to implement and
operate the projects as against using
an existing one.
 Stage 3 : Project Appraisal and Investment Decision

• Appraisal is the comprehensive and

systematic assessment of all aspects
of the proposed project.
• The project is viewed from different
perspectives; technical, commercial,
financial, economic, managerial and
organizational.
.
• Project approval Once all project
details are negotiated and accepted
by both sides, the Bank prepares the
Project Appraisal Document (for
investment lending) or the Program
Document (for development policy
lending), along with other financial
and legal documents, for submission
to the Bank’s Board of Executive
Directors for consideration and
• The Project Information Document
is updated and publicly released when
the project is approved.
• When funding approval is obtained,
conditions for effectiveness are met,
and the legal documents are
accepted and signed, the
implementation phase begins.
 Stage 4 :Project Implementation,
Supervision and Follow Up
• It is the stage to which the conclusions
reached and decisions made are put into
action and the agreed resources are used to
carry out the planned activities and achieve
objectives.
• Detailed designs and specifications should
be drawn, tender documents to be prepared,
bids should be invited and evaluated, orders
for inputs have to be placed, contract to be
signed, workers to be hired and put to work,
materials to be moved to site, etc
 Stage 5:Project Evaluation
• Evaluation is a time-bound exercise that
attempts to assess the relevance, performance
and success of current or completed projects,
systematically and objectively.
• Evaluation, more than monitoring, asks
fundamental questions on the how and why of
the overall progress and results of an
intervention in order to improve performance
and generate lessons learned.
• Evaluations at the midpoint of the project or
programme also provide timely learning that
can suggest mid-course adjustments.
 2.3.2. UNIDO Project Cycle

• According to UNIDO, a project’s cycle can be

divided into the following phases
A. Pre-Investment Phase
Project Identification (Opportunity Study)
Pre-Selection (Pre-feasibility Study)
Preparation (Feasibility Study)
Appraisal (Appraisal Report
B. Investment Phase (Implementation)
C. Operational Phase
 3.5.1. Pre-Investment Phase
• (a) Project Identification / Opportunity Studies
• Identification of investment potentials in
developing countries generates interesting data
required to develop project idea into a project
proposal (opportunity study), which should
consider analyzing the following.
1) Availability of natural resources
2) Existing agricultural pattern
3) Future demand for goods, increasing population,
purchasing power.
4) Imports and import substitutions
5.Environmental impact
6) Functioning of similar project in other
countries.
7) Possible inter linkage with other industries.
8) Extension by backward and forward linkages
9) Industrial policies of the local government
 Investment Phase
• The investment phase can be divided into the
following stages.
Establishing the legal, financial and organizational
basis for the implementation of the Project
 Technology acquisition and transfer, including basic engineering
Acquisition of land, construction work and
installation
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.
Operating Phase:
 UNIT 3 PROJECT IDENTIFICATION
• Definition: Project identification refers to finding
project which could contribute towards achieving
specific development objectives.
• In the case of development projects, national and sub
national plans serve as a frame of reference.
• In principle project identification is supposed to be
an integral part of the macro economic planning
exercise with sectorial information and strategies as the
main sources of project ideas.
• The search for promising project ideas is the first step
towards establishing a successful venture.
• In practice, however, projects do not always stem
from national and sectorial plans.
• Project ideas may originate from various sources
with the aim of:
 Overcoming the constraints to the national
development efforts, and/or
Meeting unsatisfied needs and demands for
goods and services
 Sources of project ideas

• Classification of project ideas

• Depending on the level of details, project ideas can
be categorized as;
• Macro Level
• Micro Level
A. Macro level project ideas
 Include possible sources of project ideas at
national and sectorial levels.
 It is more of general idea. Such sources include:
National policies, strategies and priorities as
pronounced by government
National, sectorial, sub-sectorial 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.
 Constraints on the development processes
due to shortage of critical materials
infrastructures, or facilities.
 Government decisions to correct social and
economic imbalances or inequalities.
 Micro level project ideas
• Project ideas which emanates from community
level, woreda level and individual levels.
• Some possible sources at this level includes.
• 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).
• Systematic and unsystematic sources
A. Systematic – this includes all project ideas
which are part of the formal planning
process.
• Such sources includes:
• Policy review and development plans
• Sectoral strategies and sub sectoral programs
• Surveys by local governments and regional
organizations
• Reviews of past projects
• Such project ideas are very predictable, and
expected
 B. Unsystematic
• these categories of project idea sources are
outside the formal planning mechanisms.
• It may come from some powerful individuals,
visionary person.
• Usually, such sources are unpredictable and may
come to light at any time. Such project ideas
may emanate from:
Resource based- existence of unutilized
resources available in the country or in the
organization
Demand based –based on unsatisfied need for
certain goods and services.
Need based sources
Opportunity studies; it enables us to know
what types of investment is possible in the
region, or particular area. It can be general or
specific