CHAPTER TWO

PROJECT
LIFE CYCLE
 Concept of Project Cycle
• A project life cycle is the step-by-step process by which
a project is formulated, identified, evaluated,
implemented and completed.
• The Project Life Cycle refers to a logical sequence of
phases to accomplish project goals or objectives.
• A Project life cycle is the series of phases that a project
passes through from its initiation (start) to its closure.
• Project phases are a collection of logically related
project activities that concludes in the completion of one
or more deliverables.
 Cont….

• Regardless of scope or complexity, any project goes through

a series of stages during its life.
• A project may be divided into any number of phases.

• Different phases typically have a different duration or effort.

• Phases are generally time bounded, with a start and ending

or control point.

• Usually project phases are completed sequentially

• Dividing project life cycle into phases helps in better

management and control of a project.
 Project cycle models

•
• Like the definitions of a project, there are different
project life cycle models which differ in their
perspective, emphasis and level of detail. The
commonly known models are:
1. World Bank Project Life Cycle Model
2. UNIDO Project Life Cycle Model
• Cont.…
1. World Bank Project Cycle Model
• World Bank project life cycle also called Baum Cycle.
• The first basic model of a project cycle is that of Baum
(1982), which has been adopted by the World Bank.

• The World Bank lends money to low and middle-

income countries to support development and change.

• Development projects are implemented by borrowing

countries following certain rules and procedures to
guarantee that the money reaches its intended target.
 Cont….
• Throughout the project cycle the primary preoccupation
of the analyst is to consider alternatives, evaluate them,
and to make decisions as to which of them should be
advanced to the next stage.
• Thus, each of Baum’s main stages are discussed briefly
below: (i.e. The World Bank suggested five stages in the
project activities.)
I. Project identification (pre-feasibility studies)
II. Project preparation(feasibility study)
III. Project appraisal
IV. Project implementation
V. Project evaluation
• The search for promising project ideas is the first
I. Project Identification

step towards establishing a successful project.

• Identifying suitable project ideas is the most

important and crucial step in the whole process of
project preparation.

• Identification of opportunities requires

imagination, sensitivity to environmental
changes, and realistic assessment of what the
firm can do.
 Cont….

• Project identification is the idea stage and requires

systematically monitor the environment and assess its
competitive abilities.

• It involves activities concerned with surveying,

reviewing and inventorying existing data and
information. These include:

Economic condition and infrastructure (including

Emergencies of new technologies and Access to
technical know-how )
 Cont….
 Government policy
 Industrial policy
 Financing norms
 Government programs
 Import and export policies
 Tax framework
 Resource availability
 Natural resource data
 Human resource data
 Socio-economic data
 Population trend
 Educational profile
 Income distribution
 Market and Need gap
 Cont….
• A project idea may originate from multiple sources.
Many of the important projects in developing countries
emerge from:
 Political commitment of national leader,
 New experiments emerging from previous project
failures,
 Expansion and replication of successful projects tested
locally or proven feasible in other developing
countries,
 From the discovery of critical economic and social
bottlenecks of shortages, excess or idle resources
 Forward & backward linkages with existing projects,
 The work of voluntary agencies, non-profit
organizations and foundations has been a catalyst for
new ideas. 12
 Cont….
 With in the project identification after having a good
idea of project, it is also better to conduct preliminary
screening and pre-feasibility study
• Preliminary Screening:
– At this stage the screening criteria are vague and
rough, becoming specific and refined as project
planning advances.
– Project screening is a process of elimination of
inferior alternatives.
– Select one or more of them as potentially viable.
– This calls from a quick preliminary screening by
experienced professionals who could also modify
some of the proposal. 13
 Cont…
– At this stage the analyst should eliminate
proposals that are technically unsound and risky.
– The preliminary screening process may
includes:
 Cont….
– Compatibility with the promoter:-the idea must be
compatible with the interest, personality, and resources of
the entrepreneur.
• Consistency with governmental priorities:- the project
idea must be feasible given the national goals and
governmental regulatory framework with respect to
consistency, environmental effects, foreign exchange
requirements and any other difficulty of a project.
• Availability of inputs:-the resources and inputs required
for the project must be reasonably assured. To assess
this, questions of capital requirements, technical know-
how, raw materials required, and power supply for the
project need to be answered.
• Adequacy of the market:- the size of the present market
must offer the prospect of adequate sales volume and
further, there should be a potential for growth.
• Reasonableness of cost:-the cost structure of the proposed
project must enable it to realize an acceptable profit with a
price. The following should be examined in this regard;
• Cost of material inputs
• Labor costs
• Factory overheads
• General administration expenses
• Selling and distribution costs
• Service costs
• Economies of scale
 Pre-feasibility Study:
 Following the preliminary screening, promising
project options should be investigated in a
systematic manner to suggest which are to be
eliminated.
 At this stage, the preparation of brief reports are
required and the report should indicate which of
these aspects deserve particular attention during
the subsequent step. These reports are called pre-
feasibility studies.
 Sophisticated analysis of the technical, financial,
social and institutional aspect of the project is
postponed to a later stage. 17
 Cont….

• A pre – feasibility study should be viewed as an

intermediate stage between a project opportunity study
and a detailed feasibility study, the difference is being in
the degree of detail of the information obtained and the
intensity with which project alternative are discussed.

• Having achieved a good database, the process of

identification of gaps would have been laid. Thus, such
gaps, which lead to project ideas that could be generated
as a SMART project.

• Once a project is identified, the next step is to carry out

a project preparation of full document, which is also
called feasibility study.
 II. Project Preparation (Feasibility Study)

• Once projects have been identified, there begins a

process of progressively more detailed preparation
and analysis of project plans.

• At this stage the project is being seriously considered

as a definite investment action.
• Project Preparation necessitates a team work.

• The better a project is prepared, the easier and faster

its implementation and lowers the probability of cost
over runs.
19
 III. Project Appraisal
 After a project has been prepared, it is generally
appropriate for a critical review or an independent
appraisal to be conducted.
 This provides an opportunity to re-examine every
aspect of the project plan to assess whether the proposal
is appropriate and sound before large sums are
committed.
 With the results of the feasibility study, the decision-
makers - not the analysts - make decisions based on
certain investment criteria that are important to them.
 Appraisal is the comprehensive and systematical
assessment of all aspect of the proposed project.
20
 Cont’d

• The project is viewed from different

perspectives
technical,
commercial,
financial,
 economic,
 managerial and
organizational.
21
• These issues are the subjects of specialized appraisal
report. And on the basis of this report, financial
decisions are made – whether to go ahead with the
project or not. In practice, there can be quite a
sequence of project selection decisions. Following
appraisal, some projects may be discarded.

• If the project involves loan finance, the lender will

almost certainly wish to carry out his own appraisal
before completing negotiations with the borrower.
Comments made at the appraisal stage frequently
give rise to alterations in the project plan (project
proposal).
 IV. Project Implementation
• This stage is about making the project in reality.
• In this stage, funds are actually disbursed to get the
project started and keep running. i.e. the
mobilization of physical and financial resources
are needed.
• The recruitment and training of personnel for the
successful implementation and operation of the
projects also required.
• Monitoring and supervision to ensure the project’s
adherence to the plan are essential during this stage.
• The execution of the project should be supervised
closely and progress should be reported regularly.
23
• It is during implementation that many of the real
problems of projects are first identified. Because of
this, the feedback effect on the discovery and design of
new projects and the deficiencies in the capabilities of
the project actor can be revealed.
• Therefore, to allow the management to become aware of
the difficulties that might arise; recording, monitoring
and progress reporting are important activities during
the implementation stage.

• Project implementation must be flexible.

Circumstances will change and project managers must
be able to respond intelligently to these changes.
 V. Project Evaluation
• The final phase in the project cycle is evaluation. Once
a project has been carried out, it is often useful, (though
not always done) to look back over what took place, to
compare actual progress with the plans, and to judge
whether the decisions and actions taken were
responsible and useful.
• An important purpose of this stage is to ascertain the
reason for the project’s success or failure.

• This is an audit process to assess the extent of

achievement or possible deviation from the objectives
for which the project is undertaken.
25
• The extent to which the objectives of a project
are being realized provides the primary
criterion for an evaluation. Evaluation is not
limited only to the completed projects.
• It is a most important managerial tool in
ongoing projects and formalized evaluation
may take place at several times in the life of a
project.
.
2. The UNIDO project life cycle model
reading assignment
Chapter End!