Chapter 2 - Project Life cycle for Project Management Students

Project Course - Chapter 2

1. Chapter Two: Project Life Cycle and Process Groups 2.1. Project Life Cycle 2.2. Initiation Process Group 2.3. Planning Process Group 2.4. Execution Process Group 2.5.Monitoring and Evaluation/Controlling Process Group 2.6. Closing Process Group

2. 2 .1 . Project Life Cycle Meaning Project Cycle Project cycle - refers to series stage s that projects go through on the path from origin to completion . A project life cycle is the step-by-step process by which a project is formulated, identified, evaluated, implemented and completed . 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 culminates/ends in the completion of one or more deliverables.

3. Project cycle models A clear understanding of the life cycle by d ividing project life cycle into phases of a project: Permits managers and executives to better contro l resources to achieve goals Facilitates investment promotion and provides a basis for project decision & implementation Important to understand the role to be played by different actors of the project However , due to the complex nature and diversity of projects, there is no agreement about the life cycle of projects. But still, for life cycle of project to be understandable, the two common project cycle referred as: The Baum(World Bank) Project Cycle The UNIDO Project Cycle

4. 1. The Baum(World Bank) Project Cycle The Baum cycle- primarily reflects the series of activities and procedures to the development of investment projects(development projects) to be financed by the World Bank. The Project , in the Baum Cycle, constitute six distinctive phases- See Fig 1 Identification Preparation Appraisal Negotiation Implementation & Supervision Evaluation

5. Identification Preparation Appraisal Negotiation Implementation Evaluation Fig 1 Baum Project Cycle

6. 1. Identification Involve both the BANK & BORROWER in selection of suitable projects that support the national and sectoral development strategies. Economic & sectoral analysis by THE BANK provide : An understanding of the development potential of the borrowing country A framework for assessing credit worthiness & for evaluating national & sectoral policies Continuous dialogue b/n bank and borrowing country leads to The formation of a coherent development strategy The identification of projects which fit into it

7. II. Project Preparation (Feasibility Study ) In this phase, FEASIBILITY STUDIES would be carried out- To compare different technical &institutional alternatives and, To identify the solution most appropriate to the country’s resource endowment & its stage of development The borrower examines the technical, institutional, economic & financial condition necessary to achieve project objective and, The bank provides guidance & makes financial assistance available for preparation or helps the borrowers obtain assistance from other sources 7

8. 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 . 8

9. Involves a comprehensive & systematic review of all aspects of the project BY THE BANK Primarily covers four major aspects- Technical , Institutional , Economic , Financial Lays the foundations for project implementation & evaluation During this process: The project may be extensively modified or redesigned An appraisal report is drafted by the bank outlying the findings of the appraisal and making recommendation for the terms and conditions of the loan An appraisal report serves as a basis for negotiations with the borrower

10. Cont’d The project is viewed from different perspectives; technical, commercial, financial, economic, managerial and organizational. Technical – here the appraisal concentrates in verifying whether what is proposed will work in the way suggested or not. Financial – the appraisals try to see if the requirements for money needed by the project have been calculated properly , their sources are all identified, and reasonable plans for their repayment and other necessary circumstances are properly identified and calculated. 10

11. Commercial the way the necessary inputs for the project are conceived to be supplied is examined and the arrangements for the disposal of the products are verified. Economic the appraisal here tries to see whether what is proposed is good from the viewpoint of the national economic development interest when all project effects (positive and negative) are taken into account and check if all are correctly valued.

12. Managerial this aspect of the appraisal examines if the CAPACITY exists for operating the project and see if those responsible ones can operate it satisfactorily . Moreover, it tries to see if the responsible bodies are given sufficient power and scope to do what is required. Organizational the appraisal examines the project if it is organized internally and externally into units , contract policy institution , etc so as to allow the proposals to be carried out properly and to allow for change as the project develops.

13. 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).

14. IV. Negotiation Involves discussion between bank& borrower on measures needed to ensure project success The agreement reached would be converted into legal obligation set forth in loan documents The loan document embody all of the principal issues that would be raised prior to & during appraisal and, Ensure that borrowers & bank are in agreement on objectives, on the actions necessary to achieve them and on schedules for implementation The appraisal report may be amended to reflect the agreement reached before the approval of loan documents

15. V. Implementation & Supervision Project implementation is the responsibility of the borrower and, while the bank exercises the supervision function Supervision by the bank:- Conducted based on the progress report & periodic field visits Intended to ensure proper execution of the project by identifying & correcting implementation problems An annual review of bank supervision experience on all projects underway is intended to stimulate continuous improvement in policies and procedures As final step in supervision, the government prepares a completion report on a project at the end of disbursement period.

16. VI. Evaluation Follows the final disbursement of bank funds Evaluators, usually independent department of the bank, reviews the completion reports & prepares its own audit of the project, usually by reviewing materials at head quarters, though field trips to be made when needed. The borrower would be asked to comment the project audit This ex post evaluation provides lessons from experience which would be incorporated in the identification, preparation & appraisal of subsequent projects.

17. 2. The UNIDO Project Cycle The development of an industrial project can be shown in UNIDO project cycle comprising three distinctive phases:-- See Fig 2.2 UNIDO [ United Nations Industrial Development Organization] Pre investment Phase Investment Phase Operation Phase

18. Pre Investment Phase Investment Phase Identification Appraisal Negotiation& Contracting Engineering design Construction Training Preproduction marketing Commission & Start Up Preparation Operation Phase Fig 2 . UNIDO Project Cycle

19. I- Pre Investment Phase The pre investment phase consists of:- Opportunity studies [Identification of investment opportunities] Pre Feasibility Study [ Analysis of project alternatives, preliminary selection] Preparation [ Feasibility study] Appraisal and Investment Decision [Appraisal report]

20. A. Identification(Opportunity Studies) It is the starting point in series of investment related activities TO GENERATE INFORMATION on newly identified viable investment opportunities, the sector(macro economic) and the enterprise(micro economic) approach to project identification will be taken Identification of investment opportunities is the starting point for those who are interested in OBTAINING INFORMATION on newly identified viable investment opportunities. An opportunity study should identify investment opportunities or project ideas by analyzing the following factors in detail: Availability of natural resources Future demand for goods, increasing population, purchasing power Exports and import substitution Environmental impact assessment

21. Functioning similar project of other countries Possible linkages with other industries 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

22. In summary, these opportunity studies can be categorized as area studies, industry studies and resources based studies. At the sector level, it will require an analysis of the overall investment potential of countries At the enterprise level, it will necessities identification of specific investment opportunities. Key questions a. Where is the demand? b. Is this project consistent with the organization ’ s expertise, current plans and strategy for the future?

23. B. Pre-Feasibility Study/ Preselection Objective of prefeasibility: To examine overall potential of project To determine whether All possible project alternatives have been examined The project concept justifies a detailed analysis by feasibility study The project idea ,on the basis of available information, should be considered as either non viable or attractive enough for a particular investor or group

24. Should maintain information across all variables t o analyze that: Project or corporate strategies and scope of a project All possible alternatives should be examined The project concept should be justified with detailed analysis A critical area necessitates in-depth investigation is required 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 Oliphant testing location Environmental impact assessment Economics of scale and Equipment selection Wherever possible should use secondary information

25. C. Feasibility Study Provide all data necessary for an investment decision The commercial, technical, financial, economic &environmental dimensions of a project should be defined & critically examined on the basis of alternative solutions already reviewed in prefeasibility study Focus is on improving accuracy of the key variables Although feasibility studies are similar in content to the prefeasibility, it must be worked out with greatest accuracy in an iterative optimization with feedbacks & inter linkages Some primary data may be needed All the assumptions made, data used &solution selected in feasibility study should be described &justified.

26. D. Appraisal Once feasibility is completed, various parties involved in the project will carry out their own appraisal of investment project Project appraisal as carried out by financial institutions concentrate on: The health of the company to be financed, The return on investment, The protection of its creditors In general, the techniques applied to appraise projects center around Technical, commercial/market, managerial, organizational, financial and possibly also economic aspects Each project proposal is subjected to sensitivity analysis In order to take care of multiple adjustments of input &output factors and risk analysis In order to appraise the uncertainties attached to project data & alternatives . Appraisal report doesn’t deal with the project but also with the industries in which it belongs and its implication for the economy as a whole

27. II-Investment Phase Provides wide scope for consultancy and engineering work The investment phase can be divided in to the following stages. Establishing the legal, Financial and organization basis Detailed engineering design and contracting , including tendering, evaluation of bids and negotiations. Technology acquiring and transfer Acquisition of land for 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

28. Any delay or gaps in planning of one of the above mentioned stages would have a negative effect on the successful implementation of projects Hence, there is a need of careful scheduling using various methods such as CPM & PERT Monitoring and Control would be required A continuous comparison of the forecast made in feasibility study with the actual investment and production cost data occurred during investment phase would be required In order to track the resultant change in the overall profitability which may in turn require adjustment in financing of projects

29. III-Operation Phase This phase concludes the life of project cycle Involves day to day operation of the completed project, and is expected to yield results which meet the original objectives for which the project had been conceived, formulated and implemented. Problems to be considered in operation phase: In the short term view: Relates to the initial period after the commencement of production when a number of problems may arise concerning such as: The application of production techniques, operation of equipment or inadequate labor productivity owing to lack of qualified staff & labor Most of these problems have their origin in the investment phase In the long term view: Relates to the chosen strategies and the associated production costs & marketing costs as well as sales revenue These problems have a direct relationship with the projection made at pre investment phase.

30. Further Reading List and discuss all the necessary steps of the following project cycle models: 1. Integrated Project Planning and Management Cycle (IPPMC) 2. Development Project Studies Authority (DEPSA) Life cycle

31. Project Process Groups From initiation/authorization to completion /closure, a project goes through a whole lifecycle that includes Defining the project objectives, Planning the work to achieve those objectives, Performing the work, Monitoring and controlling the progress, and Closing the project after receiving the product acceptance.

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34. 2.2. Initiation Process Group This stage defines and authorizes( approves) the project. The project manager is named, and the project is officially launched through a signed document called the project charter[agreement] , which contains items such as: the purpose of the project, a high-level product description , a summary of the milestone schedule Another outcome of this stage is a document called the stakeholder register, which identifies the project stakeholders and important information about them. 23/12/2023 34

35. 2 .3. Planning Process Group In this stage, the project manager, along with the project management team, refine the project objectives and requirements and develop the project management plan, which is a collection of several plans that constitute a course of actions required to achieve the objectives and meet the requirements of the project. The project scope is finalized with the project scope statement. The project management plan, the outcome of this stage, contains subsidiary plans, such as: a project scope management plan, a schedule management plan, and a quality management plan. 23/12/2023 35

36. 2.4. Executing Process Group In this stage, the project manager, implement the project management plan, and the project team performs the work scheduled in the planning stage. The project manager coordinate all the activities being performed to achieve the project objectives and meet the project requirements. Of course, the main output of this project is the project deliverables . 23/12/2023 36

37. 2.5. Monitoring and controlling Process Group Monitoring and controlling includes defending the project against scope creep (unapproved changes to the project scope ), monitoring the project progress and performance to identify variance from the plan , and recommending preventive and corrective actions to bring the project in line with the planned expectations in the approved project management plan. Requests for changes, such as change to the project scope, are also included in this stage; they can come from you or from any other project stakeholder. The changes must go through an approval process, and only the approved changes are implemented. The processes used in this stage fall into a group called the monitoring and controlling process group. 23/12/2023 37

38. 2.6. Closing Process Group In this stage, you manage the formal acceptance of the project product, close any contracts involved, and bring the project to an end by disbanding the project team. Closing the project includes conducting a project review for lessons learned and possibly turning over the outcome of the project to another group, such as the maintenance or operations group. Celebration. Terminated projects (that is, projects cancelled before completion) should also go through the closing stage. 23/12/2023 38

39. Project Life Cycle Phases Initiating Planning Executing Monitoring and Controlling Closing Project definition Project authorization Project manger appointment Project charter Stakeholder registe r Refine objectives and requirements developing project management plan. Deciding course of actions to realize objectives and requirements Project management Plan include subsidiary plans like Scope plan Schedule plan Requirement plan Implement the plan Coordination different activities deliverables Defending the project scope Checking for progress Identify the variance with the plan Getting acceptance Project review for lessons to be learned Celebration 23/12/2023 39

40. Chapter End!