Chapter Three: Project Life Cycle and Process

Groups
• Chapter Three: Project Life Cycle and Process Groups

 3.1. Project Life Cycle

 3.2. Initiation Process Group
 3.3. Planning Process Group
 3.4. Execution Process Group
 3.5.Monitoring and Evaluation/Controlling Process
Group
 3.6. Closing Process Group
 • 3.1. Project Life Cycle
Meaning Project Cycle

 Project cycle- refers to series stages 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.
 • Project cycle models

 But still, for life cycle of project to

 A clear understanding of the life cycle by be understandable, the two
dividing project life cycle into common project cycle referred as:
phases of a project: o The Baum(World Bank)
 Permits managers and executives to Project Cycle
better control resources to achieve o The UNIDO Project Cycle
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.
• 1. The Baum(World Bank) Project Cycle
 The Baum cycle- primarily  The Project , in the Baum
reflects the series of activities Cycle, constitute six
and procedures to the distinctive phases- See Fig 1
development of investment  Identification
projects(development
 Preparation
projects) to be financed by
 Appraisal
the World Bank.
 Negotiation
 Implementation & Supervision

 Evaluation
 Identification

Implementation Preparation

Negotiation Appraisal

Fig 1 Baum Project Cycle

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

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 • III. Project Appraisal
 After a project has been  With the results of the
prepared, it is generally feasibility study, the
appropriate for a critical decision-makers - not the
review or an independent analysts - MAKE DECISIONS
appraisal to be conducted. based on certain investment
criteria that are important to
them.
 This provides an opportunity
to re-examine every aspect  Appraisal is the
of the project plan to assess comprehensive and
whether the proposal is systematical assessment of
appropriate and sound all aspect of the proposed
before large sums are project.
committed.

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III. Project Appraisal
 Involves a comprehensive &  During this process:
systematic review of all aspects  The project may be extensively
of the project BY THE BANK modified or redesigned
 Primarily covers four major  An appraisal report is drafted by the
bank outlying the findings of the
aspects-
appraisal and making
 Technical, recommendation for the terms and
 Institutional, conditions of the loan
 Economic,
 Financial  An appraisal report serves as a
 Lays the foundations for project basis for negotiations with the
implementation & evaluation borrower
 • III. Project Appraisal
 The project is viewed from Financial –
different perspectives;  the appraisals try to see if
technical, commercial, the requirements for
financial, economic, money needed by the
managerial and project have been
organizational. calculated properly, their
sources are all identified,
Technical – and reasonable plans for
 here the appraisal their repayment and other
concentrates in verifying necessary circumstances
whether what is proposed are properly identified and
will work in the way calculated.
suggested or not.

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

 this aspect of the appraisal

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

Pre Investment Phase

Commission &
Start Up
Appraisal

Investment Phase

Negotiation& Contracting
Training Engineering design
Preproduction marketing Construction

Fig 2. UNIDO Project Cycle

• 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]
• A. Identification(Opportunity Studies)
 It is the starting point in series of  An opportunity study should
investment related activities identify investment opportunities
 TO GENERATE INFORMATION on or project ideas by analyzing the
newly identified viable
investment opportunities, the following factors in detail:
sector(macro economic) and the  Availability of natural
enterprise(micro economic) resources
approach to project identification
will be taken  Future demand for goods,
 Identification of investment increasing population,
opportunities is the starting point purchasing power
for those who are interested in  Exports and import
OBTAINING INFORMATION on substitution
newly identified viable  Environmental impact
investment opportunities. assessment
. Identification(Opportunity Studies)
 Functioning similar project of other  In summary, these opportunity
countries studies can be categorized as area
 Possible linkages with other studies, industry studies and
industries
resources based studies.
 Extension by backward and forward
linkage  At the sector level, it will require
an analysis of the overall
 Industrial policies
investment potential of countries
 General input climate of economy
 At the enterprise level, it will
 Expansions to an existing project to necessities identification of
have large scale of economy specific investment opportunities.
 Export potential  Key questions
 Availability and cost of production  a. Where is the demand?
factors  b. Is this project consistent with
the organization’s expertise,
current plans and strategy for the
future?
• B. Pre-Feasibility Study/ Preselection
 Objective of prefeasibility:  Should maintain information across all
variables to analyze that:
 To examine overall potential of
project  Project or corporate strategies
 To determine whether and scope of a project
 All possible project  All possible alternatives should
alternatives have been be examined
examined  The project concept should be
 The project concept justifies justified with detailed analysis
a detailed analysis by  A critical area necessitates in-
feasibility study depth investigation is required
 The project idea ,on the  Project idea is either attractive
basis of available for investment or non-viable
information, should be  The environment situation at
considered as either non the site in line with national
viable or attractive enough standards
for a particular investor or
group
 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
• C. Feasibility Study
 Provide all data necessary for an  Focus is on improving accuracy of
investment decision the key variables
 The commercial, technical,  Although feasibility studies are
financial, economic similar in content to the
&environmental dimensions of prefeasibility, it must be worked
a project should be defined & out with greatest accuracy in an
critically examined on the basis iterative optimization with
of alternative solutions already feedbacks & inter linkages
reviewed in prefeasibility study
 Some primary data may be needed
 All the assumptions made, data
used &solution selected in
feasibility study should be
described &justified.
• D. Appraisal
 Once feasibility is completed, various  Each project proposal is subjected to
parties involved in the project will carry sensitivity analysis
out their own appraisal of investment  In order to take care of multiple
project
adjustments of input &output
 Project appraisal as carried out by factors and risk analysis
financial institutions concentrate on:
 In order to appraise the
 The health of the company to
uncertainties attached to
be financed, The return on
project data & alternatives.
investment, The protection of its
creditors  Appraisal report doesn’t deal with the
project but also with the industries in
 In general, the techniques applied to which it belongs and its implication for
appraise projects center around the economy as a whole
 Technical, commercial/market,
managerial, organizational,
financial and possibly also
economic aspects
• II-Investment Phase
 Provides wide scope for consultancy  Acquisition of land for
and engineering work
construction work and
 The investment phase can be
installation
divided in to the following stages.
 Establishing the legal, Financial and  Pre-production marketing,
organization basis including the securing of
 Detailed engineering design and supplies and setting up the
contracting , including tendering, administration of the firm.
evaluation of bids and negotiations.
 Technology acquiring and transfer
 Recruitment and training of
personnel
 Plant commissioning and
start- up
II-Investment Phase
 Any delay or gaps in planning  Monitoring and Control
of one of the above would be required
mentioned stages would have  A continuous comparison of the
a negative effect on the forecast made in feasibility
successful implementation of study with the actual
investment and production cost
projects data occurred during
 Hence, there is a need of careful investment phase would be
scheduling using various required
methods such as CPM & PERT  In order to track the
resultant change in the
overall profitability which
may in turn require
adjustment in financing of
projects
• III-Operation Phase
 This phase concludes the life of project cycle  In the long term view:
 Involves day to day operation of  Relates to the chosen strategies and the
associated production costs & marketing
the completed project, and costs as well as sales revenue
 is expected to yield results which  These problems have a direct relationship
with the projection made at pre investment
meet the original objectives for phase.
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
 • 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
• 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.
 • Cont’d...

32 05/05/2023
 • Cont’d....

33 05/05/2023
 • 3.2. Initiation Process Group
 This stage defines and
authorizes( approves) the  Another outcome of this
project. stage is a document called the
 The project manager is stakeholder register, which
named, and the project is identifies the project
officially launched through a stakeholders and important
signed document called the information about them
project charter[agreement] ,
which contains items such as:
 the purpose of the project,
 a high-level product description,
 a summary of the milestone
schedule.
34 05/05/2023
 • 3.3. Planning Process Group
 In this stage, the project  The project management
manager, along with the project plan, the outcome of this
management team,
stage, contains subsidiary
 refine the project objectives and
requirements and plans, such as:
 develop the project  a project scope management
management plan, which is a plan,
collection of several plans that  a schedule management plan,
constitute a course of actions
and
required to achieve the
objectives and meet the  a quality management plan.
requirements of the project.
 The project scope is finalized
with the project scope
statement.

35 05/05/2023
 • 3.4. 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.

36 05/05/2023
 • 3.5. Monitoring and controlling Process Group
 Monitoring and controlling  Requests for changes, such as
includes defending the project change to the project scope,
against scope creep are also included in this stage;
(unapproved changes to the they can come from you or
project scope), monitoring the from any other project
project progress and stakeholder.
performance to identify variance
from the plan, and
recommending preventive and  The changes must go through
corrective actions to bring the an approval process, and only
project in line with the planned the approved changes are
expectations in the approved
project management plan. implemented. The processes
used in this stage fall into a
group called the monitoring
and controlling process group.

37 05/05/2023
 • 3.6. Closing Process Group
 In this stage, you manage the  Closing the project includes
formal acceptance of the conducting
 a project review for lessons
project product, close any learned and
contracts involved, and bring  possibly turning over the
the project to an end by outcome of the project to
another group, such as the
disbanding the project team. maintenance or operations
group.
 Celebration.
 Terminated projects (that is,
projects cancelled before
completion) should also go
through the closing stage.

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 • Project Life Cycle Phases
• Initiating • Planning • Executing • Monitoring and • Closing
Controlling

• Project definition • Refine objectives • Implement the • Defending the • Getting

• Project and requirements plan project scope acceptance
authorization • developing • Coordination • Checking for • Project review for
• Project manger project different activities progress lessons to be
appointment management • deliverables • Identify the learned
• Project charter plan. variance with the • Celebration
• Stakeholder • Deciding course plan
register of actions to
realize objectives
and requirements
• Project
management Plan
include subsidiary
plans like Scope
plan
• Schedule plan
39 05/05/2023
• Requirement plan
 Chapter End!