CHAPTER: THREE

Aspects of Project
Preparation and
Analysis
 CHAPTER 3
ASPECTS OF PROJECT PREPARATION
AND ANALYSIS
1. Technical Aspect
2. Commercial (Market) Aspect
3. Institutional-Organizational, Managerial and
Manpower Aspect
4. Financial Aspect
5. Economic Aspect
6. Social Aspect
7. Environmental Aspect
8. Cross-Cutting Issues Analysis
9. Sensitivity and Risk Analyses
 Aspects of Project
The project analyst must
consider several aspects these
are;
1. Technical Aspect
This aspect may include the
works of engineers, soil
scientists and agronomists in
case of, agricultural projects.
The technical analysis is
concerned with the projects
inputs (supplies) and outputs of
 Cont’d
Technical analysis seeks to
determine activities with respect to
location, size, process, etc.
It is for analysis that all physical
quantity of inputs and outputs will
be determined for the estimation of
costs and benefits.
 All of these aspects are related or
interchanged .
 All of these must be considered and
reconsidered at every stage in the
project planning and
 Cont’d
 Poor technical analysis will result in under- or
over- estimation of quantities related to inputs
required by and outputs of the project.
 Further analysis eventually lead to spurious cost
and benefit estimates.
 Care must also be taken in assessing alternative
designs and techniques.
 The projects expected life time must also be
determined carefully for it has greater
implication on its overall analysis and
preparation.
 All these require creative, committed and
competent specialists from different fields.
 It also requires coordination among these
specialists, as every technical aspect is
 Cont’d
In general the technical analysis is
primarily concerned with
◦ Working schedules
◦ Location and site of the projects
◦ Project charts and layouts
◦ Structure and civil works
◦ Machines and equipment
◦ Plant capacity or amount of production
◦ Manufacturing process and technology
◦ Material inputs and utilities
◦ Product mix (4P’s)
2. Commercial (Market) /Demand and Supply/ Aspect

This aspect needs to ensure the

existence of effective demand at
remunerative price.

It is for market absorptions of the

output without affecting the output
price.

Similar arrangements need to be

done on the input side (including
procurement of equipment and
intermediate input supplies).
 Cont’d
Market analysis is basically concerned
with two questions:
What would be the aggregate demand
of the proposed product/service in
future?
What would be the market share of the
project under study?
To answer the above two questions the
project analyst requires a wide variety
of information.
and need to use appropriate
forecasting methods.
The kinds of information required are:
 Cont’d
 Consumption trends in the past and the present
consumption level
 Past and present supply positions
 Production possibilities and constraints
 Imports and exports performances
 Structure and competition of markets
 Cost structures
 Elasticity of demand
 Consumer behavior, intentions, attitudes,
preferences, and requirements
 Distribution channels and marketing policies
used
 Administrative, technical, and legal constraints.
 All aspects related to demand and supply of
inputs and outputs must be examined.
 Forecasting
A typical project will involve one or more
of a whole series and definitely inputs.
So, we need to project in physical
quantity and prices.
Calculating the stream of costs and
benefits will involves predicting values
for each of various elements, for
instance:
◦ Volume of output sold or selling price by the
project and also input prices,
◦ The amount of investment required, labor
cost, maintenances cost..
These elements require elaborated
 Cont’d
 In demand forecasting we should;
◦ Identify potential consumers or buyers
◦ Indicate total current demand
◦ Identify the pattern of demand temporally as
well as geographically
◦ Know customers willingness to pay
◦ Determine price
◦ Identify channels
◦ Explore prospects of immediate and future sales
◦ formulate strategy that intends to convince
potential customers about the proposed output.
 Basically there are two kinds of techniques
in forecasting:
 The qualitative and quantitative
techniques.
 A. Qualitative method
Jury of execution opinion technique:
the pooling of view of a group of experts
on expected future sales and combining
them into a sale volume.
Used for a complex issue and the top-
level expertise are required to come into
a conclusion.
Here, it adds and averages the opinions
and views of all and the final decision
comes out to be a rough average
estimate without using any statistical
techniques.

 Cont’d
Delphi Technique: This involves eliciting
the opinions of a group of experts, who
don’t interact face to face, usually with
the help of a mail survey, into a forecast
through and iterative process.
In this method, a questionnaire is sent to
a group of experts and response received
are summarized without
Preparedisclosing
Questions the
Choose the facilitators

identity of the experts.

Identify your experts

Send questions
Define the ideas/problem

Find the solutions by analyzing the results

and act on your findings
 B. Quantitative methods
A) Time series projection method
 Historical information can be used as inferences
about the future.
 The value of many economic variables changes
with time and hence time series can be used in
forecasting likely values in the future.
 The components of time series model could be:

i. Secular trend: a tendency of the data to

increase or decrease over a long period of time
and it is true of many economic data.
ii. Seasonal variations: periodic and regular
movements in a time series during a period of
less than a year.
 Caused by seasonal changes.
 Cont’d
iii. Cyclic variations: The variation is
oscillatory movement with a period of more
than one year.
eg. business cycle. This is less predictable
than secular trend.
The most common models for seasonal
and cyclic variations is moving average
(MA) model.
iv. Irregular fluctuations: That means
fluctuations are random and unpredictable.
There is no a mathematical model to
predict this fluctuation but recently
satellites.
 Measurements of trend
Trend involves extrapolating the past
trend onto the future.
It can be measured by three methods:
Namely graphical, semi-average and
least square.
i. Graphical method or trend by
inspection: plot the values and
connect the points with straight line.
ii. Semi-averages: divide the data into
two equal parts and from the data
calculate the slope and intercept
If the model is represented by, say, Yc
 Cont’d
(S 2  S 1)
The slope = b  2
N
S1
The intercept = a 
N
2
Where: S1 = Sum of Y values for the first period
S2 = Sum of Y values for the 2nd period
a = Intercept
b = Slope
N = Number of years
 iii. Method of least square
 This is the most popular one.
 Different types of curves can be fitted using
least square method:
 Straight line curve: The most commonly
employed relationship is the linear
relationship.
 A straight line describes the linear trend as
follows:
Ty = a + bx,
◦ Where: Ty denotes the underlying trend of variable
y
◦ x = the point of time (each increase consecutively)
◦ a = intercept
◦ b= change in Ty per unit of time
 Cont’d
 Logarithmic straight line: the following
function shows the relationship between the time
“t” and Y.
Log Yt = a + bt; Yt = aebt Exponential curve
 Second degree parabola; Yt = a + bt – ct2; Kth
degree polynomial Yt = a0 + a1t1 + a2t2 + … + aktk
 Growth curves: there are three kinds of growth
curves:
 Gompertz curve: The mathematical equation of
this curve is given by:
Yt= double Exponential functions, log Yt = log a +
ct log b
Where: a is asymptote or carrying capacity
b is displacement on independent variable
c is growth rate
 Cont’d
Logistic curve: is given by the
equation:
K
Yt =  at , where K = constant
1  be

1+be-at is projecting growth

model.
The logarithmic straight
line: is also used in projecting
growth Log Yt = a + bt
iv. Moving average method
Smoothest out fluctuations
when the data set show
irregular variations.

Itis produced by averaging the

values of a consecutive set of
data and it is centered against
mid-point of the averaging
period.
 Cont’d
 We choose a trend line;
a. When a time series data is found to be
increasing or decreasing by equal absolute
amount and fit a straight line trend.
b. When a series increasing or decreasing by
constant percentage we use logarithmic or
exponential curve.
c. When a time series data tends to decelerate
or slow-down after a certain period of time
we use Gompertz or logistic curve.
◦ For instance population growth in developed
countries and production have decreased
with high rate after certain time.
d. Exponential or logarithmic curve used to
forecast population or production in early
 Causal method
These techniques go beyond time
series analysis to analyze why
variables are changing over time.
Causal model forecasts are based
on variations in those factors (the
causal variables) that cause the
variable in question to change.
These methods seek to develop
forecasts on the basis of cause-
effect relationship specified in an
explicit quantitative manner.
 Cont’d
The important methods under this
category are:
◦ Chain ratio method
◦ Consumption level method
◦ Leading indicator method
◦ End use method and
◦ Econometric method.
For example the world price determined
or defined as: Pt = f(Xt –Mt).
The interest here is to find value of Xt and
Mt, where: Xt = export at time “t” and Mt
= import at time “t”.
 3. Institutional-
Organizational, Managerial
and Manpower Aspect
Lack of management experience and
ability is the main difficulties of
development in many countries, including
Ethiopia.
However, many of the most common
institutional problems encountered when
designing and implementing projects
actually have deeper root causes.
Institutional assessment is a means of
uncovering these causes and proposing
realistic project organizational set-up for
its smooth implementation.
 Cont’d
 Institutional assessment covers both the
institution and the environment of
operations.
 It is concerned with two major concepts,
namely project management and
organization.
 The basic point of institutional analysis is to
establish a suitable organizational structure.
 Many projects, which have appeared sound
from technical, economic and financial
aspects, have been partly or fully frustrated
by institutional constraints.
 Project analysis must make a detail analysis
of project organization and management.
 Cont’d
This analysis aims at answering the
following questions:
◦ Is the organizational set-up of the
project adequate?
 This is for organizational chart
◦ Will the project be provided with
competent personnel to manage it?
 This aims to ensuring that adequate
project staff can be recruited locally
or overseas.
 The problem of project staffing
raises many other questions:
 Cont’d
Is local manpower market enough to
provide the project with the required
manpower?
Can competent staff be recruited
freely?
Should they be recruited locally or
overseas?
The staff is available and success
will depend mostly on the
institutional set-up.
Appraising organization includes
 Cont’d
What are the regulations or procedures?
Or chain of command?
What are the policies that favor and
disfavor the project?
If the right institutions to facilitate project
implementation are available, the project
should be implemented by competent,
responsible and committed managers.
This requires arrangement of adequate
incentives to attract competent
managers.
Managerial appointment should be a
function of competence and commitment,
 4. Financial Aspect
 Financial Aspect seeks to ascertain whether
the proposed project will be financially viable
in the sense of being able to meet the
burden of servicing debt and whether the
proposed project will satisfy the return
expectations of those who provide the equity
capital.
 Here the project analyst is concerned with
the financial effects of the proposed project
on each of its various participants (firms,
farmers, workers, government etc.).
 By examining the financial implications of
the project for these parties, the analysts
need to identify the projects financial
efficiency, incentive impact to the
 Cont’d
The financial analysis establishes
the magnitude of costs of
investment, production and
overheads and magnitude of
benefits.
This analysis will be the basis for
evaluating the project profitability.
Project profitability depends on a
comparison of costs versus
revenues using realistic market
prices of materials, labor and
outputs.
 Cont’d
The FAs, used for financial appraisal,
through:
◦Investment outlay and costs of the
project
◦Means of financing; source of
finance, credit terms, interest
rates, etc.
◦Projected profitability
◦Projected financial position
◦Cash flows of the project
◦Break-even point
 Cont’d
Financial analysis must generate
future financial statements;
◦income statement
◦balance sheet and
◦uses-and-source-of-fund
statement.
After these statements are
produced, analysts can undertake
different financial ratio analysis to
ascertain financial feasibility.
The financial analysis must clearly
 5. Economic Aspect
The economic aspect of project
preparation is primarily concerned with
the determination of the likelihood of the
proposed project, and hence the
committing of scares resources, by
justifying the significance of the project
from the whole economy point of view
(the society as a whole).
Its focus is on the social costs and
benefits of a project, which may often be
different from its monetary or financial
costs, and benefits.
The financial analysis views the project
 Cont’d
Decision makers are concerned about the
investment of scarce capital and other
resources that will best further national
objectives.
This is true whether the resources
committed are being invested by
government directly or by individuals
within the economy.
While financial analysis uses projected
market prices to value inputs and
outputs, economic analysis uses
‘economic prices’ or ‘shadow prices’ or
‘efficiency prices’ to better approximate
 Cont’d
Similarly, to value project’s output,
economic analysis uses the marginal
value of a given output to approximate
the real value the value that
consumers place on that commodity.
Thus economic analysis require
adjustment of market prices, which
may not reflect the real value of
resources and outputs, into economic
prices.
It also require determination of
economic prices of those goods that
might not have market prices but that
 Purpose of Economic Analysis
Economic analysis is an assessment of
a project’s costs and benefits from the
national point of view and is therefore
concerned with the impact of a
proposed project on the national
economy.
It can be distinguished from financial
analysis in that attention is not
confined to the costs and benefits
affecting a single group, the focus of
economic analysis is on the net return
to society.
In economic analysis the most
 Cont’d
Economic analysis is, therefore,
conducted to identify costs and benefits
where there is a significant divergence
between market prices and economic
costs or values, and its application is
important in the selection of economically
viable projects for Public Investment
Program (PIPs) or Public Expenditure
Program (PEP).
Economic analysis can also be useful in
the case of private-sector projects since it
will assist government agencies to make
decisions if they have to give loan
guarantees or extend other forms of
 Cont’d
The aims of economic analysis
in the context of project
preparation are:
To ensure that public
investment funds are used only
for economically viable projects.
To ensure that a convincing
economic case can be made for
PIP or PEP projects to benefit
from external funding.
 Cont’d
 Economic analysis is less likely to be needed
when:
 The project is small (unless it is a pilot
project likely to be replicated),
 The project is financially viable and although
to producing primary for the local market, is
receiving no significant protection and
involves no significant negative externalities
and no significant use of undervalued local
resources,
 The project is financially viable and
producing mainly for export with no
significant negative externalities and no
significant use of undervalued local
 Stages of economic Analysis
First,this is the analysis is a statement
of costs and benefits at constant
market prices on a year by year basis
of
Second, involves the identification of
linkages and externalities.
Third, involves the adjustment of
prices of goods and services or
estimation of economic (shadow)
prices.
Fourth, involves comparing economic
costs and benefits to determine
acceptable returns.
 Cont’d
After financial prices for costs and
benefits have been determined, the
economic value must be estimated at
nation as a whole.
Financial prices are the starting point
for economic analysis; they are
adjusted as to the society as a whole of
both project inputs and outputs.
The principle of opportunity cost states
that the economic value of a resource is
determined by its next best alternative
use.
The value of a project is determined by
the difference between the assumed
 Cont’d
The opportunity cost of land can have
an alternative uses both in urban and
rural.
Urban land be used for houses, offices,
shops, factories,.
Rural land is normally used for crops,
pasture or forestry.
The opportunity cost of land is,
therefore, the value of the surplus
produced in its next most profitable
use.
To investigate the impact of the project
on the national economy it is
 These are to;
Identify and eliminating transfer
payments.
Identify and value the effects of
the project on the use of
production for traded and non-
traded goods.
Identify and value the effects of
the project on the employment of
labour.
Extend the boundary of the
project to include all linkage
 6. Social Aspect
 The process of development is inherently with
the improvement of social conditions and
working through social structures to achieve
these objectives.
 It is, therefore, crucial to integrate
comprehensive social assessment into the
project formulation process.
 The precise role of social assessment can be
defined as ensuring that people, their capacities,
values and needs are put at the center of the
development process.
 Project planners must make careful
consideration of social factors when formulating
projects.
 Experience has shown that ignorance of these
factors can lead to project failure.
 Cont’d
If social assessment is primarily
concerned with ‘people’ that
ensuring projects, and consequently
the development process.
The following points must be taken
into account in any project
formulation exercises.
These are:
◦Considering and Participating
stakeholders and target groups.
◦Conducting Social impact
assessment (SIA)
 1. Identification of stakeholders and
target groups
Stakeholder analysis is the process of
identifying the people, groups,
communities and institutions which
are liable to be affected and
affecting.
This analysis is important because it
enables the project planner to gain a
fuller understanding of the specific
social conditions in which the project
will be implemented.
This allows the planner to gauge the
potential social impact of the project
 Cont’d
 The first stage in stakeholder analysis is to
identify the various stakeholders who are
liable to have an interest in the proposed
project.
 Once these stakeholders have been identified it
is important to establish key information about
their interests, their potential impact on the
project, and the relative priority of their interest.
Stakeholders are normally differentiated as
either:
 Primary those affected directly by a project.
 Secondary those engaged as intermediaries in
the delivery of project benefits.
 Externally those who are influenced by or have
influence over a project without being directly
affected by it.
 Cont’d
Stakeholders Analysis

Identify Interest Potential project Relative

stakeholders impacts ()? priority of
interest (1-5)
Primary

Secondary

External
 Cont’d
When identifying the various
stakeholders the following points in
mind.
◦ Make sure that all stakeholders have
been identified.
◦ Identify the potential supporters and
opponents of the project at all levels
(local, regional and national).
◦ Consider new stakeholders that may be
created as a result of the project.
◦ pay particular attention to stakeholders
classified as potentially vulnerable
groups (poor, Children and women).
 Cont’d
It is very important to identify
these stakeholders amongst the
groups because they are likely
and could easily be overlooked.
Then, it is necessary to consider
their interests.
These interests should be
entered in the second column of
the stakeholder table.
When identifying interests it is
important to keep the following
 Cont’d
Relate their concerns to the project
objectives.
Identify and show direct or indirect
benefits of the project.
Consider the costs they are liable to
incur directly or indirectly as a result
of the project.
Indicate the relationship among
stakeholders will be affected by the
benefits gained/costs incurred by
other stakeholders.
Identify the type and quantity of
 Cont’d
Remember that stakeholders are liable
to have multiple interests.
Don’t be satisfied if you have identified
a stakeholder’s major interest
Think more deeply and try to identify
any further interests.
After interests identified it will be
possible to determine their probable
impact on the project.
This should be entered in the third
column of the stakeholder table.
The potential impact should be
displayed as positive (±), negative (-) or
 Cont’d
The final column of the stakeholder
table is concerned with the relative
priorities of interests and may be
categorized on a scale of I (high
priority) to 5 (low priority).
This scale will usually based on the
classification of Stakeholders as
primary, secondary or external.
The influence and importance of
stakeholders is terms of achieving
project objectives.
This information can be presented in
diagrammatic form as a matrix.
 Cont’d
These are to validate significant
influence or who are important
in terms of meeting project
objectives.
Matrix is first necessary to
‘identify the influence and
importance of the stakeholders
listed in the stakeholder table.
When attempting to identify the
level of influence of various
stakeholders it is important to
 Cont’d
Formal institutions: legal status,
strength of negotiating position,
specialist of knowledge and
leadership authority.
Informal institutions: socio-
economic status, level of
dependence and degree of
consensus.
Consider the influence of various
stakeholders in relation to one
another.
Identify how the influence of a
 Cont’d
To achieve the objectives by stakeholders
influence, It is desirable to establish
certain criteria.
It is essential to bear the following points
in mind during the project formulation
process in order to tackle problems
effectively and to appreciate the specific
needs of different segments of the
population:
Importance is different from influence,
here it relates to project priorities.
These should be in line with national
policy objectives in terms of target
beneficiaries.
 Cont’d
Most of the time project benefits;
unemployed, poor, vulnerable
groups.
Need and problem identification has
to be undertaken.
What are these beneficiaries’
needs?
Identify stakeholders’ interests that
are most closely aligned with the
national policy framework.
Matrix Classification of Stakeholders
in terms of their Influence and
 2. Participating (engaging)
stakeholders
 The aim of participation is to produce a situation
where stakeholders are willing to contribute to
the successful implementation of the intended
project and its future sustainability.
 Participatory approaches are create an
awareness among stakeholders of their own
situation with their roles.
 When dealing with participation as an element of
project formulation, it is important to think in
terms of both quality and quantity of the project
objectives.
 Because the level of participation is necessarily
varies from project to project
 Participation is important in all projects.
 A useful place to begin when analyzing the level
 Cont’d
The participation matrix is a
diagrammatic expression of the degree of
participation expected from each
stakeholder during the various stages of
the project cycle.
At each stage it is possible for
stakeholders to be involved in one of five
ways, namely:
To be informed for project development
(here, no degree of influence over
proceedings).
To be consulted (by providing information
or opinions which may or may not be
acted upon).
 Cont’d
Matrix is closely related with stakeholder
influence and importance.
Those influence and importance should
be involved in the ‘partnership’ column of
the participation matrix because their
active involvement is liable to be a crucial
factor in project success.
In addition, it will be important to ‘inform’
those stakeholders who fall into the high
influence/low importance category.
If stakeholders has a high influence, kept
adequately informed of project progress
and developments then they are more
likely to remain supportive (this is a form
 Cont’d
Exchange of ideas between
stakeholders is the direct reflection
of participatory approaches. Here
appropriate methodologies that
encourage all stakeholders to
participate in project activities
should be proposed.
Exchanging ideas with the
community before project
implementation helps to minimize
opposition, mobilize support,
increase positive impact and ensure
 Cont’d
1. Participation can improve the
effectiveness of project
planning by allowing the
consideration of a variety of
different viewpoints in the
planning process.
2. Participation can help to reduce
risk by creating a sense of
responsibility and ownership
amongst influential
stakeholders.
 Cont’d
PRA (Participatory Rural Appraisal) is a
useful series of methods and techniques,
which are continued practical application
with the aim of enabling rural people to
share, enhance, and analyze their
knowledge of life and conditions, to plan
and to act.
This is a vital tool for analyzing
participation issues in the planning
process.
While PRA has a variety points. These
points are:
◦ Firstly, not to view ‘beneficiaries’ as a passive
element in the formulation process and view
 Cont’d
Thirdly, must be aware of group
decision-making processes.
participatory approaches must be
democratic.
Finally, appraisal should still be viewed
as legitimate because they may be able
to complement participatory methods.
Unless, participation of beneficiaries
projects may not achieve planned
objectives and operate poorly.
Waste of available resources,
Poor results can cause communities to
become discouraged and to lose
 Cont’d
Items Infor Consu Partnershi Delegat Control
m lt p e

Identificati
on
Planning
Implement
ation

Monitoring
and
Evaluation
Participation Matrix, Source: ODA,
I 995b
 3. Social impact assessment (SIA)
SIA is assessing how the benefits and
Costs of a project are distributed amongst
various stakeholders over time.
SIA is often used in evaluating the
‘winners’ and ‘losers’ of proposed policy
reforms but its techniques can also be
applied to project analysis.
SIA is essentially concerned with three
distinct areas.
Impact of the project on its
stakeholders.
Impact of the stakeholders in terms of
achieving the project objectives.
 Cont’d
 SIA has five distinct stages which together
comprise Social Impact Assessment:
1. Scoping: This involves stakeholder
identification with environmental scoping, if
scoping of social impact, determines no significant
negative effects then there will be no need to
carry out further SIA.
2. Baseline and impact identification: This
involves a consultative process of information-
gathering.
 A consultative process in terms of identifying the
potential social impacts of the project.
 This process is liable to utilize a variety of
techniques.
 Quantitative surveys
 Pariticipatory Rural Appraisal (PRA)

 Cont’d
3. Development of mitigation measures: after
the potential impacts identified, formulate
measures to minimize those negative impacts
whilst maximizing the positive impacts.
4. Production of draft SIA: This stage is to
produce a draft of the social impact assessment
document.
5. Production of final SIA and social impact
management plan: This consist of a SIA report
and a management plan containing details of the
mitigation measures and strategies to be used
with their associated costs.
 The time required for SIA can vary greatly
dependent on the scale of research and size of
sample.
 Due to overlapping of tasks, it is needed to
 Assessment of mitigation measures,
strategies and costs
 The success of the Social assessment process is
largely dependent on the quality of stakeholder
analysis and SIA.
 The assessment of mitigation measures,
strategies and costs will form the social impact
management plan produced along with the SIA
report.
 The analytical work of social assessment
(stakeholder analysis, participation and gender
analysis etc.) is likely to have identified potential
options to limit the negative impact on
stakeholders.
 These options now need to be studied in more
detail in order to develop a comprehensive
strategy to mitigate negative impacts.
 Stakeholder consultation is essential in order to
 7. Environmental Aspect
 Environmental analysis is a field of growing
importance in project preparation.
 Underestimation of the environment has
resulted in negative outcomes like poor human
health, social disruption, reduced productivity
and, ultimately, the undermining of
development. When considering
environmental aspects into project formulation
exercises there are a number of issues that
should be taken into considerations, these
include:
 A clear understanding of the meaning of
Sustainability
 Assessment of the potential environmental
impact of the project.
 1. Environmental sustainability of a
development project
 The World Commission on Environment and
Development (WCED) defined sustainable
development as “development that meets the
needs of the present without compromising the
ability of future generations to meet their own
needs”.
 This is for maintaining environmental capital and
focusing on to future generation.
 This proposition raises the problem of defining
the economic value of a capital stock.
 To resolve the problem and to provide guidance
for the formulators a distinction needs to be
clear among the following:
◦ Manmade capital, which is potentially
expandable.
◦ Critical natural capital, which is priceless.
 Cont’d
The implications of the above
classifications of capital stock are
that the project formulators must
seek to:
Maintain, if possible increase, the
value of man made capital.
Avoid damage to critical natural
capital at all costs.
Limit exploitation of renewable
natural capital to sustainable level.
Internalize the cost of depleting
non-renewable resources through
Stages of environmental assessment
 Environmental screening
Isa full-scale of environment.
it is important to be aware of the
potential environmental effects of a
project.
The first stage in the identification and
assessment of environmental impacts is
environmental screening. The purpose of
this screening process is to assess the
type and complexity of environmental
analysis techniques, which are likely to be
necessary.
Just as with general project screening the
 Cont’d
Location- projects that are being
implemented in environmentally
sensitive areas are liable to need
further assessment.
Type of project- projects such as
mines and dams are liable to cause
a great deal more damage than
social projects.
Size- larger projects are more likely
to require further, more detailed
assessment
Complexity- a project with a number
 Cont’d
Data used in the screening process
may take the form of general
estimations or information already
gathered from any similar projects.
There are two possible results of
environmental screening:
The project can continue as planned
with no further environmental
impact assessment.
There is a need to prepare a more
detailed preliminary assessment.
 Preliminary assessment
 The preliminary assessment involves
conducting a process of research and utilizing
expert advice in order to achieve three
objectives:
◦ To identify the key impacts of the project on
the environment
◦ To predict and describe the impacts
identified above
◦ To assess the potential importance of these
impacts to decision makers.
 There are a number of useful checklists
produced by different organizations, including
the Ethiopian Environment Authority (EEA) that
can help determine the likely level of
assessment required.
 3. The meaning of environmental impact
assessment
EIA is concerned with the
identification, prediction and
evaluation of the impacts of
proposed project alternatives and
measures aimed at eliminating or
minimize the damaging impacts and
optimize beneficial impacts.
Now a day acceptance of projects
highly dependent of EIA.
EIA is very useful for project
formulation. Many donors/lenders
and countries, including Ethiopia
 Cont’d
 These are, named as category A, B, C and D.
 Category “A” projects
◦ These are projects with diverse and
significant environmental impacts.
◦ Require full environmental impact
assessment.
◦ E.g. Dams and reservoirs, mineral
development, resettlement and urban
development.
 Category “B” projects
◦ Those projects with specific environmental
impacts.
◦ As the impact is specific limited
environmental analysis is appropriate.
 Cont’d
Category “C” projects
◦ Are those projects normally without
significant environmental impact.
◦ These projects do not require
environmental impact assessment.
◦ E.g. Technical assistance, consultancy,
training and workshops are good
examples.
Category “D” projects are
environmental projects.
◦ These are projects with a major
environmental focus whose objective
can be waste disposal, desalination or
All projects involved in environmental
enhancement programmes
All projects in environmentally sensitive
areas should be treated as equivalent to
Schedule 1
activities irrespective of the nature of the
project. Sensitive areas may include:
Land prone to erosion
Land prone to desertification
Areas which harbor protected, threatened or
endangered species
Areas of particular historic or archaeological
interest
Primary forests
Wetland of national or international
importance
 Cont’d
In identifying significant EIA,
project formulators must
consider the following criteria:
 The length of time and
geographical coverage.
 The urgency of the projects.
 The degree of irreversible
damage to the environment,
natural resources and life
supporting systems.
 Cont’d
 Stages (procedures) for the process of EIA
should taken into consideration are:
1. Identifying of the various potential impacts.
2. Predicting of the extent of the
environmental changes.
3. Assessing the any environmental
significance of identified and predicted
changes.
4. Planning of mitigation measures or
alternatives that could reduce the project’s
environmental impacts.
5. EIA will lead to an eventual decision to
accept, reject or modify a project.
6. Project with serious potentially impact on
Assessment of mitigation measures, strategies and
costs
Where potentially
environmental impacts is
negative, it is necessary to
consider ways in which these
impacts can be overcome.
This involves suggesting various
measures and strategies to
avoid, reduce or overcome
these impacts.
These various measures and
 Cont’d
The various types of measures, include
to:
Avoid negative impacts: redesign the
projects with significant environmental
impact.
When its potential impacts are too
serious.
Avoidance strategies may include:
◦ Changing the project’s location
◦ Establishing buffer zones around
sensitive ecosystems
◦ Avoiding transport routes with the
potential to disrupt local populations
 Cont’d
 Reduce negative impacts:
◦ Is reducing the impact of existing activities to mitigate
the impacts.
 Reduction activities could includes:
◦ Treatment plants to reduce pollution
◦ Landscaping and using local materials to reduce the
visual impact of new structures
◦ scheduling project activities during the dry season.
 Compensate for negative impacts:
 In some instances it will not be possible to avoid
or reduce environmental impacts entirely.
 If this is the case then it will be necessary to
include compensation for affected populations.
 This compensation could be financial or in the
form of a compensatory project which aims to
 Cont’d
It is essential that mitigation
measures be planned in a coherent
and integrated manner to ensure
that they work effectively in
combination.

In projects where serious

environmental impacts have been
identified it will be necessary to
collate these mitigation strategies in
the form of an environmental
management plan (EMP).
 Environmental valuation
 Valuation
Techniques
of environmental effects includes
the measurement of environmental costs
and benefits.
 There are various methods of estimating
environmental costs and benefits. These
methods can be categorized as:
 Objective Valuation (OVa): methods that
are based on physical relationships
describing cause and effect to value the
physical effect.
 Subjective Valuation (SVa): methods are
based on subjective assessment derived
from real or hypothetical market behavior.
 Valuation techniques can also attempt to:

 Cont’d
 Concentrate on the cost side for
effectiveness of analysis.
 The approaches to attempt Ova of
environmental effects are;
 Effect on production or changes in
productivity approach involves the
estimation of the effect of an environmental
change on production in the
affected/proposed project area.
 It is mainly applicable in projects affecting
natural resources such as forests, fish and
soil.
 Determining the physical effects of a project
on the environment and estimating the
values of the effects are a straightforward
 Cont’d
Lose of Earnings Approach
Includes the valuation of human life and
cost of illness approaches.
This applies particularly to air and water
pollution.
The methodology involves calculating
the loss of earnings through sicknesses
or premature deaths.
Replacement cost and compensation
approach, which take into account
environmental damage by
compensating or replacing/restoring the
damaged asset.
 The SVa methods include
Hedonic methods attempt to value a
particular environmental state based
on surrogate markets.
These markets use ‘property value
approach’ (e.g. housing)
◦ Environmental impacts are derived
from changes in values.
◦ Applicable where market efficiencies
are strong to justify the assumptions,
which will be unlikely for developing
countries.
‘wage differential approach’ (e.g.
labor).
 Contingent valuation
Used
Techniques
to establish ‘willingness to
pay’ for environmental improvement
or ‘willingness to accept’
environmental damage.
It is not possible to provide
exhaustive lists/methods of
valuation techniques.
It is up to the formulators to select
those techniques applicable to a
project under consideration.
Whatever strategy is chosen, it will
be necessary to consider the
 Environment management plan (EMP)
The EMP sets out the various
mitigation measures and related
monitoring and institutional
arrangements to be carried out to
reduce the environmental impact of
a project.
An EMP is not required for all
projects, but if serious potential
impacts were identified during EIA.
Relating this to the project categorization
for EIA, EMP should be prepared for:
◦ All Category ‘A’ projects.
◦ Some Category ‘B’ projects.
 Cont’d
A project’s EMP should consist of the
following components:
Mitigation: potential mitigation
strategies are identified from the
categories described in EIA.
Monitoring: the EMP must set out
arrangements for monitoring of
potential impacts and mitigation
measures for implementation and
operational phases of the project
cycle.
Institutional Arrangements: this
 Cont’d
 Implementation Schedule and Costs: The
EMP must provide:
 A project implementation schedule for all
aspects of mitigation, monitoring and
institutional arrangements.
 A detailed breakdown of the costs related
to the implementation of mitigation,
monitoring and institutional arrangements.
 These costs should be integrated into total
project costs tables.
 The EMP should be integrated into the
overall implementation plan, budget and
project analysis.
 It should not be seen as a separate and
 8. Cross-Cutting Aspects (CCA)
Cross- cutting issues, have great
attention in preparing any development
projects.
Underestimation of CCA have resulted in
undesirable outcomes, reduced
productivity, under or over utilization of
output/inputs, social disruption, poor
human health etc.
Currently, Project
promoters/implementers, have shown
increasing concerns on effects of these
factors on the development project and
Policy makers are also initiating on CCAs

 Cont’d
This section therefore
focuses on:
◦HIV/AIDS
◦Different pandemics
(COVID-19, Ebola etc.)
(Assignment I Reg)
◦Population issues
◦Gender issues
◦Disability issues
 1. HIV/AIDS
HIV/AIDS is one of the most serious
development challenges to developing
countries.
The Sub-Saharan African countries are
worst hit by this epidemic.
The poverty situation in the countries
may also be a catalyst for the spread of
HIV/AIDS.
There are a number of variables that
contribute to the spread of AIDS
epidemic.
These include:
 The low level of knowledge (awareness) in the public
for it.
 Cont’d
 HIV/AIDS affects individuals, households,
communities, businesses and development
projects in a variety of ways.
 In a development project it commonly
erodes the capacity of the implementation
by increasing expenditures due to health
care, burial fees, absenteeism, retraining,
recruitments etc.
 Ignoring these impacts on the intended
development intervention would highly to
reduce its effectiveness, outcome and
relevance.
 As part, to mitigate the negative impacts of
HIV/AIDS incorporating it into project
 a) Considering HIV/AIDS in project
 Identifying preparation
HIV/AIDS from the outset is an asset
to planning future constraints or treats to
achieving the project objectives.
 If the intervention area’s prevalence rate is high
or rising, HIV/AIDS related sickness and deaths
would be a major obstacle to project delivery
and sustainability.
 HIV/AIDS interventions in the processes of
project formulation aiming at minimizing the risk
of epidemic in the project areas.
 Tried-and-tested approaches to assist project
formulators are articulated as follows.
1. HIV/AIDS concerns should start at project formulation.
 In preparing a project first and foremost assessing the
stages and patterns of HIV/AIDS epidemic is important in
order to formulating coping strategies even in the
baseline assessments.
 Cont’d
 An analysis of the potential effects of
HIV/AIDS on the project and vice versa.
 Ongoing or existing HIV prevention and
mitigation activities in the proposed project
area.
 Potential or important partners or institutions
involved in prevention, mitigation and care
HIV/AIDS impacts.
2. Conduct a comprehensive review and
analysis of specific studies, reports and other
necessary supporting documents related to
HIV/AIDS.
3. In analyzing the aforementioned
information to integrating into project
formulation, firstly it is suggested to prepare
 Cont’d
 If HIV/AIDS prevalence rate as well its impact
level is low, the intervention should focus on
reduction of vulnerability to HIV infection.
 However, if high HIV/AIDS prevalence and high
impact level is observed, focus on impact
alleviation.
4. Design or Capture present and future
manpower constraints due to HIV/AIDS related
sicknesses and deaths.
5. Review the project intervention strategies
using logical framework to ensure project area-
based particular needs.
6. Build mechanisms in the design process to
facilitate the participation of people with
HIV/AIDS affected households into project
 Cont’d
7. Prepare the institutional framework
for project implementation
considering the potential impact of
HIV/AIDS on the project.
For instance, the loss of staff due to
illnesses, deaths, funeral
attendances, loses of special skills,
increasing cost, recruitments;
retraining etc.
Need to be clearly stated/reflected
in the design of the institutional
framework. Allocate at least 2% of
 Cont’d
8. Indicate clearly how HIV/AIDS poses a risk
factor that could jeopardize the success of
the project.
Analyze the impact of the proposed
intervention in aggravating or mitigating
directly or indirectly HIV/AIDS-related
diseases in the project area.
9. Review the management systems paying
special attentions.
 State clear policy or administrative
procedures accountable to the effects of
inclusion or exclusion of those living with
HIV/AIDS
 If workers and managers are posted with
 Cont’d
9. Prepare possible scenarios on how the
proposed interventions may influence the
spread of HIV/AIDS, stigmatization, workers
and managers capacity to cope with the
effects of the epidemic.
10. Consider a positive and negative
changes with high HIV/AIDS prevalence,
capacity building of training may be invalid
due to increasing number of staff attrition
because of deaths and sicknesses.
11. Make sure to identify impact of
HIV/AIDS on the sustainability of the project
emphasizing on workers and managers
vulnerability, natural resources, human,
 Cont’d
12. Indicate clearly the proposed plan of
operations including Indicators that could
assist in measuring specific HIV/AIDS related
changes or interventions in or around the
project area.
13. Design appropriate monitoring and
evaluation systems from the outset.
 In this exercise, the formulators need to pay
special attention to developing HIV/AIDS-
responsive monitoring and evaluation
mechanisms including achievements
indicators in the project document.
14. It must be kept in mind that before
submitting the proposal for appraisal and/or
approval project promoters or formulators
 b) Some checklist questions
 Is HIV/AIDS an issue in the project area or/and
workplaces (and vice versa)?
 Do local people and institutions recognize
HIV/AIDS as an issue?
 Who are the main stakeholders, communities
and institutions that play a dominant role in
relation to HIV/AIDS epidemic?
 How do the proposed project strategies address
the problems faced by HIV/AIDS victim groups?
 How can the impact of the epidemic
substantiate or undermine the assumptions of
the intended project interventions?
 What is the likelihood that the proposed project
will directly or indirectly aggravates the HIV/AIDS
prevalence rate?
 Cont’d
What are the project activities designed
to mitigate the negative impacts of
HIV/AIDS, including collaborators?
Does the institutional arrangement for
project implementation considered the
potential impact HIV/AIDS on the project
performance?
Are performance indicators on HIV/AIDS
epidemic control and prevention
intervention presented clearly?
What will be the impact of the HIV/AIDS
on the sustainability of the project?
 2. Population
1. Development is a complex processes involving
the economic, social, cultural and political
betterment of people.
 Betterment is the ability to meet the physical
and cultural needs at acceptable level.
 It involves improving the standards of the
society.
 Due to a number of reasons the basic needs of
the society may not be attained or available at
adequate and acceptable levels.
 One of these is blamed on the high population
growth.
2. The relationship between population growth and
economic development.
 The positivists argue that a growing population
 Cont’d
3. population growth, opposed to the
positivists, it may create pressure on the
resource endowment, the environment,
provision of public utilities and services as
well as employment.
 Despite these two contradictory formulation
of population policy that intends to
harmonize economic growth and population
growth is important.
4. The purpose of integrating population into a
project is to obtain a general view and identify
any major differentiating characteristics or
patterns within the population that can be
significant for project formulation.
 This is to indicate certain population
 a. Population information for project
planning
1. Rapid population growth, in the rural
areas, will exert pressure on the cultivated
land.
 Results Low productivity in the smallholder
agriculture.
2. Equally, population explosion in the urban
areas induce pressure on the provision of
housing, employment, education, water,
health, etc.
 This may also result in undesirable
consequences in developing clean and
healthy towns.
 These phenomenon may lead to analyzing
a number of interrelated aspects
 Cont’d
3. The basic information pertaining
to the population may be
household characteristics such as:
average size, distribution,
occupational character and
composition by age-sex, etc. need
to be collected.
Moreover, key factors affecting
production or services provision
capacities such as family
composition of age-sex, labor
supply for various activities,
 Cont’d
4. Population growth rate, spatial
distribution, seasonal migration,
urban and rural composition
including significant variables
should be examined.
◦Further, the social structure
(class, caste, ethnic groups) of
the community should be
assessed.
◦Standards of living (income
levels) in relation to education,
 Cont’d
5. Labor supply and employment is one
of the parameters to be analyzed.
As such, employment by age-sex
groups, number of employed
(permanent and seasonal),
unemployed seasonal or permanent,
self- employed, labor cost packages,
labor demand peak and trough should
be examined in relation to the project
area or activities.
6. The techniques and application of the
collected data must depend on what can
sensibly be done with data available
 b. Projecting demographic changes in the
proposed project
Important points that need to be
considered in to the project may be:
1. To apply “high” and “low” fertility or
“with” or “without” any major urban,
settlement or other project developments
in or around the project area to test the
sensitivity of the project with respect to the
changing population.
This is due to the fact that the future
course of fertility in a country or a
specific project area is usually uncertain
and this has a large effect on the
subsequent population size.
These will assist to identity possible
 Cont’d
2. To provide due priority to the
complicating factors of migration (rural-
urban, seasonal, occupational,
spontaneous, planned, settlement etc.),
which can cause huge differences to the
size, structures and ethnic compositions of
population in a small area within a short
time.
These conditions may induce pressure on
the provision of public needs or basic
services and utilities as well as conflicts
of interests between targeted and
untargeted groups.
It is, therefore, necessary to updating and
 c. Analysis of population movement
a. It is obvious that public projects are
usually undertaken in order to meeting
certain specific economic and social
objectives.
project promoters should always
consider the complex interrelationship
between population movement and
the intended development project.
b. The kinds of changes or phenomenon
that can be expected from the project
are:
Temporary migration.
Permanent migration.
 Cont’d
c. Changes in migration flows may
be an expectation from the
introduction of certain practices
(attractive or unattractive) or the
creation of temporary employment
opportunities for construction,
liquidity, sense of urgency, etc.
Generally, temporary migration
may result from a labor shortages
and higher wage rates due to
technical change by the project or
by the project intervention in
 Cont’d
d. Urban development or land
settlement projects are, deliberately,
will be planned to capture
permanent- migrant people.
This may overwhelmed by
uncontrolled inflows of people from
unexpected sources.
To accommodate permanent
migrant people, therefore, adequate
alternative sites (places) or
arrangement as well as provision of
basic services, facilities or utilities
 Cont’d
e. The project formulator should also
assess seriously the possible
consequences of the project on the
non-targeted groups.
For instance, the construction of
irrigation or water supply dams may
create negative view on the
downstream or upstream people,
which may lead them to quit their
villages and move to the project.
These phenomena may bring
certain pressure on the project.
 Cont’d
f. population movement within the project area are
very likely to take place.
 By their very nature these types of projects are
usually undertaken in the rural areas with
adequate facilities (water, power, school, health
etc.) for the project staff.
 As such, these projects tend to create an island
of development zone. People with the
surrounding areas with inadequate facilities or
shortages of these facilities will begin to come
over and settle in the project areas.
 Such projects, therefore, may be planned for
expected socio-economic benefits; nonetheless,
possible demographic and spatial redistribution
of population effects must be also given
adequate attention during preparation.
 Cont’d
g. Project formulators, therefore,
should be able to identify any
impediment or restriction on the
movement of population into and out
of the project area, villages,
settlements, and camps.
Equally, the kinds of changes such
as: population increases due to
urban and rural migration, births,
etc.
need to be analyzed. This can help
to anticipate the direct and indirect
 d. Population variables in the project
formulation
 The following sets of data/information
should be collected and analyzed,
depending on the nature and type and
strategies of a proposed project:
 Analyze local level factors affecting
population size:
 Consider social or normative environments,
such as:
◦ Family structure
◦ Social roll of parents and children.
◦ Education opportunities for females and
males.
◦ Important reference groups such as:
racial groups, religious groups,
 Cont’d
Examine demographic and health
conditions pertaining to:
◦Mortality conditions.
◦Morbidity conditions.
◦Sex ratio and age-sex ratio.
◦Population density.
◦Marriage conditions and prevailing
ages of sexual entry.
◦Nutrition levels.
 Cont’d
 Exploresocioeconomic environments
 Labor market condition; option for men or
women, including wage rates.
◦ Average unemployment levels and trends.
◦ Local, regional or geographic labor mobility and
patterns.
◦ Seasonality of labor demand.
◦ Child labor conditions and wage rates.
◦ Types of agricultural population and labor
required.
◦ Types of nonagricultural production activities.
◦ Growth potential for agriculture.
◦ Income and wealth levels.
◦ Economic growth rate and prospects.
◦ Housing supply, size, price etc.
 Cont’d
Identify and analyze population factors at
the family level. Consider:
◦ Family history and current family
environment.
◦ Family social prestige, ethnic
identification, religion/religiosity.
◦ Migration history/region of origin.
◦ Number of children.
◦ Subject education level.
◦ Occupation of household head.
◦ Occupational qualification.
◦ Locus of decision-making power.
◦ Family income and wealth.
 Cont’d
Explore individual decision
making factors that determine the
demand for children, focusing on
variables such as:
◦Relative preferences for children
in relation to other activities.
◦Perceived opportunity cost of a
child (child rearing, inputs into a
child, prices of goods etc.).
◦Expected economic contribution
of a child.
 Cont’d
 Examine conditions affecting reproductive
behavioral changes in controlling birth
outcomes, emphasizing on:
◦ Conception and gestation regulating
behavior.
◦ Family and spouse influences on
reproductive behavior.
◦ Desire/demand for additional birth and
control of pregnancy.
◦ Demand for work and competing tasks.
◦ Costs of abortion and use/nonuse of
contraceptives.
◦ Level of knowledge of available methods of
birth control.
 3. Gender in a development
 Is
project
about looking at what role men and women
can play in the development processes of the
project.
 In developing countries, due to poverty situation, both
women and men tend to favor working in income earning
activities.
 In such situation, project planning must involve
both sexes in order to make feasible, profitable
and human friendly interventions.
 Integrating gender issues into a project includes
ascertaining access both to men and women
equally to resources such as: capital, land,
services and other necessary inputs.
 In most of the developing countries, however,
due to culture, religion and heterogeneity of
social groups’ women, face an impoverished
 Cont’d
 The other point that needed is clearly
identify, analyze and differentiate the
existing sex segregated and sex sequential
sex responsibility and uses.
 This is a determinant factor, especially for
rural development projects, planning more
effective works to be done by women,
men, old and young to establish systems or
norms in the community.
 In preparing a production or service
provision projects prior understanding of
the complexity of sexual division of labor,
the intra-household divisions or
distributions of works, which tend to be
 Cont’d
 The gender analysis framework assumes
that women and men differ in the goods
and services they produce as well as
access to and control of resources.
 Industrialization is one of the key processes
through which men and women are
integrated into economic and social
structures.
 However, women tend to work in jobs
categorized usually unskilled or
semiskilled.
 Cultural, lack of adequate training and
exposure to women’s restrictions active or
equally participation in all development
 Cont’d
In preparing any development
intervention, first and foremost,
makes sure that women or men
of different ages, social and
economic status are identified.
It is also essential to spell out
clearly and precisely the
diversity, similarity, interest,
needs, conflicts, inequalities,
strengths, weaknesses etc. of
these groups.
 a. Gender mainstreaming into project
planning
For who does what? Purpose.
Access and control profile or who
has what?, factors and trends
analysis (What is the socioeconomic
context?) and project analysis or
design (what gender considerations
are needed for the project?).
These data will assist in identifying
and analyzing the socio-cultural
factors and trends influencing
project activities, access and control
over resources in the project
 Cont’d
After collection of adequate and reliable data
consider the following strategies:
◦ Explore the socio-economic relation between
men and women, between men and men and
between women and women and formulate how
these works.
◦ Identify clearly what work is to be done by
whom, when and where based on the gender
division of labor and the time required to
accomplish each activity.
◦ Consider how men and women differ in their
roles and their economic, educational and health
status.
◦ Examine existing legal and institutional
frameworks that are conducive and equally to
both men and women.
 Cont’d
 Consider how women and men will participate in
the project (their motivation, knowledge, skills
etc. ) with their culture and society.
 Develop project components and activities that
will provide men and women with equal access
to resources as well as material and nonmaterial
benefits derived from the project.
 Ensure that project design encourages as well as
increases the participation of both gender
groups, in a variety of jobs and activities,
without discrimination in employment and
remuneration.
 Provide services: maternity, child-care and
health etc. facilities, in the project to improve
women’s wellbeing and participation. Ensure
that adequate transportation facilities will be
 Cont’d
 Plan and provide training and skill upgrading
for enhancing self-worth and stimuli for the
weakest group in the society.
 Strengthen the existing network for dealing
with issues that affect women’s livelihood.
 Ensure that women’s existing roles in
income- generating activities are
supported/strengthened through the project
intervention.
 Ensure that the project entertains and builds
men and women.
 Develop gender disaggregated performance
indicators to evaluate project inputs, outputs
and impacts.

 b. Gender analysis matrix for project
preparation
i. The gender analysis is assessment of
gender roles. These can be divided into
four categories:
◦ Reproduction and household
maintenance.
◦ Production.
◦ Community management.
◦ Community decision-making.
ii. The project formulators should
incorporate the expected contribution of
both men and women in terms of;
◦ Household management and activities,
◦ income distribution and
 Cont’d
iii. A useful tool for conducting gender analysis is
the gender analysis matrix.
 This matrix presents a summary of the project’s
potential impact on the various stakeholders by
gender:
iv. Using the gender analysis matrix, it is possible
to detect the specific ways in which the project
may influence certain groups.
 The potential impact of the project is divided
into four separate categories, namely:
◦ Labor- division of labor in quantity and nature
of the work
◦ Time- the amount of time available.
◦ Resources- the quantity and type of resources.
◦ Social/Culture- consider what the project will
 Cont’d
Gender Analysis Matrix

Project Labo Time Resourc Social/
Impact r es Culture
Women
Men
Household

Communit
y
 Cont’d
v. By completing, the gender analysis
matrix it will be possible to identify
the way in which various groups have
the potential to be affected by the
project.
This may then enable the planner to
formulate a project that reduces any
negative impact on particular
groups or to enhance any positive
impact.
This matrix is also a useful
monitoring and evaluation tool in
 c. Some checklist questions in GA
1. What socio-cultural factors should be included in the project design?
2. Have cultural, social, religious and other constraints to equal participation of
women and men identified?
3. Which cultural norms constrain the participation of the weaker gender groups
in the project?
4. Which policies, programs, procedures and social norms could affect the
degree of men and women’s participation in the project?
5. Have strategies formulated to address the constraints of men and women?
6. Who has access to and control over productive resources?
7. How do men and women differ in their access to productive resources and
services?
8. How can the intended project make property rights more equitable for men
and women?
9. Have the needs of both men and women’s in the project clearly defined?
10. How will the project accommodate the different roles of women and men?
11. How will the project affect women and men?
12. What is the strategic potential of the project for enhancing and promoting
gender equity?
13. What are the legal and institutional frameworks necessary for the promotion
cf gender e1ñty in the project?
14. Will the project introduce new technology to assist women and men’s roles
and participation equa1l?
 3.9. Sensitivity and Risk Analyses
Sensitivity analysis (SA) is a technique
applied to uncertainties.
These uncertainties are factors
affecting project outcomes which
cannot be quantified.
The purpose of SA is to tell us the
factors which are liable to have the
greatest influence over project success
and failure.
SA is base for appropriate mitigation
measures.
SA is sometimes called “what if”
analysis shows how the NPV.
 Cont’d
In this approach a variable might be
tested using three different values:
◦ A ‘best estimate’ means Most likely
approach
◦ An ‘optimistic’ value means
exaggerated approach
◦ A ‘pessimistic’ value. The worst
approach
Such an approach is useful in defining
the possible impact of changes in a
particular parameter but, without
further analysis, such tests do not
provide any additional information and
 Cont’d
A second approach is to choose a
fixed percentage variation and to test
each important variable for that
percentage change.
This approach has the advantage
that it is possible to compare the
sensitivity of the project to changes
in different variables and therefore to
determine which variables are most
important in determining project
profitability.
This method has the disadvantage
 Cont’d
Some changes in variables have a
linear relationship to the NPV while
others do not.
To apply these tests the following
points have to be considered:
◦Set up the relationship between
the basic underlying factors.
◦Estimate the range of variation and
the most likely value of each of the
basic underlying factors.
◦Study the effect on net present
value of variations in the basic
 Cont’d
Where a linear relationship exists
between the variable concerned and
the NPV concerned required to
reduce to zero.
This can be done for both economic
and financial analysis, but care must
be taken to ensure that the test
being undertaken is relevant to the
type of analysis being done.
For example a change in the actual
wage rate for unskilled labor affects
the financial analysis, but it is a
 Cont’d
 When, NPV1 is the base value for the
project NPV and NPV2 is the new value
resulting from an assumed change in price
(or quantity) from P1 to P2, the switching
value (SV) for the item being tested is
 NPV
1 P  P 
1 2

given by:
SV 
 NPV
2  NPV1

 P 1
 * 100%


 Sensitivity analysis allows for the

identification of those critical areas that
will influence the success or failure of the
project.
 This should provide planning and
managing projects with ideas about the
areas that need to be studied in more
 Cont’d
 There are two major limitations of SA. These are:
 It is partial.
◦ The variation is normally undertaken one
factor at a time, holding other factors
constant.
◦ This may not be very meaningful when the
underlying factors are likely to be interrelated.
◦ There are limits to the number of combinations
of changes that can be tested even where
more than one variable is tested to provide
manageable results.
 It says nothing about the likelihood of the tested
changes happening.
 Any judgments about likelihood will necessarily
be qualitative.
 1. Risk Analysis (RA)
RA is used to determine the
probability of different factors in
terms of project outcomes.
The effect of varying values within a
range can be calculated through SA.
It is the application of probability
estimates associated with each
variation that represents the
essential feature of RA.
On the basis of the information
obtained from the RA it is then
possible to make risk Aversion.
 Cont’d
The process of undertaking risk
identification can be defined in a
number of steps. These are:
Determine the parameters to which
the project is most sensitive through
sensitivity analysis.
Assign a probability distribution to
the selected range of values.
Undertake a Monte Carlo simulation
of the project using random numbers
to select the values of different
variables.
 Cont’d
Having defined the areas to which a
project is most sensitive,
2nd Determine a probability distribution
for the variable in question.
RA cannot be undertaken in the absence
of statistical data on probabilities.
3rd examine the implications for
decision-making.
There is no universally satisfactory way
of dealing with the problem of risk from
all perspectives.
A risk analysis will give some
information on the possible range of
 Cont’d
 Taking probability-based random samples of
parameter combinations can generate
probability distribution estimates.
 This use of combined sets of random values of
variables is called Monte Carlo simulation.
 This method involves the following stages:

Stage 1: Select the parameters to which NPV is

most sensitive.
Stage 2: Assign probabilities to the values of
each selected parameter.
Take a limited number of representative values
of a variable and assign all probabilities to them.
It is usual to take a selection of odd numbers,
with the central value being the best estimate.
Probabilities should be written as decimal
 Cont’d

Monte Carlo simulation Total

Value 12 17 20 23 28 100
Probability 0.08 0.17 0.35 0.27 0.13 1.00

Stage 3: Allot numbers 00-99 to the chosen

alternative values of each parameter in
proportion to the assigned probabilities.
Stage 4: From a table of random numbers (or
using the random number generation
function from a spreadsheet), select a set of
as many 2-digit numbers as there are
parameters. These 2-digit numbers can be
related to the numbers assigned to each
parameter value in Step 3 to indicate the
 Cont’d
 Stage 5: Using these values, calculate the value of NPV.
 Stage 6: Repeat Steps 4 and 5 a large number of times-
preferably more than 100.
 Stage 7: Summarize the results of the successive trials in
the form of a frequency distribution table of NPV (a
histogram).
 Following these steps will enable the planner to obtain the
frequency distribution for the NPV. Once this is known it
will then be possible to calculate:
 The mean (or expected) value for the NPV.
 The variance, or the standard deviation, of the distribution
for the NPV.
 The probability of a negative NPV.
 The expected magnitude of possible positive and negative
NPVs.
 The probability of a negative NPV is likely to be the most
useful of the above measures.
 It is important to recognize that risk significance is
 2. Assessment of significance of risks
 Probability can be defined as the likelihood
of a particular risk occurring. In these
terms there are essentially three
probability categories into which risks can
be classified:
 Discrete Outcomes: when outcomes can be
classified as simply Yes or No.
 Predictable Outcomes: where potential
outcomes fall within a certain range.
 Unpredictable Outcomes: this is often due
to insufficient data.
 Unpredictable outcomes are essentially a
manifestation of uncertainty rather than
risk. If probability data can be collected
 Cont’d
 Impact can be defined as the extent of the
negative effects cause as a result of a potential
risk. This impact is usually manifested in one of
the following areas:
a. Impact on Quality: the project fails to achieve it
objectives because its components are unable to
carry out their required function to the required
standard
b. Impact on Cost: expenditure on activities
exceeds that allocated within the project budget.
c. Impact on Time: project activities are not
completed within the allotted time period.
 When assessing the significance of potential
risks it is important to incorporate both of the
above aspects. Probability can be quantified and
represented in the form of a percentage whilst
 Cont’d
 If a risk is found to have low impact and low
probability then the planner can make the
decision that it is reasonable to ignore this
risk.
 If the risk has low probability and high impact
then it is the role of the planner to decide upon
an appropriate course of action dependent on
the specifics of the situation.
 A potential risk which has a high probability
and low impact should be subjected to the
range of risk management strategies.
 A risk with high probability and high impact is
called a killer, assumption because it has the
very real potential to cause project failure.
 The planner should reformulate the project
 3. Risk management strategies
 All risk management strategies have, at their
heart, the desire to negate or reduce negative
impacts. Broadly speaking, there are five main
risk management strategies:
 Risk reduction: this involves reducing the risk
in terms of either likelihood or impact (or both).
 For example, if a lack of experienced staff has
been identified as a potential risk then a
likelihood reduction strategy could involve
recruiting more experienced staff, incorporating
a training component or recruiting Consultants.
 An impact reduction strategy for the same
problem could involve utilizing more
experienced staff in a supervisory role or
increasing the anticipated completion time of
project activities to take account of this lack of
 2. Risk transference
 This involves transferring the potential
impact of a risk to a third party.
 This can be in the form of insurance
(although the financial compensation which
this offers may not be sufficient to cover
labour and time costs) or through
subcontracting (note that this is also a
means of risk reduction if an organization
has insufficient specialists to conduct an
activity ‘in-house’).
 The formulators must ensure that the
subcontractor is reliable and must also bear
in mind that transferring the risk in totality
to the subcontractor will come at a price.
 It may be better to enter into a contractual
 Cont’d
Risk avoidance: this could involve
redefining the project to exclude the
risk area or, as an extreme measure,
canceling implementation altogether if
the risks are felt to be unacceptably
high.
Risk acceptance: this involves an
acceptance that no action needs to be
taken at the present time. There is
then a need for constant monitoring to
identify any changes in the situation
which may then require action. This
strategy is cost-effective but without
 Cont’d
5. Contingency plans: this involves
identifying a range of alternative options
which should be rehearsed and
implemented when appropriate. For each
alternative, the formulators must scrutinize
all potential costs and benefits.
It is important to recognize that risk
management strategies may effectively
deal with those risks that have already
been identified (primary risks) but may, in
the process cause the creation of a
number of secondary risks which may
have a more significant negative impact
than the original primary risk.
 Cont’d
 When choosing a risk management strategy the
project formulators should follow the following
steps:
 The effects of the chosen strategy on the
potential risk should be identified and
quantified.
 The cost of implementing the chosen strategy
should be determined. If this cost exceeds the
benefits gained through mitigation of the
potential risk then the strategy should be
reconsidered.
 Any secondary risks which may arise from the
implementation of the chosen management
strategy should be identified and quantified.
 Any relevant management strategies for these
secondary risks should undergo the same
Th
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