CHAPTER TWO

PROJECT LIFE CYCLE

Project Life Cycle

 Every program, project, or product has certain phases of development

known as life-cycle phases
 A project goes through various planning phases before it is actually realized.
 These phases constitute what is often called “the project cycle”.
 The life cycle recognizes that projects have a limited life span
 At each point, the project can be rejected, accepted and passed to the next stage or recycle
back to pervious stage for restructuring.

 Commonly, a project cycle contains stages of design, implementation,

monitoring and evaluation.
• There are a number of different life-cycle models in project management literature.
• Today, there is no agreement among industries, or even companies within the same
industry, about the life-cycle phases of a project.
• This is understandable because of the complex nature and diversity of projects.
• Let us see few project life cycle given by different authors.
 According to Kerzner (2003)
 The life-cycle phases of a system can be applied to a project include:
1. Conceptual
2. Planning
3. Testing
4. Implementation
5. Closure
1. Conceptual Phase
Preliminary evaluation of idea
Analysis of risk and resulting impact on time, cost, performance &company resource
First cut at feasibility of effort

2. Planning phase:
-Refinement of the conceptual phase for establishment of realistic, time, cost
and performance
-Initial preparation of document to support a system

3.Testing Phase
-Predominantly a testing and final standardization effort so that operations
can begin
-Almost all documentation must be completed in this phase
 4.Implementation phase
-Integrates the project’s productor services into the existing organization
-If the project was developed for establishment of a marketable product, then
this phase could include the product life-cycle phases of
-market introduction
Growth,
Maturity, and
Portion of deterioration
5.Closure Phase
-Includes resource reallocation
For example if the product of a company reaches at death and deterioration, new
product must be establish,& the company requires continuous stream of a project to
survive.
Serves as input to the conceptual phases for new projects and systems.
According to Erik and Clifford(2018)
 The project life cycle typically passes sequentially through four stages:
1. Defining
2. Planning
3. Executing
4. Delivering
1. Defining stage
 Specifications of the project are defined
 Project objectives are established
 Teams are formed
 Major responsibilities are assigned.
2. Planning stage
 The level of effort increases, and plans are developed to determine what the project will entail
 When it will be scheduled
 Whom it will benefit,
 What quality level should be maintained, and what the budget will be.
3. Executing stage
 A major portion of the project work takes place—both physical and mental.
 The physical product is produced (a bridge, a report, a software program).
 Time, cost, and specification measures are used for control.
 Is the project on schedule, on budget, and meeting specifications?
 What are the forecasts of each of these measures?
 What revisions/changes are necessary?
4. Closing stage: Closing includes three activities:
1. Delivering the project product to the customer
2. Redeploying project resources
3. Post-project review
 Delivery of the project might include customer training and transferring
documents.
 Redeployment usually involves releasing project equipment/materials to other
projects and finding new assignments for team members.
 Post-project reviews include not only assessing performance but also capturing
lessons learned
•Project cycle models
• There are various models that deal with project cycle.
• These project cycle models differ in their perspectives, emphasis and level of
details.
• The basic models are
• Baum’s cycle
• UNIDO and
• European Commission’s project cycle
1. The Baum cycle ( World Bank Procedures)
 The first basic project model is Baum cycle developed by Warren C
Baum in 1970 adopted by the World Bank by then.
 There are four main stages, namely,
1. Identification
2. Preparation
3. Appraisal & Selection and
4. Implementation
 In 1978 the author has added an additional stage called Evaluation
 This model amended in 1978 – to include “Negotiation” and “Evaluation
THE BAUM CYCLE

THE BAUM CYCLE

Identification

Evaluation
Preparation/Formulation

Implementation
Appraisal/ Selection

Financing
1. IDENTIFICATION
• First stage in the cycle – it is searching for and identifying potential/ feasible projects
ideas.
• Most projects start as an elementary idea.
 Resource-based project ideas – opportunity to make profitable use of available resources.
 Market-based project ideas – arising from identified demand in home or overseas markets.
 Need-based project ideas –to fulfill certain basic material requirements and services
(unsatisfied needs).
 Technical specialists may identify areas with technical deficiencies
 Local leaders- may provide information about existing problems and bottlenecks.
 Proposals to extend and/or expand existing programs/projects.
2. PREPARATION /FORMULATION … PROJECT DESIGN
 A progressively detailed preparation and analysis of the aspects of a project follows
identification.
 The project seriously considered as a definite investment action at this stage.
 Involves pre-feasibility and feasibility studies. Covers the establishment of:- commercial,
technical, institutional, financial, and socio- economic feasibility.
 Decisions made on the:
Scope of the project
Location and site
Soil and hydrological requirements
Project size( farm or factory size) etc .
Resource base investigations undertaken and alternative forms of projects are explored.
• Outcomes: distinct proposal(s) in terms of technical specifications, financial and
economic costs and benefits, institutional and managerial aspects etc
3. APPRAISAL AND SELECTION

 Critical review (independent appraisal) comes after preparation.

 Opportunity to re-examine every aspect of the project plan.
 Helps to determine whether the proposal is appropriate, sound, and acceptable or not
before large sums are committed.
 Appraisals should cover at least 7 aspects of a project
1. Technical: verifying whether what is proposed will work in the way suggested or not.
2. Financial: see if the requirements for money needed by the project have been calculated
properly, their sources are all identified, and reasonable plans for their repayment are made
where necessary.
3. Commercial: examine arrangements for acquisition of inputs and disposal (marketing) of
the products.
4. Incentive: examine whether the project is in the best interest of all the participants
(stakeholders).
5. Economic: verify project’s soundness from the viewpoint of the national economic
development interest, examine whether all project effects (positive as well as negative)
taken into account, and check if all are correctly valued.
6. Managerial: examine if capacity exists for operating the project, see if those
responsible ones can operate it project, satisfactorily and are given sufficient power and
scope to do what is required.
7. Organizational: examine the project if it is organized internally and externally into
units, contract, policy, institution, etc. to allow the proposals to be carried out properly,
and allow for change as the project develops
 Based on the appraisal report, decisions made whether to go ahead with the
project or not.
 The appraisal may also change the basic project plan or develop a new plan.
 Comments given at this stage frequently give rise to alterations in the project
plan (project proposal).
 Some projects may be discarded.
 Viable projects chosen for implementation after appraisal on the basis of the
priorities of stakeholders and available resources.
4. NEGOTIATION AND FINANCING
 Once the project to be implemented is agreed on, for donor funded projects,
discussions are held on funding and associated aspects of funding:-
Conditions for grants,
 Repayment period (for loans),
 Interest rates on loans,
 Flow of funds,
 Contributions from stakeholders, and
Whether there is co-financing or not.

 This culminates into an “Agreement Document” –binds all the parties

involved in the implementation of the project
5. IMPLEMENTATION
 Is the most important part of the project cycle.
 Funds actually disbursed to get the project started and keep running.
 Major priority: accomplishing the project in accordance with the basic plan (within cost,
quality, and time standards).
 Problems frequently occur as the economic and financial environment during
implementation often differ from the expectations at the time of appraisal.
 Original proposals frequently modified, though with difficulty, because of this it need here
agreement between the parties involved.
 Many of the real problems of projects faced at this stage.
 The feedback effects on the discovery and design of new projects.
 Deficiencies in the capabilities of the project actor can be revealed.
 Recording, monitoring, and progress reporting should integral parts..
 Allows the management to be aware of the difficulties that might arise.
6. EVALUATION
 Final phase in the project cycle -it is useful (though not always done)
 Look back what has been done in the past
 Compare actual progress with the plans
 Judge whether the decisions and actions taken were responsible and useful.
 Primary criterion for an evaluation: the extent to which the objectives of a project are being
realized.
 Systematically look at the elements of success and failure in the project experience.
 Helps to learn how to prepare better plan – future projects.
 Important managerial tool in on-going projects.
 May take place at several times in the life of a project.
 May be undertaken when the project is in trouble as the first step in a re-
planning effort.
• Careful evaluation should precede any effort to plan for new projects and it is
also needed to follow-up the progress of projects.
o Final evaluation – when a project is terminated or is well into routine operation.
 Different bodies or units may do the evaluation of projects.
• Projects management unit.
• Sponsoring agency (the operating ministry, planning agency, or an external
assistant agency).
2. The UNIDO (United Nations International Development Organization) Manual for Industrial Feasibility Study
outlines 3 distinct phases
A. The pre-investment phase
B. The investment phase
C. The operating phase

UNIDO Project Cycle

Pre-
Operating investment
phase phase

Investment
phase
1. THE PRE––INVESTMENT PHASE
 This phase also comprises several stages:
 Identification of investment opportunities (opportunity studies)
 Analysis of project alternatives and preliminary project selection
 Project preparation (pre-feasibility and feasibility studies)
 Project appraisal, selection, and investment decision
 Support or functional studies are also part of the project preparation stage and are
usually conducted separately, for later incorporation of the findings in a pre-
feasibility study or feasibility study as appropriate
The division of the pre-investment phase into stages:
1. OPPORTUNITY STUDIES
 Identification of investment opportunities is the starting point in a series of investment related
activities.
 Provides information on available investment opportunities.
 Purposes:
 highlight the principal investment aspects of a possible industrial proposition.
 arrive at a quick and inexpensive determination of salient facts of an investment possibility.
 The opportunity study should analyze:
 Natural resources
 The existing agricultural base (for agro-industries),
 Future demand for consumer goods,
 Imports substitution and export possibilities,
 Environmental impacts (mandatory or non-revenue producing projects),
 Expansions of existing capacity,
 Manufacturing sector (benchmarking from other countries), & Diversification, etc.
 2. PRE--FEASIBILITY STUDIES
 The project idea elaborated in a more detailed study.
• A feasibility study is a costly and time-consuming task
 Pre-feasibility study helps to see if:
 All possible project alternatives are examined,
 The project concept justifies detailed study,
 All aspects are critical and need in-depth investigation, &
 The project idea is viable and attractive or not
3. SUPPORT /FUNCTIONAL/ STUDIES
• Required as prerequisites for or in support of prefeasibility and feasibility
studies particularly for large-scale investment proposals
• Functional studies include:
 Market studies of products,
 Raw material and factory supplies studies,
 Laboratory and pilot plant tests,
 Location studies, Environmental impact assessment,
 Economies of scale studies, and
 Equipment selection studies.
D. FEASIBILITY STUDIES
 It should provide all data necessary for an investment decision.
 Commercial, technical, financial, economic, and, environment prerequisites for
an investment project should be defined, refined, and critically examined.
5. APPRAISAL REPORT
 Various parties will carry out their own appraisal of the investment project in
accordance with their individual:
 Objectives: Evaluation of expected risks, costs, and gains
2. The Investment/Implementation Phase
 This phase provides wide scope for consultancy and engineering work-primarily in the field
of project management.
 Comprises the following stages:
 Establishing the legal, financial, and organizational framework;
 Tendering, evaluation of bids, and negotiations;
 Technology acquisition and transfer;
 Detailed engineering design and contract, including tendering, evaluation of bids, and
negotiations;
 Acquisition of land, construction work, and installation
 Pre-production marketing, including the securing of supplies and suppliers and setting up
the administration of the firm;
 Recruitment and training of personnel; and
 Plant commissioning and start-up
 3. THE OPERATING PHASE
• ... Problems arising
 Short term view– relates to the initial, after commencement of production period
problems.
 Problems associated with the application of production techniques, operation of
equipment, or inadequate labor productivity owing to lack of qualified staff and
labor.
 Their origin is in the implementation phase – relatively easy to overcome due to
learning over time.
 Long-term view –problems that relates to chosen strategies and the associated
production and marketing costs as well as sales revenues.
 These have direct relationships with the projections made at the pre-investment
phase.
 If such strategies and projections prove faulty, any remedial measures if not made
there it will become, not only be difficult but, may prove highly expensive.
European commission project life cycle
1. Programming
2. Identification
3. Appraisal
4. Financing
5. Implementation
6. Evaluation
 DEPSA’s Project Cycle
• According to the Guidelines to project planning in
Ethiopia (1990) of Development Project Studies

Chapter Two
Authority (DEPSA), the project cycle comprises three
Pre-
major phases.
• Pre – investment
investment

• Investment and
Operation Investment • Operation
• The DEPSA’s project cycle is nearly identical with the UNIDO
project cycle.

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 DEPSA’s Project Cycle

• Each of these three phases may be divided into stages. The

Guideline has divided the above phases into six stages as follows:
Pre-
investment
 Identification

 Preparation Pre-investment phase

 Appraisal/decision
Operation Investment

 Implementation Investment phase

 Operation

 Ex-post evaluation Operation phase

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Project Management….

Work Smart Not Hard !!!