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

• A clear understanding of the life cycle by dividing project life cycle into
phases of a project:
 Permits managers and executives to better control resources to achieve
goals
 Facilitates investment promotion and provides a basis for project
decision & implementation
 Important to understand the role to be played by different actors of the
project
• However, due to the complex nature and diversity of projects, there is no
agreement about the life cycle of projects.
• But still, for life cycle of project to be understandable, the two
common project cycle referred as:
• The Baum(World Bank) Project Cycle
• The UNIDO Project Cycle
1. The Baum(World Bank) Project Cycle
The Baum cycle- primarily reflects the series of activities and
procedures to the development of investment
projects(development projects) to be financed by the World
Bank.

The Project , in the Baum Cycle, constitute six distinctive

phases- See Fig 1
Identification
Preparation
Appraisal
Negotiation
Implementation & Supervision
Evaluation
 Identification
on
t i
u a
val
E

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 would be carried out-

• To compare different technical &institutional alternatives and,
• To identify the solution most appropriate to the country’s
resource endowment & its stage of development

• The borrower examines the technical, institutional, economic &

financial condition necessary to achieve project objective and,

• The bank provides guidance & makes financial assistance available

for preparation or helps the borrowers obtain assistance from
other sources

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

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• Involves a comprehensive & systematic review of all aspects of the
project BY THE BANK
• Primarily covers four major aspects-
• Technical,
• Institutional,
• Economic,
• Financial
• Lays the foundations for project implementation & evaluation

• During this process:

• The project may be extensively modified or redesigned
• An appraisal report is drafted by the bank outlying the findings of the appraisal
and making recommendation for the terms and conditions of the loan

• An appraisal report serves as a basis for negotiations with the

borrower
 Cont’d
• The project is viewed from different perspectives; technical, commercial,
financial, economic, managerial and organizational.

• Technical –
here the appraisal concentrates in verifying whether what is proposed will work
in the way suggested or not.

• Financial –
the appraisals try to see if the requirements for money needed by the project
have been calculated properly, their sources are all identified, and reasonable
plans for their repayment and other necessary circumstances are properly
identified and calculated.
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 • Commercial
the way the necessary inputs for the project are
conceived to be supplied is examined and the
arrangements for the disposal of the products are
verified.

• Economic
the appraisal here tries to see whether what is
proposed is good from the viewpoint of the national
economic development interest when all project
effects (positive and negative) are taken into account
and check if all are correctly valued.
 • Managerial
this aspect of the appraisal examines if the CAPACITY
exists for operating the project and see if those
responsible ones can operate it satisfactorily.
Moreover, it tries to see if the responsible bodies are
given sufficient power and scope to do what is required.
• Organizational
the appraisal examines the project if it is organized
internally and externally into units, contract policy
institution, etc so as to allow the proposals to be carried
out properly and to allow for change as the project
develops.
• 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:-

1. Opportunity studies [Identification of investment opportunities]

2. Pre Feasibility Study [Analysis of project alternatives,
preliminary selection]
3. Preparation [Feasibility study]
4. Appraisal and Investment Decision [Appraisal report]
A. Identification(Opportunity Studies)
• It is the starting point in series of investment related activities
• TO GENERATE INFORMATION on newly identified viable
investment opportunities, the sector(macro economic) and the
enterprise(micro economic) approach to project identification will be
taken
• Identification of investment opportunities is the starting point for those
who are interested in OBTAINING INFORMATION on newly identified
viable investment opportunities.
• An opportunity study should identify investment opportunities or project
ideas by analyzing the following factors in detail:
 Availability of natural resources
 Future demand for goods, increasing population, purchasing power
 Exports and import substitution
 Environmental impact assessment
 Functioning similar project of other countries
 Possible linkages with other industries
 Extension by backward and forward linkage
 Industrial policies
 General input climate of economy
 Expansions to an existing project to have large scale of economy
 Export potential
 Availability and cost of production factors
• In summary, these opportunity studies can be categorized as area studies, industry studies
and resources based studies.
• At the sector level, it will require an analysis of the overall investment potential of
countries
• At the enterprise level, it will necessities identification of specific investment
opportunities.
• Key questions
a. Where is the demand?
b. Is this project consistent with the organization’s expertise, current plans and strategy for the future?
B. Pre-Feasibility Study/Preselection
• Objective of prefeasibility:
• To examine overall potential of project
• To determine whether
• All possible project alternatives have been examined
• The project concept justifies a detailed analysis by
feasibility study
• The project idea ,on the basis of available information,
should be considered as either non viable or attractive
enough for a particular investor or group
• Should maintain information across all variables to analyze that:
• Project or corporate strategies and scope of a project
• All possible alternatives should be examined
• The project concept should be justified with detailed analysis
• A critical area necessitates in-depth investigation is required
• Project idea is either attractive for investment or non-viable
• The environment situation at the site in line with national
standards
• Support functional studies to convert specific areas such as:
• marketing
• Raw material and factory supplies
• laboratory and Oliphant testing
• location
• Environmental impact assessment
• Economics of scale and
• Equipment selection
• Wherever possible should use secondary information
C. Feasibility Study
• Provide all data necessary for an investment decision
• The commercial, technical, financial, economic &environmental
dimensions of a project should be defined & critically examined on
the basis of alternative solutions already reviewed in prefeasibility
study

• Focus is on improving accuracy of the key variables

• Although feasibility studies are similar in content to the prefeasibility,
it must be worked out with greatest accuracy in an iterative
optimization with feedbacks & inter linkages

• Some primary data may be needed

• All the assumptions made, data used &solution selected in feasibility
study should be described &justified.
D. Appraisal
• Once feasibility is completed, various parties involved in the project will
carry out their own appraisal of investment project
• Project appraisal as carried out by financial institutions concentrate on:
• The health of the company to be financed, The return on
investment, The protection of its creditors
• In general, the techniques applied to appraise projects center around
• Technical, commercial/market, managerial, organizational,
financial and possibly also economic aspects
• Each project proposal is subjected to sensitivity analysis
• In order to take care of multiple adjustments of input
&output factors and risk analysis
• In order to appraise the uncertainties attached to project
data & alternatives.
• Appraisal report doesn’t deal with the project but also with the industries
in which it belongs and its implication for the economy as a whole
 II-Investment Phase
Provides wide scope for consultancy and engineering work
The investment phase can be divided in to the following stages.
• Establishing the legal, Financial and organization basis
• Detailed engineering design and contracting , including
tendering, evaluation of bids and negotiations.
• Technology acquiring and transfer
• Acquisition of land for construction work and installation
• Pre-production marketing, including the securing of supplies
and setting up the administration of the firm.
• Recruitment and training of personnel
• Plant commissioning and start- up
 Any delay or gaps in planning of one of the above mentioned
stages would have a negative effect on the successful
implementation of projects
 Hence, there is a need of careful scheduling using various methods
such as CPM & PERT
 Monitoring and Control would be required
 A continuous comparison of the forecast made in feasibility study with
the actual investment and production cost data occurred during
investment phase would be required
 In order to track the resultant change in the overall profitability
which may in turn require adjustment in financing of projects
III-Operation Phase
• This phase concludes the life of project cycle
• Involves day to day operation of the completed project, and
• is expected to yield results which meet the original objectives
for which the project had been conceived, formulated and
implemented.
• Problems to be considered in operation phase:
• In the short term view:
• Relates to the initial period after the commencement of production when a
number of problems may arise concerning such as:
• The application of production techniques, operation of equipment or inadequate
labor productivity owing to lack of qualified staff & labor
• Most of these problems have their origin in the investment phase
• In the long term view:
• Relates to the chosen strategies and the associated production costs & marketing
costs as well as sales revenue
• These problems have a direct relationship with the projection made at pre
investment phase.
 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

1. Defining the project objectives,

2. Planning the work to achieve those objectives,
3. Performing the work,
4. Monitoring and controlling the progress, and
5. Closing the project after receiving the product acceptance.
Cont’d...

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Cont’d....

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

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

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 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.

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3.5. Monitoring and controlling Process Group
• Monitoring and controlling includes defending the project against
scope creep (unapproved changes to the project scope),
monitoring the project progress and performance to identify
variance from the plan, and recommending preventive and
corrective actions to bring the project in line with the planned
expectations in the approved project management plan.

• Requests for changes, such as change to the project scope, are also
included in this stage; they can come from you or from any other
project stakeholder. The changes must go through an approval
process, and only the approved changes are implemented. The
processes used in this stage fall into a group called the monitoring
and controlling process group.

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 3.6. Closing Process Group
• In this stage, you manage the formal acceptance of the project
product, close any contracts involved, and bring the project to an
end by disbanding the project team.

• Closing the project includes conducting

• a project review for lessons learned and
• possibly turning over the outcome of the project to another group, such as the
maintenance or operations group.
• Celebration.
• Terminated projects (that is, projects cancelled before completion)
should also go through the closing stage.

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

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Chapter End!