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PROJECT PLANNING AND ANALYSIS ,

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CHAPTER ONE: INTRODUCTION h

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PREPARED BY: ABDI SHAKUR M. HUSSEIN ELMI 2

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 The History and Concept of Project

The projects analysis techniques began in the 19th century on the

appraising of public projects. The first systematic study was started in 1930
when the U.S.A Corps desired a methodology to assess a dam project. But
Project appraisals that include cash flow analysis and sophisticated
techniques to evaluate project worthiness is not more that 50-60 years old.
When it comes to developing countries, it was first applied by international
organizations (agencies).
The first manual was produced by in Latin America in 1930. It was
concerned with forecasting techniques.

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 Cont…

In 1950’s and 60’s the opportunity cost of labor and proper distribution
criteria attached and then came the Organization for Economic Cooperation
and Development (OECD) manual in 1968. This manual presented the
theoretical base and based on neoclassical economics.
After this, in 1972, we had the United Nations Industrial Development
Organization (UNIDO) Guideline for Project Evaluation (New York, 1972),
prepared essentially by P.S. Dasgupta, S.A. Marglin, and A.K.Sen.
Later a book ”Project Appraisal and Planning for Developing countries”
byI.D.M. Little and J.A.Mirrlees (L & M) was published in 1974.
In 1975 a book called “Economic Analysis of Projects” was introduced by
Square and van der Tak. Tuesday,
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 CONT…

in 1978 George Irvin’s book “Modern Cost-Benefit Methods” was published.

project planning and analysis has a long history in financial and business
analysis. Project planning has always been used as a means of checking the
profitability of a particular investment by private firms (Financial analysis).
But; Projects are now assessed from the economy’s viewpoint instead of
only from the firm’s perspective.
The selection criteria have also included economic criteria on top of
financial criteria.
Moreover, the welfare aspect of project is also getting more and more
attention.
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 Project Definition

There are many definitions of a project and many different types of

projects. The simplest way to understand a project is to identify the
following common characteristics:
1. it has a specific starting and finishing time,
2. it has usually geographical and sometimes organizational boundary,
3. it has clearly defined set of objectives,
4. it entails the investment of scarce resources in the expectation of future
benefit, and
5. it may be planned, financed and implemented as a unit
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 CONT…

Therefore, a project can be defined as an investment activity with definite

objective at specific location in which scarce resources are expended to
create capital assets that produce additional benefits over an extended
period of time
A project is a complex set of activities where resources are used in
expectation of return and which lends itself to planning, financing
and implementing as a unit.

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 Approaches to Project Planning

1. Top-down approach – by central agencies which is best for new

endeavors.
2. Bottom-up approach – people centered or starts from the grassroots and
it is community based approach.
3. Participatory approach – it is a blended top-down and bottom-up
approaches and it is a balance to strike between the two extremes. This
approach brings about ownership feeling, commitment and confidence of
stakeholders.

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Traditional and New Approach to Project Appraisal

Traditional (old) method: Emphasize growth objectives (i.e., it

excludes equity objectives). Its justification for ignoring equity objective
because it is thought that government use fiscal means (tax and
subsidies) to redistribute to projects desired income in a society – market
correction is incomplete.
New approach: Assumes that all units of income do not make the same
contribution to growth. The distribution between poor and rich people is
not equally treated. More weight is given to the poor in the new
approach. The new methodology is based on UNIDO guideline, L & M and
Square and van der Tak (LMST).
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 Data (Information) Needed in Project Planning

1. Physical data: assessment of physical resources in the project. This may include:
Soil, Surface and ground water, Climetical data.
2. Technical data: These data may include the existing technology information. The
information about inputs and outputs.
3. Demographic data: information on target population, household, number of
people etc.
4. Socio cultural and institutional factors: Traditions, culture, perception of
development, class structure, ethnic groups, social facilities, administration, etc.
5. Economic data: regional data, national economic data, international economic
data, etc.
These data helps us to assess the current situation and gives possibility of Tuesday,
forecasting. The data mostly will be both cross sectional and time series data.
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 The linkage between projects, programs and development plan

Organic Link between Policy, Development Plan and Projects:

The policy framework defines the context for periodic development plans
(short-, medium- and long-terms plans) which then require specific
instruments for implementation. Projects are the policy and plan
instruments, a particular decision scheme meant to convert policies and
plans into reality. So we have this generic scheme:
Policy changes⇒ Development Plans ⇒ Programs ⇒ Projects ⇒ Outcomes
Promoting projects with out having development policies and plans will lead
to scattered/dispersed and unorganized development endeavors.

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 CONT…

Policies and plans without projects means non-implementation, paper tiger

decision makers, having policy and plan documents for other purposes.
The linkage between projects and programs:
A project refers to an investment activity where resources are used to create
capital assets, which produce benefits over time and has a beginning and an
end with specific objectives. A program is an ongoing development effort or
plan involving a number of projects. Programs may or may not necessarily be
time bounded. There for the program is a wider concept than a project.
Note that projects can stand alone without being part of certain program. So
one can visualize the possibility of policies → development plans → projects
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 CONT…

Example: CSRP; / Civil Service Reform Program includes the following sub
programs( projects)
1. Expenditure management sub program/component/ that include: a.
Accounts and financial management; b. Materials management.
2. Budget reform component;
3. Human resources management component; a. Human resources
management system; b. Motivation and incentive system; c. HR data base;
d. Training project;
4. 4. Leadership component;
5. 5. Governance and Accountability component. Tuesday,
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 CONT…

The basic characteristics of projects. Projects in general need to be

SMART
1. S – Specific A project needs to be specific in its objective
2. M – Measurable: Projects must designed in such a way that investment,
production activities, benefits expected, financial, economic and all other
project activities should be identified and valued in monetary term.
3. A – Area bounded: The projects are said to be area bounded.
4. R – Real Planning of a project and its analysis must be made based on real
information. Planner must make sure whether the project fits with real
social, economic political, technical, etc situations.
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5. T – Time bounded A project has a clear starting and ending point. March 3,
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 Project Analysis

All countries, particularly the developing countries, are faced with the basic
economic problem of allocating resources, such as labor capital, land and
entrepreneurship and foreign exchange, etc.
These resource can be used in different; such as current production of
consumer goods and public services or investment on infrastructure,
industry, agriculture, education and other sectors.
A choice therefore has to be made among competing uses of resources
based on the extent to which they help the country achieve its fundamental
objectives.
If a country consistently chooses allocations of resources that achieve most
in terms of these objectives, it ensures that its limited resources are March
put3, to
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 Cont…

Project analysis is a method of presenting this choice between competing

uses of resources in a convenient and comprehensible fashion.

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 The Project Format: Advantages and Limitations

Advantages of the project format:

It establishes the framework for analyzing information from a wide range of
sources (framework to analyze information from many sources).
Since a good plan depends on accuracy of information, the framework enables
various specialists to judge the accuracy of the information provided (framework
to involve many specialists).
The format also gives an idea of costs year after year, so that those responsible for
providing the necessary resources can do their own planning (cost year by year)
Project format would give the chance to assess the financial impact of a project on
each participants of the project. It would also enable the analyst to identify
‘gainers’ and ‘losers’ in the project area (Estimate effects on participants) Tuesday,
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 CONT…

1. criteria for monitoring progress of implementation

2. The project format also enables us to systematically examine different
alternatives (encourage systematic examination of alternatives).
3. Another advantage of the project format will be to help contain the data
problem.

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 CONT…

Limitations of the project format:

The quality of project analysis depends on the quality of the data used and of
the forecast of costs and benefits (depends on the quality of data used).
The technique of project analysis provides limited support in judging the risk
and uncertainty surrounding the project (limited usefulness in judging risk).
But the question is how are these risks and uncertainty being taken in to
account in the analysis and choice of projects? there are such techniques as
sensitivity analysis, Monte Carlo simulation analysis, decision tree
analysis, etc. that are used to measure the risk and uncertainty in the project,
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these tools we will discuss later chapters in detail. March 3,
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 CONT…

1. Project format is ‘partial analysis’ so, project analysis treat each project
independent of the whole economy and usually lacks consistency and
overall feasibility. Therefore, it is not to translate directly the net-benefits of
projects to the overall economy.
2. The greater the difference among alternative projects the more difficult it
would be to use formal analytical techniques to compare them (difficult to
compare widely differing projects).
3. Limitations of prices as indicators of value

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CONT…

THE END
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