CRD 426 MODULES

COURSE
GUIDE

CRD 426
DEVELOPMENT PLANNING

Course Team: Amoo, Z. O Ph.D (Course Developer/Writer)

LASU

Ass Prof. Ajombadi – (Course Editor)

KWASU

Lawal, K.A.A PhD (Head of Department)

National Open University of Nigeria

Dr. Ishola T.O: (Dean)

Faculty of Management Sciences,
National Open University of Nigeria

NATIONAL OPEN UNIVERSITY OF NIGERIA

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CRD 426 DEVELOPMENT PLANNING

National Open University of Nigeria

Headquarters
University Village
Plot 91 Cadastral Zone
Nnamdi Azikiwe Expressway
Jabi, Abuja.

Lagos Office
14/16 Ahmadu Bello Way
Victoria Island, Lagos

e-mail: [email protected]
URL: www.noun.edu.ng

Published by:
National Open University of Nigeria

ISBN:

Printed: 2017

All Rights Reserved

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CRD 426 MODULES

INTRODUCTION

This course guide explains in brief what DEVELOPMENT

PLANNING is all about. It is a semester, 3-credit, B.Sc Cooperative
and Rural Development course. The course is made up of thirty units
and the units are collapsed in five modules.

The overall aim of DEVELOPMENT PLANNING is to enable you

understand the strategic measurable goals that a person, organization or
community plans to meet within a certain amount of time.

Usually the development plan includes time-based benchmarks. It

generally also includes the criteria that will be used to evaluate whether
or not the goals were actually met.

COURSE AIMS

To achieve the stated aims, the course sets specific objectives at the
beginning of each unit which you should read before studying the unit.
You should endeavour to look at the objectives after completing each
unit to ensure that they meet the requirements.

To complete the course, you are required to study the units, read the
textbooks and other materials which will be provided by the National
Open University of Nigeria. Each unit contains activities and tutor-
marked assignments for assessment purpose.

There is a final examination at the end of the course.

There are two parts of assessment of the course. First answering the
tutor- marked assignments, and second there is a written examination.
When computing the assignments, it is expected of you to apply the
knowledge required during the course. There are thirty tutor-marked
assignments in this course and you are encouraged to attempt all.
However, you only need to submit twelve of the thirty assignments. The
highest five of the twelve marks will be counted.

Each of the five assignments counts 8% toward your total course marks
(8% X 5) = 40%. The final written examination for this course will be
of three hours duration and will have a maximum value of 60% of the
total grade.

The examination will consist of questions which reflect the course

content.

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Table 1: Marking Scheme

Assignment Marks
Assignments 1-12 Ten assignments, best five of the ten counts
8% each (8 X 5 = 40%) of course marks
Final examination 60% of overall course marks
TOTAL 100% OF COURSE MARKS

The time between completing the last unit and sitting for the
examinations will consist of questions, which reflect the course content.

The time between completing the last unit and sitting for examination
should be used to revise the course. It may be useful to review your
activities and tutor- marked assignments before the examinations.

The breakdown of the course marking scheme can be read from this
table.

One of the great advantages of distance learning is that you can read
through specially designed materials at your own pace, and at a time and
place that suit you best.

It may take place in an isolated village with a hurricane lamp or in an

urban centre with electricity but the lectures (replaced by study units) is
the same.

Just as a lecturer might give you an in-class exercise, your study unit
provides activities and tutored marked assignments for you to do at
appropriate points.

Each of the units follows a common format in this sequence:-

introduction to the subject matter, objectives (let you know what you
should be able to do by the time you have completed a particular unit);
the main body of the unit (guides you through the required reading with
activities), conclusion, summary, tutor-marked assignments; and further
readings. Activities are meant to help you achieve the objectives of the
unit and prepare you for the tutor-marked assignments and the final
examination. When you have submitted an assignment to your tutor, do
not wait for its return before commencing work on the next unit. When
the marked assignment is returned, go through the comments of your
tutor carefully and mail any questions or any difficulty encountered to
him/her.

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MODULE 1 THE CONCEPT OF PLANNING AND

PLANNING PROCEDURE

Unit 1 The Concept of Planning and Planning Process

Unit 2 Development Planning
Unit 3 Agricultural Development Planning

UNIT 1 THE CONCEPTS OF PLANNING AND

PLANNING PROCESS

CONTENT

1.0 Introduction

2.0 Objectives
3.0 Main Content
3.1 Definitions of Planning
3.2 Types of Planning
3.3 On the basis of Nature
3.3.1 On the Basis of Managerial Level
3.3.2 On the Basis of Time
3.3.3 On the Basis of Use
3.4 Planning Process
3.5 Guidelines in the Formulation of a Good Plan
3.6 Types of Planning Process
3.7 Factors Leading to the Failure of the Planning
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

Planning is based on the theory of “thinking before acting”. Planning is

an integral part of our life. We make plans in each and every step of life
whether it is to go to school or to buy household goods during shopping.
We make plans according to the limitations of our budget and resources
to get maximum satisfaction and to fulfill goals from out activities.

Planning is the most basic and primary function of management. It is the

pre-decided outline of the activities to be conducted in the organization.
Planning is the process of deciding when, what, when where and how to
do a certain activity before starting to work.
It is an intellectual process which needs a lot of thinking before a
formation of plans. Planning is to set goals and to make certain

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guidelines achieve the goals. Also, Planning means to formulate

policies, segregation of budget, future programs etc. These are all done
to make the activity successful.

All other function of management is useless if there is not proper

planning system in an Organization. So planning is the basis of all other
functions. Thus Planning is the map or a blueprint for the organization.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

 explain why Planning is very important in our society

 explain the concept of planning in different ways
 outline the types of planning based on the factor originating it

3.0 MAIN CONTENT

3.1 Definitions of Planning

According to Theo Haimann, “Planning is deciding in advance, what is

to be done. When a manager plans, he projects a course of action for the
future, attempting to achieve a consistent, coordinated structure of
operations aimed at the desired results.”
According to Alford and Beaty, “Planning is the thinking process, the
organized foresight, the vision based on fact and experience that is
required for intelligent action.”
According to ME. Hurley, “Planning is deciding in advance what is to
be done. It involves the selection of objectives, policies, procedures and
programs from among alternatives.” (Sharma, Surendra Raj; Jha ,
Surendra Kumar; 53-60)

3.2 Types of Planning

Any organization can have different plans. We can classify the types of
plans in the following ways:

3.3 On the basis of Nature

 Operational Plan: Operational plans are the plans which are

formulated by the lower level management for short term period
of up to one year. It is concerned with the day to day operations
of the organization. It is detailed and specific. It is usually based
on past experiences. It usually covers functional aspects such as
production, finance, Human Resources etc.

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 Tactical Plan: Tactical plan is the plan which is concerned with

the integration of various organizational units and ensures
implementation of strategic plans on day to day basis. It involves
how the resources of an organization should be used in order to
achieve the strategic goals. The tactical plan is also known as
coordinative or functional plan.
 Strategic Plan: Strategic plan is the plan which is formulated by
the top level management for a long period of time of five years
or more. They decide the major goals and policies to achieve the
goals. It takes in a note of all the external factors and risks
involved and makes a long-term policy of the organization. It
involves the determination of strengths and weaknesses, external
risks, mission, and control system to implement plans.

3.3.1 On the Basis of Managerial Level

 Top level Plans: Plans which are formulated by general

managers and directors are called top-level plans. Under these
plans, the objectives, budget, policies etc. for the whole
organization are laid down. These plans are mostly long term
plans.
 Middle-level Plans: Managerial hierarchy at the middle level
includes the departmental managers. A corporate has many
departments like purchase department, sales department, finance
department, personnel department etc. The plans formulated by
the departmental managers are called middle-level plans.
 Lower level Plans: These plans are prepared by the foreman or
the supervisors. They take the existence of the actual workplace
and the problems connected with it. They are formulated for a
short period of time and called short term plans.

3.3.2 On the Basis of Time

 Long Term Plan: Long-term plan is the long-term process that

business owners use to reach their business mission and vision. It
determines the path for business owners to reach their goals. It
also reinforces and makes corrections to the goals as the plan
progresses.
 Intermediate Plan: Intermediate planning covers 6 months to 2
years. It outlines how the strategic plan will be pursued. In
business, intermediate plans are most often used for campaigns.
 Short-term Plan: Short-term plan involves pans for a few weeks
or at most a year. It allocates resources for the day-to-day
business development and management within the strategic plan.
Short-term plans outline objectives necessary to meet
intermediate plans and the strategic planning process.

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3.3.3 On the Basis of Use

 Single Plan: These plans are connected with some special

problems. These plans end the moment of the problems to be
solved. They are not used, once after their use. They are further
re-created whenever required.
 Standing Plan: These plans are formulated once and they are
repeatedly used. These plans continuously guide the managers.
That is why it is said that a standing plan is a standing guide to
solving the problems. These plans include mission, policies,
objective, rules and strategy.

Hence these are the basic types of plans in any organization (Shrestha:
Pg. 58-65).

3.4 Planning Process

Planning is a complex process which requires high level of studies and

analysis. Process of planning includes the determination of objectives
and outlining the future actions that are needed to achieve these
objectives. To create a plan there must be determination of objectives
and outlining of the course of action to achieve the goals. There is no set
formula for planning. A planning process which is suitable for one kind
of organization may not be suitable for another type of organization.

3.5 Guidelines in the Formulation of a Good Plan

1. Analysis of the environment: Planning begins with the

awareness of the opportunities in the external environment and
within the organization. For this SWOT analysis is most suitable.
Strength and weaknesses are the internal factors whereas
opportunities and threats are the environmental factors which are
to be analyzed.
2. Setting the objectives: The second step of planning is to set
objectives and goals for the organization as a whole and for each
department. Long term, as well as short-term plans, are to be
created. Objectives are specified to each and every manager and
department head. Objectives give direction to the major plans. So
managers should have an opportunity to contribute their ideas for
setting their own objectives and of the organization.
3. Develop premises: Planning premises are the assumptions about
the future on the basis of which the plans will be ultimately
formulated. Planning premises are the key to the success of
planning as they supply pertinent facts and information regarding
the future such as general economic conditions, production cost,

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and prices, probable competitive behavior, governmental control

etc. Forecasting is an essential part of premises.
4. Determine and evaluate alternatives: The fourth step is to
search and identify the alternative course of action. It suggests
that a particular objective can be achieved through numerous
ways. But the most relevant alternatives must be listed down so
that selection is made easier. Once various alternatives are
identified, they must be well analyzed with their strong and weak
points.
5. Selection of Best Alternative: This is the point where the certain
plan is adopted. When the alternatives are determined most
suitable alternative must be chosen out from the list which can
give maximum output with minimum risk.
6. Formulation of a derivative plan: Derivative plans are the
backing plans which are very essential. Once the basic plan has
been formulated, it must be translated into day to day operation
of the organization. Middle and low-level managers must draw
up the appropriate plans, programs and budget for their sub-units.
7. Budget formulation: After decisions are made and plans are set
the next step is giving them sufficient funds to carry them out.
Optimum budgeting must be done for every course of action.
8. Implementation of a plan: Once the plans are set up, now the
plans must be well informed and shared with the employees and
managers expecting full commitment and trust. Finally, the plans
must be carried out.
9. Follow up action: Obviously once a plan is carried out it
generates certain output. The progress must be well monitored
and managers need to check the progress of their plans so they
can take necessary steps to improve the plans if needed.
10. Hence these are the nine steps to formulate a proper plan.

3.6 Types of Planning Process

1. Planning Hierarchy

The concept of the feeling of the plans at the different hierarchical levels
can be understood a great deal with the help of the planning hierarchy.
Here the different plans are treated as the hierarchy, involves going
towards the lowest hierarchical plan from the broader hierarchical plan.
The planning hierarchy mainly consists of the following type of the
plans:

1. Business plans – These types of the plans include whole of the

business.
2. SBU plans – These plans act as the strategic business unit plans
including the business units.

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3. Corporate Plans – These plans act as the plans of the

organization involving its activities. It is the total plan for the
whole organization, a corporate body working as a functional
unit. The complete unit is covered under such plans.
4. Departmental plans – These plans are also referred to as the
functional unit plans and cover the branches, the projects, the
departments, the units that are separated for the functional
efficiency.

2. Conceptual planning

Provides some type of the guidance for the planning but the major
drawback in this type of the planning is that the planning unit is not at
all visible, whose presence is very much critical in the planning. The
conceptual planning must consist of the following:

1. Policy – One time decision i.e. usually effective for a length of

the time.
2. Objectives – Focus direction of an achievement and the general
outcome.
3. Goals – Very well defined quantitative or the numerical
objectives by the end of a particular period with the plan. The
practical orientation to the implementation of the plans is
obtained here.
4. Procedures – Process rules that are carrying out the action.
5. Rules – Fixed direction unless expressly revised.
6. Budgets – Plans converted to the quantities and in the terms of
the money having the feature of the interpretation in the statistical
and the accounting terms.
7. Vision Statement – The statement includes the purpose
operating for the future and then to take the others in the vision
fold of the organization.
8. Mission – The purpose of offering the goods and the services in
the terms of the beneficiary.
9. Variable plans – In order to satisfy the different types of the
contingencies, it is a necessity to draw different types of the
plans. The variations may include drawing a realistic plan and
then following this step by the preparation of an optimistic and
pessimistic plan.

3. The Plan document

For getting a planned document, all the above steps are performed and
during this, one particular thing to keep in mind is that the plan must
start with the broader objectives and must be linked step by step to the

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actionable and the implementation activity. The plan document must

consist of the following:

a. Premising – This step is needed at the each stage of the planning.

Before undertaking the plan, the strength, the weakness, the
opportunity and the threats (SWOT) can be calculated depending
on the premises.
b. Vision – The way in which we visualize our future.
c. Mission – What we aim to deliver to the beneficiaries.
d. Policy – What restrictions on means we will note during the
execution of the plan.
e. Objectives – What we will keep as the broad directions for the
achievement.
f. Goals – Translate the objectives into the quantitative and the
financial goals, which can be achieved by the operational people.
g. Procedures – To prioritize and then draw the sequence of the
action.
h. Budget – Convert to the money terms in order to establish the
standards for the evaluation.

4. The program

Whenever any activity is carried out, it is carried out to achieve one

thing or the other. But the results that one expects to be obtained must
be achieved in the proper frame of the time, so that they can be used at
the right time for various other activities. Hence, in order to get the
results within the certain time frame, a program is drawn.

The projects of the diverse nature within a subject are included in the
program. The program is actually a clubbing together of the things and
for getting a good view of the word program, it can be understood as the
plan document on a much wider scale than the planning document.

3.7 Factors Leading to the Failure of the Planning

1. Inadequate Preparation.
2. Lack of the study.
3. Lack of the vision mars planning efforts.
4. Becomes very haphazard when it is done for a certain group and
when many plans are built based on the compromises.
5. Lack of clarity in the objectives and the goals.
6. Absence of the feedback.
7. Lack of the staff control.
8. Inadequacy in defining the various businesses.
9. Absence of the review.
4.0 CONCLUSION

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Whatever we do or perform in our day today life, which may include

doing some work at the job or may be doing some work at the home, to
do it in an efficient way and to obtain good results it is very necessary to
plan every – thing so that one is prepared for the various activities
involved in the process and is able to face any type of the problem that
may arise during the process.

We can always learn from the past and at the same time we can also
plan for the future, depending on the past and the present. But one major
fact is that we can act or take any type of the action only in the present.
The mistakes that have been committed in the past can be improved by
taking various steps in the present. In the future we can only plan and
think but cannot perform anything but when the time for the action
comes, it becomes easy to understand everything and take any type of
the action with more ease.

Very careful thinking and the planning is very essential, as it saves a lot
of time and also the cost is brought down. Hence, the planning can be
defined as the process of deciding the future course of the actions in
terms of the time, the performance and the cost.

5.0 SUMMARY

In the process of the planning, the importance of the time is very much
critical in the nature and has been regarded as the most important
criteria in the process of the planning, by the various system analysts. It
is very important that we look into the future and then plan everything
and get prepared and ready for the different types of the situations that
may arise but one very important point to remember here is that whole
the time we cannot and should not look into our future. We should look
as far as we think it’s worthwhile to do something in the present to make
such a future feasible in the nature.

The planning is not just to think about the future but it also involves the
forecasting and the prejudging of the future and then forming some lines
of the action. The more one thinks of the future, the more one is able to
amend the present.

The words short term and the long term indicate the comparison of the
time. The short run can be defined as a clear foreseeable future for
which the definite actions can be taken but in the case of the long run,
one can surely foresee but various definite actions cannot be taken like
in the case of the short run. The above explained points are very
important to be understood as the whole concept of the planning is
largely based on these references.

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The decisions that are taken in the short run can sometimes prove to be
very inconsistent in the nature. With the longer run thinking, more
stability creeps into the operations of the business but these decisions
are also accompanied with more number of the risks of various things
going wrong.

6.0 TUTOR-MARKED ASSIGNMENT

1. Planning is said to be more than just the formulation of

quantitative economic targets.
2. It is often described as a process. What is meant by the planning
process, and what are some of its basic characteristics?

7.0 REFERENCES/FURTHER READINGS

Neupane, Surendra; Parajuli, Ram Prasad; Jha , Deepak Kumar; Chettri,

Tuk Bahadur; Dulal, Gopal Prasad;. "Business Studies: Class :
XII." Kathmandu: Nawakala Publishers, 2011.

Sharma, Surendra Raj; Jha , Surendra Kumar;. "Business Studies :

Grade XII." Kathmandu: Sukunda Pustak Bhawan, 2011.

Shrestha, Kul Narsingh. "Business Organization and Management."

Kathmandu: Nabin Publication, 2065 BS.

UNIT 2 DEVELOPMENT PLANNING

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Development Planning
3.2 Categories of Development Planning
3.3 Nonprofit Development Planning
3.3.1 Personal Development Planning
3.3.2 Individual Development Planning
3.3.3 Professional Development Planning
3.3.4 Urban Development
3.4 The Rationale for Development Planning
3.4.1 Market Failure
3.4.2 Resource Mobilization and Allocation
3.4.3 Attitudinal or Psychological Impact
3.4.4 Foreign Aid
3.5 The Nature of Development Planning

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3.5.1 Economic Planning

3.5.2 Economic Plan
3.5.3 Comprehensive Plan
3.5.4 Partial Plan
3.5.5 Planning Process
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

In the initial decades after World War II and decolonization, the pursuit
of economic development was reflected in the almost universal
acceptance of development planning as the surest and most direct route
to economic progress.

Until the 1980s, few people in the developing world would have
questioned the advisability or desirability of formulating and
implementing a national development plan. Planning had become a way
of life in government ministries, and every five years or so, the latest
development plan was paraded out with great fanfare.

Development planning was widely believed to offer the essential and

perhaps the only institutional and organizational mechanism for
overcoming the major obstacles to development and for ensuring a
sustained high rate of economic growth.

To catch up with their former rulers, poor nations were persuaded that
they required a comprehensive national plan. The planning record,
unfortunately, did not live up to its advance billing. But a
comprehensive development policy framework can play an important
role in accelerating growth, reducing poverty, and reaching human
development goals.

2.0 OBJECTIVES

The main objective is to examine the roles and limitations of planning

and development policymaking as practiced in developing nations.

At the end of this unit, you should be able to:

 define development planning

 explain the categories of development planning
 explain the rationale for development planning.

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3.0 MAIN CONTENT

3.1 Definition of Development Planning

Development planning happens in many different contexts so to define

it succinctly is tricky. Basically development planning refers to the
strategic measurable goals that a person, organization or community
plans to meet within a certain amount of time. Usually the development
plan includes time-based benchmarks. It generally also includes the
criteria that will be used to evaluate whether or not the goals were
actually met.

3.2 Categories of Development Planning

3.3 Nonprofit Development Planning

Development has a particular meaning for nonprofit organizations such

as universities and charitable groups. In this context, development
planning refers to all of the various activities related to fund raising:
grant writing, donor relations, capital campaigns, annual fund drives and
fund-raising events. The larger the organization, the more likely it is to
employ a development officer who may be responsible for a whole
department devoted to development. In short, the development officer
elicits and coordinates the donated revenues that make up a large portion
of any nonprofit budget. Development planning for a nonprofit
organization means to set calendar milestones for the fund-raising goals
and then figure out what activities must be done to achieve them.

3.3.1 Personal Development Planning

Many employers ask their employees to write down their personal goals
in a formal process that they call personal development planning. One
person may write a development plan that is focused on advancing her
career through additional education. Another person's development plan
may involve planning for retirement, while still another person's
development plan might include losing a specific amount of weight or
starting a program of exercise. Usually some of the personal
development plan goals have to relate to the job itself, but progressive
companies like Monsanto, for example, encourage the employees to set
targets that are specifically meaningful to the individual. The personal
development plan may become part of a company's annual review
process.

3.3.2 Individual Development Planning

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Post-doctoral fellows use a development planning process to organize

their plan of study into a document called the Individual Development
Plan, or IDP. This provides a mechanism for the fellow to assess
himself. Then he has a set of written goals for future growth or
achievement based on a time line for which, according to the plan, he is
held accountable by a mentor.

3.3.3 Professional Development Planning

Several states including Missouri and Wisconsin require state certified

teachers to create a professional development plan. This document is a
permanent part of the teacher's personnel file. In it, teachers write goals
related to their career, about what they intend to do to become more
effective in the classroom, and about how they will fulfill the
requirements to obtain continuing education credits. Teachers who fail
to produce a professional development plan on time may risk losing
their teacher certification in the states which require one. The school
principals or district supervisors hold teachers accountable for the goals
in the development plan.

3.3.4 Urban Development

Development planning also happens in cities and communities. Urban

communities with a lot of vacant buildings may decide to engage in a
development planning process to plan how to revitalize an area. This is a
necessary step in order to qualify for state tax credits and federal and
other funds that will allow the renovations to happen. From architects, to
city planners, engineers, investors and residents, everyone who will be
involved in the actual development should be part of the development
planning process.

3.4 The Rationale for Development Planning

The early widespread acceptance of planning as a development tool

rested on a number of fundamental economic and institutional
arguments. Of these we can single out four as the most prominent.

3.4.1 Market Failure

Markets in developing economies are permeated by imperfections of

structure and operation. This argument is perhaps the most often quoted
reason for the expanded role of government in less developed countries.
It is a phenomenon that results from the existence of market
imperfections (e.g., monopoly power, lack of factor mobility, significant
externalities, lack of knowledge) that weaken the functioning f a market
economy.

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There are three general forms in which market failure can be observed:

 The market cannot function properly or no market exists;

 the market exists but implies an inefficient allocation of
resources;
 the market produces undesirable results as measured by social
objectives other than the allocation of resources.

Market failures can occur in situations in which social costs or benefits

differ from the private costs or benefits of firms or consumers; public
goods, externalities, and market power are the best-known examples.
With public goods, “free riders” who do not pay for the goods cannot be
excluded except at high cost; it is economically inefficient to exclude
nonpaying individuals from consuming these goods. With externalities,
consumers or firms do not have to pay all the costs of their activities or
are unable to receive all the benefits. Coordination failures occur when
several agents would be better off if they could cooperate on actions if
all or most agents participated but worse off taking the action if too few
participated. Moreover, economic development is a process of structural
change. The market may be efficient in allocating resources at the
margin, allowing certain industries to emerge and others to fail, but may
be ineffective in producing large discontinuous changes in the economic
structure that may be crucial to the country’s long-term development.
Market power occurs when firms can influence price by restricting
quantity, a power most common under increasing returns to scale.
Capital markets are particularly prone to failure due to their intrinsic
connection to information generation and transmittal; information has
public-good properties.

A more equal distribution of income itself can be considered a public

good when it is an agreed social objective. There may be concern for the
well-being of future generations, who cannot participate in today’s
economic or political markets. Merit goods, such as health, education,
and basic welfare, can also be considered public goods or social
entitlements guaranteed by government.

But concerns about distribution and merit goods are often treated as
separate rationales for policy because their levels are generally viewed
as outside the realm of economic efficiency.

Unfortunately, we cannot jump to the conclusion that if economic theory

says policy can fix market failures, it will do so in practice. Government
failure may also occur in the many cases in which politicians,
bureaucrats, and the individuals or groups who influence them give
priority to their own private interests rather than to the public interest.

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Analysis of incentives for government failure helps guide reforms such

as constitution design and civil service rules. Developing countries tend
to have both high market failure and government failure.

The capital embodied in roads, railways, waterways, airways, and other

forms of transportation and communication plus water supplies,
electricity, and public services such as health and education play great
role in integrating markets and modifying prices. Moreover, the failure
of the market to price factors of production correctly is further assumed
to lead to gross disparities between social and private valuations of
alternative investment projects. In the absence of governmental
interference, therefore, the market is said to lead to a misallocation of
present and future resources or, at least, to an allocation that may not be
in the best long-run social interests.

3.4.2 Resource Mobilization and Allocation

This argument stresses that developing economies cannot afford to

waste their very limited financial and skilled human resources on
unproductive ventures. Investment projects must be chosen not solely on
the basis of partial productivity analysis dictated by individual industrial
capital-output ratios but also in the context of an overall development
program that takes account of external economies, indirect
repercussions, and long-term objectives. Skilled workers must be
employed where their contribution will be most widely felt. Economic
planning is assumed to help by recognizing the existence of particular
constraints and by choosing and coordinating investment projects so as
to channel these scarce factors into their most productive outlets. In
contrast, it is argued, competitive markets will tend to generate less
investment and to direct that investment into areas of low social priority
(e.g., consumption goods for the rich).

3.4.3 Attitudinal or Psychological Impact

It is often assumed that a detailed statement of national economic and

social objectives in the form of a specific development plan can have an
important attitudinal or psychological impact on a diverse and often
fragmented population. It may succeed in rallying the people behind the
government in a national campaign to eliminate poverty, ignorance, and
disease or to boost national prowess. By mobilizing popular support and
cutting across class, caste, racial, religious, or tribal factions with the
plea to all citizens to work together toward building the nation, it is
argued that an enlightened central government, through its economic
plan, can best provide the needed incentives to overcome the inhibiting
and often divisive forces of sectionalism and traditionalism in a
common quest for widespread material and social progress.

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CRD 426 MODULES

3.3.4 Foreign Aid

The formulation of detailed development plans has often been a

necessary condition for the receipt of bilateral and multilateral foreign
aid.

With a shopping list of projects, governments are better equipped to

solicit foreign assistance and persuade donors that their money will be
used as an essential ingredient in a well-conceived and internally
consistent plan of action. The requirement that developing countries
must put an approved plan in place to receive various forms of
assistance remains at least as true in this century as it was in the last.

3.5 The Nature of Development Planning

3.5.1 Economic Planning

May be described as a deliberate governmental attempt to coordinate

economic decision making over the long run and to influence, direct,
and in some cases even control the level and growth of a nation’s
principal economic variables (income, consumption, employment,
investment, saving, exports, imports, etc.) to achieve a predetermined
set of development objectives.

3.5.2 Economic Plan

Is simply a specific set of quantitative economic targets to be reached in

a given period of time, with a stated strategy for achieving those targets.
Economic plans may be comprehensive or partial.

3.5.3 Comprehensive Plan

Sets its targets to cover all major aspects of the national economy.

3.5.4 Partial Plan

covers only a part of the national economy-industry, agriculture, the

public sector, the foreign sector, and so forth.

3.5 Planning Process

It can be described as an exercise in which a government first chooses

social objectives, then sets various targets, and finally organizes a
framework for implementing, coordinating, and monitoring a
development plan. Proponents of economic planning for developing

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CRD 426 DEVELOPMENT PLANNING

countries argue that the uncontrolled market economy can, and often
does, subject these nations to economic dualism, unstable markets, low
investment in key sectors, and low levels of employment. In particular,
they claim that the market economy is not geared to the principal
operational task of poor countries: mobilizing limited resources in a way
that will bring about the structural change necessary to stimulate a
sustained and balanced growth of the entire economy. Planning has
come to be accepted, therefore, as an essential and pivotal means of
guiding and accelerating economic growth in almost all developing
countries.

4.0 CONCLUSION

The principal economic arguments for planning briefly outlined earlier

in this unit-market failure, divergences between private and social
valuations, resource mobilization, investment coordination, and the like-
have often turned out to be weakly supported by the actual planning
experience. It is doubtful whether plans have generated more useful
signals for the future than would otherwise have been forthcoming;
governments have rarely, in practice, reconciled private and social
valuations except in a piecemeal manner; because they have seldom
become operational documents, plans have probably had only limited
impact in mobilizing resources and in coordinating economic policies.
To take the specific case of the market failure argument and the
presumed role of governments in reconciling the divergence between
private and social valuations of benefits and costs, the experience of
government policy in many developing countries has been one of often
exacerbating rather than reconciling these divergences—government
failure rather than market failure. Government policy often tends to
increase rather than reduce the divergences between private and social
valuations.

5.0 SUMMARY

The results of development planning have been generally disappointing.

The widespread rejection of comprehensive development planning
based on poor performance has had a number of practical outcomes, the
most important of which is the adoption in a majority of developing
countries of a more market-oriented economic system.

Government policy often tends to increase rather than reduce the

divergences between private and social valuations. Plans are often
overambitious. They try to accomplish too many objectives at once
without consideration that some of the objectives are competing or even
conflicting. They are often grandiose in design but vague on specific
policies for achieving stated objectives.

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CRD 426 MODULES

The economic value of a development plan depends to a great extent on

the quality and reliability of the statistical data on which it is based.
When these data are weak, unreliable, or nonexistent, as in many poor
countries, the accuracy and internal consistency of economy-wide
quantitative plans are greatly diminished. And when unreliable data are
compounded by an inadequate supply of qualified economists,
statisticians, and other planning personnel (as is also the situation in
most poor nations), the attempt to formulate and carry out a
comprehensive and detailed development plan is likely to be frustrated
at all levels. Because most developing countries have open economies
that are dependent on the vicissitudes of international trade, aid, “hot”
speculative capital inflows, and private foreign investment, it becomes
exceedingly difficult for them to engage in even short-term forecasting,
let alone long-range planning.

6.0 TUTOR-MARKED ASSIGNMENT

1. What is meant by the planning process, and what are some of its
basic characteristics?
2. List and explain some of the major reasons for plan failures.
Which reasons do you think are the most important? Explain your
thinking.
3. Distinguish between market failure and government failure.

7.0 REFERENCES/FURTHER READINGS

Grameen Bank Web page, http://www.grameeninfo.org.

Khandker, Shahidur R. Fighting Poverty with Microcredit: Experience

in Bangladesh. New York: Oxford University Press, 1998.

Khandker, Shahidur R., and Baqui Khalily. The Bangladesh Rural

Advancement Committee’s Credit Programs: Performance and
Sustainability. Washington, D.C.: World Bank, 1996.

Lovell, Catherine H., and Kaniz Fatema. BRAC:Non-Formal Primary

Education in Bangladesh. New York: United Nations Children’s
Fund, 1989.

Matin, Imran. Stories of Targeting: The BRAC Targeting the Ultrapoor

Program. Dhaka, Bangladesh: BRAC Research and Evaluation
Division, 2003.

Pitt, Mark M., Shahidur R. Khandker, Omar Haider Choudhury, and

Daniel Millimet. “Credit programs for the poor and the health

17
CRD 426 DEVELOPMENT PLANNING

status of children in rural Bangladesh.” International Economic

Review 44 (2003): 87–118.

Quelch, John, and Nathalie Laidler. The BRAC and Aarong Commercial
Brands. Cambridge, Mass.: Harvard Business School, 2003.

Salim, Mir M., “Revealed objective functions of microfinance

institutions: Evidence from Bangladesh,”

Journal of Development Economics 104 (September 2013): 34–55.

Singh, Inderjit. The Great Ascent: The Rural Poor in South Asia.
Baltimore: Johns Hopkins University Press, 1990.

Smillie, Ian. Freedom from Want: The Remarkable Success Story of

BRAC, the Global Grassroots Organization
That’s Winning the Fight against Poverty. Bloomfield, Conn.: Kumarian
Press, 2009.

Smith, Stephen C. Ending Global Poverty: A Guide to What Works.

New York: Palgrave Macmillan, 2005.

Todaro, M.P and S.C Stephen. Economic Development NewYork,

Pearson Press, 12th Edition, 2015

Yunus, Muhammad. Grameen II. Dhaka, Bangladesh: Grameen Bank,

2001.

Yunus, Muhammad, and Alan Jolis. Banker to the Poor: Micro-Lending

and the Battle against World Poverty. New York: Public Affairs,
1999.

UNIT 3 AGRICULTURAL DEVELOPMENT PLANNING

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CRD 426 MODULES

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition
3.2 Importance of Planning Agricultural Development
3.3 The Necessary Steps
3.4 Agricultural Development Plan
3.5 Problems of Planning Agricultural Development
3.6 Perspective Plan
3.7 Relationship between Agricultural Development, Plan
Programme and Project.
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

This unit will critically examine agricultural development planning

which are a conscious, sustained and systematic attempts or efforts
made by the government to utilize the available agricultural resources of
the nation to the benefit of the farmers and the teeming population.
Planning gives room for effective implementation of the programme.
This is a step further for the implementation of the agricultural
programmes and projects. The vital role of the agricultural sector in the
economic development of any nation has really prompted this unit to
give a better understanding of this course hence effective panning is a
major tool to proper or adequate implementation.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

• identify the importance of planning in agricultural sector;

• examine the various reasons for agricultural planning; and
• understanding agricultural development plan.

3.0 MAIN CONTENT

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CRD 426 DEVELOPMENT PLANNING

3.1 Definition

Agricultural development planning is a conscious sustained and

systematic attempts or efforts made by the government to utilize the
available agricultural resources of the nation to be benefit of the farmers
and the teeming population. The ultimate goal is sustained increase in
the farmers’ income, standard of living and food security of the country.
It is a conscious effort to guide the development of the agricultural
sector to accelerate economic development of the country.

3.2 Importance of Planning Agricultural Development

It is important to plan agricultural development of any nation for the

following reasons:

1. The vital role of the agricultural sector in the economic

development of a nation calls for adequate and effective planning
of the sector’s development.
2. Consequent upon the above, agricultural planning often forms
part of the national development plan and this reflects the attitude
and hence the objectives of the government or ruling class to the
agricultural sector of the country.
3. It ensures that the whole country is evenly developed. All
regions, states, local government areas, wards and villages are
attended to.
4. Agricultural planning ensures that farmers particularly peasants
have access to modern technologies such as irrigation facilities,
which are beyond their capability die to lack of capital.
5. Agricultural planning ensures that the desired agricultural
production pattern for the country is achieved. Production
patterns should be left to market forces to determine. If market
forces place high value on particular crops such as cocoa or rice,
the tendency is for farmers to shift all resources to the production
of these crops. This action will lead to scarcity of other crops and
increase in their prices. Thus, the situation needs to be arrested
through planning.
6. Planning also enables the economy to cope with problems of
uncertainty in agricultural production consequent upon
occurrence of natural hazards such as floods, drought, pest attack
etc. Management of these risks necessitates effective agricultural
development planning.

3.3 The Necessary Steps

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CRD 426 MODULES

The following steps are taken in planning agricultural development

sector based on the sector’s problems.

1. Identification of the social economic and institutional needs of

the agricultural sector based on the sector's problems.
2. Formulation of realistic agricultural development policy
objectives.
3. Design of strategies by which policy objectives may be achieved.
4. Estimation of the available agricultural resources with the
performance of the agricultural sub-sectors’ crop, livestock,
fisheries, forest and wildlife etc.
5. Projecting the expected production and identifying the demand
supply gaps.
6. Setting of achievable targets based on the above information.
7. Translating these into programmes of actions and projects to be
executed.
8. The projects are monitored and evaluated in accordance with the
set targets and the overall policy objectives.

3.4 Agricultural Development Plan

Agricultural development plan is the immediate output of agricultural

development planning process. It is therefore and arrangement for
agricultural development worked out or designed in advance such that
the stated agricultural development policies can be achieved. It
embodies the whole information, activities and the roles and
responsibilities of the various tiers of government and private sector for
achieving the policies. The information includes, identified problems,
constraints, available resources and facilities, present situation of the
sector, policy objectives, and policy instruments institutional
arrangements for implementation of the policies, programmes, and
projects and estimated monetary allocation for the execution of the
subsectoral projects. The National Development Plan which used to be
of 5 years duration now referred to as National Rolling Plan (2 year plan
period) is in booklet form published by the planning office of the
Federal Ministry of Budget and Planning.

SELF-ASSESSMENT EXERCISE

i. list four importance of planning.

ii. what is agricultural development plan?

3.5 Problems of Planning Agricultural Development

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CRD 426 DEVELOPMENT PLANNING

Problems of planning agricultural development are:

1. Lack of definite and consistent agricultural development policy.

2. Inadequate agricultural development planners.
3. Inadequate administrative and managerial machinery for effective
implementation of agricultural development plan.
4. Lack of adequate data for effective planning.
5. Inability of farmers to keep accurate farm records.
6. Reluctance by farmers to keep accurate farm records in releasing
same
7. Institutional problems of land tenure system in the country.

3.6 Perspective Plan

It was mentioned in the preceding section that policy and plan have
definite beginning and period and period within which the stated
objectives must be achieved. This is one of the criteria utilized in
monitoring and evaluating the performance of the sector.

Nevertheless government actions to influence economic activities often

go beyond the plan period. Hence, a futuristic approach to development
plan is adopted. A perspective plan is a futuristic plan used as a
mechanism of policy discipline to achieve the following objectives.

1. To enable the government link the past present and future

policies in order to facilitate orderly transition or ensure smooth
continuity.
2. Identification and resolution of possible conflicts among
agricultural I development policy objectives and between
agricultural objective and those of the overall economy.
3. It enables the government modify programmes and projects and
identify areas requiring new strategies approaches.

In perspective planning, the government projects beyond the prevailing

economic conditions to ensure a more stable and healthy investment
environment for economic and social development of the country.
Perspective plans ensure that government goals in agricultural
development are fulfilled in accordance with set objectives and
operational modalities.

SELF-ASSESSMENT EXERCISE

What are the problems of planning agricultural development?

4.0 CONCLUSION

22
CRD 426 MODULES

Agricultural development planning is a conscious effort to guide the

development of the agricultural sector to accelerate economic
development of the country.

5.0 SUMMARY

This unit has been able to identify the importance of planning in

agricultural sector knowing fully the contributions of the agricultural to
the economic development of the country. It has also examined the
various reasons for planning in agricultural sector.

6.0 TUTOR-MARKED ASSIGNMENT

1. Discuss the major problems militating against the planning of

agricultural development
2. a. What is agricultural development planning?
b. Enumerate five importance of planning agricultural development.

7.0 REFERENCES/FURTHER READINGS

Aweto, R .A. (1996). Agricultural Co-operatives. Agricultural Policy for

Nigeria. Federal Ministry of Agriculture, Water Resources and
Rural Development Abuja.

Carl, K. Eicher and John, M. Staaz (1990). Agricultural Development in

the Third World Second Edition.

Umebali, E.E (2001). Management of Informal Sector Investment Rural

Resources and Farm Business. Computer Edge Publishers,
Enugu.

Bashir, M.M (2014). Agricultural Cooperative. Alico computer and

AHY Federal Cooperative, Kaduna.

Otokiti, S.O (2004). World Business and Business. Pumark Nigeria

Limited, Lagos.
Umebali, E.E (2014). Readings in Cooperative Economic and
Management. Computer Edge Publishers, Enugu.

Onafowokan, O.O (2013). Cooperative and Microfinance Revolution.

Soma Prints Limited, Lagos.

MODULE 2 PROJECT IDENTIFICATION, APPRAISAL,

IMPLEMENTATION AND EVALUATION

23
CRD 426 DEVELOPMENT PLANNING

UNIT 1 MEANING OF PROJECT

UNIT 2 THE PROJECT CYCLE
UNIT 3 PROJECT EVALUATION – AN INTRODUCTORY
FORMAT
UNIT 6 CAPACITY AND PRODUCTION PLANNING
UNIT 7 PROJECT COST ANALYSIS
UNIT 8 PROJECT EVALUATION CRITERIA
UNIT 9 RISK AND COST ANALYSIS: THE EVALUATION
METHODS

UNIT 4: MEANING OF PROJECT

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 .1 Definition of Project
3.1.2 Types of projects – competitive and individual projects
3.1.3 The characteristics of a Project

24
CRD 426 MODULES

3.1.4 Classification of Project

3.1.5 The Differences between Project and a Programme
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
A piece of planned work or an activity that is finished over a period of
time and intended to achieve a particular purpose. A project is a
temporary endeavor undertaken to create a unique product, service, or
result. The temporary nature of projects indicates that a project has a
definite beginning and end. The end is reached when the project‟s
objectives have been achieved or when the project is terminated because
its objectives will not or cannot be met, or when the need for the project
no longer exists. A project may also be terminated if the client
(customer, sponsor, or champion) wishes to terminate the project.
Temporary does not necessarily mean the duration of the project is
short. It refers to the project‟s engagement and its longevity. Temporary
does not typically apply to the product, service, or result created by the
project; most projects are undertaken to create a lasting outcome. For
example, a project to build a national monument will create a result
expected to last for centuries. Projects can also have social, economic,
and environmental impacts that far outlive the projects themselves.

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• explain the meaning of project
• describe the various underlying characteristics of a project.

3.0 MAIN CONTENTS

3.1 Definition of Project

Project has been defined in various ways. Some authorities see projects
as mere activities while others see them as programmes of action.
Longman Dictionary of Contemporary English defines a project as “an
important and carefully planned piece of work that is intended to build
or produce something new, or to deal with a problem”. From this simple
definition, we can see that a project, apart from being Important, should
be carefully planned so as to produce something. Some of the things that
a project seeks to produce may be tangible or intangible. A motorcycle
is a tangible product but conducting a census is not a tangible product.
Also, A project is a temporary endeavor undertaken to create a unique
product, service, or result. Like most organizational effort, the major
goal of a project is to satisfy a customer‟s need. Beyond this

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CRD 426 DEVELOPMENT PLANNING

fundamental similarity, the characteristics of a project help different iate

it from other endeavors of the organization.

3.2 Types of projects – competitive and individual projects

A. Competitive projects
The projects are selected as a result of an open or closed project contest
announced and conducted by particular Implementing Authorities (2nd
level Intermediate Bodies) which is responsible for implementation of a
given measure. Selection of these projects is performed with respect for
the principle of disclosure and access to information according to the
criteria of project selection adopted by the Programme Monitoring
Committee (the document is available in the section Programming
Documentation).
The process of project selection consists of the following stages:
1. call for proposal,
2. submission of projects,
3. formal evaluation and content-related evaluation of applications,
4. publication of the contest results,
5. review procedures (if needed),
6. signing contracts on financing projects,
7. registration of documents in the information system, according to
separate provisions in areas concerned (the first registration after the
formal evaluation of the application for support).

B. Individual projects
Individual projects are investments of strategic significance for the
Programme implementation, indicated by the Managing Authority, after
the recommendation of the competent Intermediate Body, according to
strategic criteria approved by the Programme Monitoring Committee.
Individual projects are undertakings whose implementation is important
and justified concerning the implementation of the strategy of a given
sector or area and which contribute to a large extent to achieving
objectives of a priority axis a given projects is implemented under.
Placing the project on the list is only a conditional declaration of its
financing and is connected with guarantying funds for its
implementation within the project budget. These projects will not be
subject to content procedure and will not apply for the funds under the
content procedure. The project implementation will depend on fulfilling
the selection criteria approved by the Programme Monitoring
Committee, requirements concerning documentation and
implementation readiness as well as acceptance of the application for
support with annexes required by the MA.

3.3 Characteristics of a Project

There a number of key “project” characteristics. These characteristics
are elements that make a project a project.

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CRD 426 MODULES

These seven characteristics are;

1. A single definable purpose, end-item or result. This is usually
specified in terms of cost, schedule and performance requirements.
2. Every project is unique. It requires the doing of something different,
something that was not done previously. Even in what are often called
“routine” projects such as home construction, the variables such as
terrain, access, zoning laws, labour market, public services and local
utilities make each project different. A project is a one-time, once-off
activity, never to be repeated exactly the same way again.
3. Projects are temporary activities. A project is an ad hoc
organization of staff, material, equipment and facilities that is put
together to accomplish a goal. This goal is within a specific time-frame.
Once the goal is achieved, the organization created for it is disbanded or
sometimes it is reconstituted to begin work on a new goal (project).
4. Projects cut across organizational lines. Projects always cut across
the regular organizational lines and structures within a firm. They do
this because the project needs to draw from the skills and the talents of
multiple professions and departments within the firm and sometimes
even from other organizations. The complexity of advanced technology
often leads to additional project difficulties, as they create task
interdependencies that may introduce new and unique problems.
5. Projects involve unfamiliarity. Because a project differs from what
was previously done, it also involves unfamiliarity. And oft time a
project also encompasses new technology and, for the organization/firm
undertaking the project, these bring into play significant elements of
uncertainty and risk.
6. The organization usually has something at stake when
undertaking a project. The unique project “activity” may call for
special scrutiny or effort because failure would jeopardize the
organization/firm or its goals.
7. A project is the process of working to achieve a goal. During the
process, projects pass through several distinct phases, which form and
are called the project life cycle. The tasks, people, organizations, and
other resources will change as the project moves from one phase to the
next. The organizational structure and the resource expenditures build
with each succeeding phase; peak; and then decline as the project nears
completion.

3.4 Classification of Project

The projects are basically defined in two aspects or categories: one is
defensive project and other is aggressive project.

Defensive Project: Is the project initiated to stabilize and sustain the

current business situation.

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CRD 426 DEVELOPMENT PLANNING

Aggressive Project: Is the project initiated to enter into new business in

a commercial manner and majorly depends upon the future prospective
rather than the current scenario.
There is other classification of projects as well which is based on the
need of execution and the time, these can be categorized as:
Normal Project: Where the time limits are set and adequate.
Brash Project: Where additional cost are involved to gain time.
Disaster Project: Anything is allowed to gain time.
Projects can be further classified into various other classifications like
national and international projects, industrial and non-industrial projects,
on the basis of technology, size, ownership, public or private projects,
need, expansion or diversification projects.
Each of these is discussed as follows:
1. National and International Projects: This kind of projects is
categorized on the basis of geographical location set as countries. If one
country tries to build projects with other foreign country, such projects
are said to be International projects and when it is done in one‟s own
country, then it is said to be a domestic or national project.
2. Industrial and Non-industrial Projects: The projects initiate in
one‟s own country with an objective to make money and for
commercialization, are called industrial projects. For example, a car
manufacturing is an industrial project. While the project which are done
for the upliftment of the society and majorly done with social welfare
objectives, are called non-industrial projects. For example Building of a
canal, agricultural development comes under non-industrial projects;
these are mainly carried up by the government.
3. Projects based on Technology: These are largely high technology
projects which require lots of investment and works on new or non-
existent technologies like rocket launch project, space projects, etc. and
some other are those projects which use technology which are already
proven like a software ERP project, automobile automation project, etc.
4. Projects based on its size: These projects are based on investment
size or capacity of plant to offer goods or services. This can be further
classified down to small, medium and large scale projects. Project above
the investment of 100 million dollars is considered as large projects.
5. Project based on ownership: This can be further classified as public
sector project, private sector project and joint sector project.
i. Public Sector Projects: Projects which are of the state, center or both
forms of governments, are known as public sector projects.
ii. Private Sector Projects: Projects with a complete ownership of
promoters and investors is known as private sector projects. Owners
may be an individual, partnership firm or a company. These projects are
mostly done with an objective to earn profit and thus have a commercial
nature.
iii. Joint Sector Projects: In these projects, there exist a partnership
between the entrepreneurs and the government; it may be from state

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CRD 426 MODULES

government or the central government. These types of partnership occur

on the grounds of expertise and laisioning work and government
arranges for the fund in large amounts. For example, Project of Metro
Train, Dams, Information technology parks, Electricity plants and other
similar natured projects.
6. Need based projects: Projects are basically driven by certain needs
of the organization and these needs furthers forms the basis of project
categorization as Balancing Project, Modernization Project, Expansion
Project, Diversification Project, Rehabilitation Project and Plant
Relocation Project.
i. Balancing Project: Augmenting or strengthening the capacity of
particular area within a chain of entire production plant with a purpose
of scaling to the capacity in order to have optimum utilization, is
balancing project.
ii. Modernization Project: Upgrading the technology to increase the
productivity and inevitable approach of technology is called
modernization project.
iii. Expansion Project: When the production capacity of goods and
services is to be increased, the project that is undertaken is known as
expansion project.

iv. Diversification Project: Project undertaken by the organization to

completely divert from its core business is called diversification project.
For example, if a Petroleum company decides to enter into Information
Technology business, then the project will be known as diversification
project.
v. Rehabilitation Project: When a project is started to revive a loss
bearing company, is known as rehabilitation project.
vi. Plant Relocation Project: When an organization decides to shift his
plant from one location to another, the project started will be known as
relocation project.

3.5 Differences between Project and Programme

Many people might consider a program to be just one really large
project. A project is a singular effort of defined duration, whereas a
program is comprised of a collection of projects. Problem solved, right?
Actually, it‟s a bit more complex than that. While programs and projects
actually have several different characteristics and different functions
within an organization, they also have many commonalities. Likewise
project managers and program manager are two different roles within an
organization, as well, yet they share similar duties.
While the state of the industry is always changing, it behooves you and
your organization to know when your projects should become programs.
Let‟s look at how they‟re different and how they‟re the same so you
can apply the concepts to your own programs and projects.

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CRD 426 DEVELOPMENT PLANNING

3.5.1 Projects and Programs: How they’re Different

Structure: A project is well-defined, with a Project Charter that
spells out exactly what the scope and objectives are for the project. A
program tends to have greater levels of uncertainty. The team is also
bigger. The program team are supervising and coordinating the work on
a number of projects so while the core team may not have that many
people in, the wider team includes the project managers and all the
project team members.
Effort: This is the most significant difference between projects and
programs. A project represents a single effort. It is a group of people
forming a team working towards a common goal. A program is
different; it is a collection of projects. Together all the projects form a
cohesive package of work. The different projects are complimentary and
help the program achieve its overall objectives. There are likely to be
overlaps and dependencies between the projects, so a program manager
will assess these and work with the project managers concerned to check
that overall the whole program progresses smoothly.
Duration: Some projects do go on for several years but most of the
projects you‟ll work on will be shorter than that. On the other hand,
programs are definitely longer. As they set out to deliver more stuff,
they take longer. Programs tend to be split into tranches or phases. Some
projects are also split like this, but not all projects last long enough to be
delivered in multiple phases.
Benefits: A project team works towards achieving certain outputs,
that is, what you get at the end. For example, this could be a set of
deliverables that form a software package, or a new retail branch, or
whatever it is that you are working on. The benefits of a project tend to
be tangible: you get a „thing‟ at the end of it. A program team works
towards delivering outcomes. Outcomes can be tangible but are often
not. The benefits of a program are the sum of the benefits of all the
different projects and this could amount to a policy or cultural change,
or a shift in the way an organization works.

SELF ASSESSMENT EXERCISE

Discuss Differences between Project and Programme.

4.0 CONCLUSION
This unit has treated the meaning of project, the characteristics,
differences and it relation with programme. This is an introductory
aspect to the study of project evaluation. Now that we have the basic
foundation, we shall further our discussion with Project cycle as an
introductory framework on project evaluation.

5.0 SUMMARY

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In this unit we have discussed the meaning of project. We have seen the
characteristics of project, its relation to programme and their
differences.

6.0 TUTOR-MARKED ASSIGNMENT

1. Explain what you understand by the Characteristics of a Project.
2. List and discuss the various objectives of a project.

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe, (1999) Project Analysis and Evaluation. Lagos: Impressed
Publishers.

UNIT 5: THE PROJECT CYCLE

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Project Cycle – Meaning and Stages
3.1.1 The Project Idea Stage
3.1.2 The Project Identification Stage
3.1.3 The Project Evaluation Stage
3.1.4 The Project Selection Stage
3.1.5 The Project Execution Stage
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

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The Project Life Cycle refers to a series of activities which are necessary
to fulfill project goals or objectives. Projects vary in size and
complexity, but, no matter how large or small, all projects can be
mapped to the following life cycle structure: Starting the project.
Organizing and preparing. Most of the projects are likely to be private
sector driven. They may be manufacturing projects or they could be
petrochemical or civil engineering projects. Your key task, as a project
evaluator, is to carefully consider each and every project brought to your
attention and see how useful or valuable they are. Our first task and
which we will accomplish in this unit is to examine the concept of a
project cycle. This concept is very important as it gives us an overview
of projects. The knowledge so gained, will lead us throughout the
duration of this course.

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• explain a project cycle
• describe the sequences in a project cycle.

3.0 MAIN CONTENTS

3.1 The Project Cycle – Meaning and Stages

A project cycle tries to describe the various stages that are involved,
from the conception of a project idea to when the project is executed or
actually takes off. Understanding a project cycle is very important as it
enables us to get the total picture of a project. We will now examine the
various stages of a project cycle. Basically, projects consist of the
projection of ideas and activities into new endeavours. As earlier
discussed, projects may be public sector projects in agriculture, defense
or transportation. A major railway link from Ibadan to Onitsha may
constitute a major public sector project. A new brewery springing up at
Enugu is a typical example of a private sector initiative. But whatever
type of project that we are considering, we need to first understand what
is usually known as the project cycle. So before we go into the real
subject of our discussion –Project Evaluation, we need to build a strong
background. This background is in the form of proper understanding of
how a project is conceived. It explains who conceives a project. It also
explains the flow of activities up to the execution of the project.

3.1.1 The Project Idea Stage

The project idea stage is the first stage of a project cycle. The idea about
a project arises from a variety of sources within the internal environment
or market place. New project ideas could originate from within an
organisation or from outside the organisation. If the idea originates from
within, it could be from a sales person who has encountered some
success or problem with customers while performing his or her

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functions. You will also realise that a new project idea could emanate
from outside an organisation. Coming from outside an organisation, it
could be requests from existing customers asking for bigger or better
products. New project ideas may fall into any of the following
categories.
• Proposal to add new products to existing lines: A company with
existing product lines may decide to add new products to its existing
lines.
• Proposal to expand capacity in existing lines: A company may have a
proposal to expand capacity to enable it take advantage of enlarged
market opportunities. We need to stress that new project ideas may
originate from any level in an organisation. A factory cleaner within an
organisation may come up with a new product idea. Also an executive
director in an organization may also generate a new project idea.

3.1.2 The Project Identification Stage

After the project idea stage, the next stage is the project identification
stage. The project identification stage consolidates the idea stage.
Project ideas are not really useful unless they are clearly identified and
put down in a systematic manner for further processing. The idea to
introduce a new product into the market may come from a company
salesman who is very familiar with the market. At the boardroom room
level, the entire organisation has to see the project idea properly and
clearly identify it as a possible area ofbusiness investment. The totality
of the new idea would be considered.
3.1.3 The Project Evaluation Stage When a project has been
identified, the next step is to evaluate the project. Project evaluation
involves the estimation of the benefits and costs of a project. Benefits
and costs should be measured in terms of cash flows. We have to
emphasise at this point that the estimation of the cash flow of a project
is a very difficult task. It is difficult in the sense that the cash flow to be
estimated is future cash flow. For example in the year 2007, we will
tried to estimate the cash flow for the year 2008. In a corporate setup,
the evaluation of projects should be carried out by a team of experts
drawn from the various departments like production, marketing,
accounts and administration. The team of experts should be objective in
their evaluation of projects. Alternatively, the evaluation of a project
may be contracted to a third party like consultants. Contracting
evaluation of projects to tends to eliminate bias.

3.1.4 The Project Selection Stage

After the project evaluation stage, the next stage is the project selection
stage. Faced with an array of projects with different values and worth,
there is need to select which projects to embarked upon. There is no
standard procedure for selecting projects as this will differ from benefit
seen. The important thing to note is that the project selection function is

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a top management responsibility which in most cases goes to Board of

Directors of an organisation. In selecting projects, management usually
considers the financial outlays involved and matches them with the
financial capabilities of the firm. For example, a firm that has only
N10,000,000 (ten million naira only) be considering a new investment
that involves a capital outlay o f N40,000,000 (forty million naira only)
except if it can source money externally e.g., from banks.

3.1.5 The Project Execution Stage

The project execution stage is the final stage in the project cycle. After a
project has been selected, it moves on to the execution stage. In most
organisations, the responsibility for execution of projects is vested on a
project management team raised by top management. The function of
the team is to ensure that the budget for the project is spent entirely on
the project and that the project is completed on schedule. In an ideal
organisation, the project management team usually prepares a monthly
budget consideration report on projects for top management
consideration. This is important for project monitoring and control.

SELF ASSESSMENT EXERCISE

Discuss three sources of new project ideas.

4.0 CONCLUSION
This unit has treated the concept of the project cycle which is a stepping
stone into our study of project evaluation. Now that we have built the
necessary background, we shall be discussing Project Analysis – an
introductory frame work in the next unit.

5.0 SUMMARY
In this unit we have discussed the concept of the project cycle. We have
seen that it starts from the project idea stage, goes to the identification
stage, to the evaluation stage. From the evaluation stage it moves to the
selection stage and finally to the project execution stage.

6.0 TUTOR-MARKED ASSIGNMENT

1. Explain what you understand by the term “project cycle”.
2. List and discuss the various stages involved in a project cycle.

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe, (1999) Project Analysis and Evaluation. Lagos: Impressed
Publishers.

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UNIT 6: PROJECT EVALUATION – AN INTRODUCTORY

FORMAT

CONTENTS
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Project Evaluation – An Introductory Format
3.1.1 The Technical and Engineering Segment
3.1.2 The Management Segment
3.1.3 The Demand and Market Segment
3.1.4 The Financial Segment
3.1.5 The Economic Segment
4.0 Conclusion

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5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
In the second unit, we discussed the concept of the project cycle which
is very crucial to our understanding of project evaluation. In this unit,
we will discuss project evaluation in a proper context. In doing this, we
shall build an introductory format which will assist us in our discussion.
Evaluation of a project involves a careful consideration of the totality of
the project with a view to seeing how useful or valuable it is Evaluation
enables us to attach proper financial value to a project and also allows us
the liberty of comparing it with other projects.
You will note that an analysis is not done in a vacuum. It is usually
documented. A problem usually encountered in project evaluation is
how to arrange the work to make it readable or understandable.
A very simple format which we will adopt in the evaluation of projects
is one that recognizes the various functional aspects or units of an
organization.

2.0 OBJECTIVE
At the end of this unit, you should be able to:
• explain the format for project evaluation.

3.0 MAIN CONTENT

3.1 Project Evaluation – An Introductory Format

Evaluation is important to assess the worth or merit of a project and to
identify areas for improvement. It promotes appropriate decisions to
take, including changes to the project‟s objectives and methodology. An
evaluation must be planned carefully. There is no one suite of
techniques that fits all types of projects. The evaluation approach,
design and methodologies should match the specific project. The focus
and purpose of an evaluation differs depending on the needs of
stakeholders that may include project developers, funding agencies,
local government, community, teaching personnel and students. It is
important to consult with stakeholders to select the most suitable
approach. By identifying the highlights and lowlights of a project,
evaluation leads to conclusions that may affect future decision making.
Findings of evaluation reports, based on thorough analysis, are valuable
input in planning processes. Evaluation supports learning and
improvement through incorporation of recommendations into new
projects, programs and strategies.

3.1.1 The Technical and Engineering Segment

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The technical and engineering segment of project evaluation tries to

evaluate the total technical and engineering soundness of a project. It
also tries to relate the project to the environment in which it is located.
We will now proceed to draw up a checklist for the technical
engineering segment of project evaluation.
3.1.2 The Management Segment
After evaluating the technical and engineering segments of projects, the
next segment we need to discuss is the management segment.
The management segment focuses attention on the management aspects
of a project. Projects only become successful if they are well managed.
We do not need to over-stress the importance of management. Again,
we need to evaluate the legal form of the organization that is evaluated
and see if it can carry the project in question.
3.1.3 The Demand and Market Segment
The next segment we shall consider is the demand and market segment.
This segment focuses attention on the demand for goods and services
and relates it to the market. An evaluation of the demand for goods and
services is very important because demand translates to revenues. Also,
we need to evaluate supply situations in the market. These two topics
will be treated in detail later. We will now examine a checklist for the
demand and market segment.

SELF ASSESSMENT EXERCISE

List and explain five items that you hope to find in the checklist of the
management segment of a project evaluation.

3.1.4 The Financial Segment

The financial segment of project evaluation focuses attention on the
financial aspects of projects. In discussing financial issues, we are
considering all financial aspects of a project such as start-up costs,
financial plans, renames and costs and income statements.
3.1.5 The Economic Segment
The last segment we will consider is the economic segment. The
economic segment considers projects from the macroeconomic point of
view. Economic analysis tries to measure the benefits and costs of
projects in terms of their value to society as a whole.

4.0 CONCLUSION
What we have achieved in this unit is to develop a format for conducting
the evaluation of projects.

5.0 SUMMARY
We have discussed the format of project evaluation. We did identify the
following as segments of project evaluation.
• The technical and engineering segment
• The management segment

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• The demand and market segment

• The financial segment
• The economic segment

6.0 TUTOR-MARKED ASSIGNMENT

Discuss the key segments of project evaluation

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers

UNIT 7: CAPACITY AND PRODUCTION PLANNING

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Capacity and Production Planning
3.2 Strategies of Capacity Planning
3.3 Capacity Planning
3.3.1 Capacity – available or required?
3.3.2 Capacity available
3.4 Similarities between Capacity Planning & Aggregate Planning
3.4.1 Capacity Management and Planning
3.4.2 Aggregate Planning
3.4.3 Aggregate Production Planning Strategies
3.4.4 Other Types of Capacity Planning
3.5 Production Planning & Scheduling
3.5.1 Static Versus Dynamic Planning
3.5.2 Forward Incremental Planning
3.5.3 Backward Incremental Planning
3.6 The Importance of Planning & Scheduling
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

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In Unit 4, we discussed factors affecting location of projects. There we

examined such factors as nearness to critical markets, nearness to
sources of power and other factors. In this unit, we shall discuss
capacity and production planning.

2.0 OBJECTIVES
At the end of this unit, you should be able to:

3.0 MAIN CONTENT

3.1 Capacity and Production Planning

Capacity planning is the process of determining the production
capacity needed by an organization to meet changing demands for its
products. In the context of capacity planning, design capacity is the
maximum amount of work that an organization is capable of completing
in a given period. Effective capacity is the maximum amount of work
that an organization is capable of completing in a given period due to
constraints such as quality problems, delays, material handling, etc.
The phrase is also used in business computing and information
technology as a synonym for capacity management. IT capacity
planning involves estimating the storage, computer hardware, software
and connection infrastructure resources required over some future
period of time. A common concern of enterprises is whether the
required resources are in place to handle an increase in users or number
of interactions. Capacity management is concerned about adding central
processing units (CPUs), memory and storage to a physical or virtual
server. This has been the traditional and vertical way of scaling up web
applications, however IT capacity planning has been developed with the
goal of forecasting the requirements for this vertical scaling approach.
A discrepancy between the capacity of an organization and the demands
of its customers results in inefficiency, either in under-utilized resources
or unfulfilled customers. The goal of capacity planning is to minimize
this discrepancy. Demand for an organization's capacity varies based on
changes in production output, such as increasing or decreasing the
production quantity of an existing product, or producing new products.
Better utilization of existing capacity can be accomplished through
improvements in overall equipment effectiveness (OEE). Capacity can
be increased through introducing new techniques, equipment and
materials, increasing the number of workers or machines, increasing the
number of shifts, or acquiring additional production facilities.
Capacity is calculated as (number of machines or workers) × (number of
shifts) × (utilization) × (efficiency).

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Effectively planning your production to ensure that capacity and product

demand match affects your company's profitability. When you predict
how many products you will sell, plan for adequate capacity and
develop production schedules that run without delays, you eliminate
unnecessary costs. The key is to identify information sources yielding
reliable data that allows you to predict accurately the levels of
production and the scheduling you will need.

3.2 Strategies of Capacity Planning

The broad classes of capacity planning are lead strategy, lag strategy,
match strategy, and adjustment strategy.
Lead strategy is adding capacity in anticipation of an increase in
demand. Lead strategy is an aggressive strategy with the goal of luring
customers away from the company's competitors by improving the
service level and reducing lead time. It is also a strategy aimed at
reducing stock out costs. A large capacity does not necessarily imply
high inventory levels, but it can imply higher cycle stock costs. Excess
capacity can also be rented to other companies.

Advantage of lead strategy: First, it ensures that the organization has

adequate capacity to meet all demand, even during periods of high
growth. This is especially important when the availability of a product
or service is crucial, as in the case of emergency care or hot new
product. For many new products, being late to market can mean the
difference between success and failure. Another advantage of a lead
capacity strategy is that it can be used to preempt competitors who
might be planning to expand their own capacity. Being the first in an
area to open a large grocery or home improvement store gives a retailer
a define edge. Finally many businesses find that overbuilding in
anticipation of increased usage is cheaper and less disruptive than
constantly making small increases in capacity. Of course, a lead
capacity strategy can be very risky, particularly if demand is
unpredictable or technology is evolving rapidly.
Lag strategy refers to adding capacity only after the organization is
running at full capacity or beyond due to increase in demand (North
Carolina State University, 2006). This is a more conservative strategy
and opposite of a lead capacity strategy. It decreases the risk of waste,
but it may result in the loss of possible customers either by stock out or
low service levels. Three clear advantages of this strategy are a reduced
risk of overbuilding, greater productivity due to higher utilization levels,
and the ability to put off large investments as long as possible.
Organization that follow this strategy often provide mature, cost-
sensitive products or services.
Match strategy is adding capacity in small amounts in response to
changing demand in the market. This is a more moderate strategy.

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Adjustment strategy is adding or reducing capacity in small or large

amounts due to consumer's demand, or, due to major changes to product
or system architecture.{Faizan Ameer}

3.3 Capacity Planning

In the context of systems engineering, capacity planning is used during
system design and system performance monitoring.
Capacity planning is long-term decision that establishes a firm's overall
level of resources. It extends over time horizon long enough to obtain
resources. Capacity decisions affect the production lead time, customer
responsiveness, operating cost and company ability to compete.
Inadequate capacity planning can lead to the loss of the customer and
business. Excess capacity can drain the company's resources and prevent
investments into more lucrative ventures. The question of when capacity
should be increased and by how much are the critical decisions. Failure
to make these decisions correctly can be especially damaging to the
overall performance when time delays are present in the system.
Capacity planning is focused on maximizing the capacity of a company
in a way that allows it to be more efficient and, thus, more profitable.
Basic capacity planning attempts to match the volume the company is
able to produce to the demand in order to avoid downtime by preventing
bottlenecks.
3.3.1 Capacity – available or required?
From a scheduling perspective it is very easy to determine how much
capacity (or time) will be required to manufacture a quantity of parts.
Simply multiply the standard cycle time by the number of parts and
divide by the part or process OEE %.
If production is scheduled to produce 500 pieces of product A on a
machine having a cycle time of 30 seconds and the OEE for the process
is 85%, then the time to produce the parts would be calculated as
follows:
(500 parts × 30 seconds) / 85% = 17647.1 seconds The OEE index
makes it easy to determine whether we have ample capacity to run the
required production. In this example 4.2 hours at standard versus 4.9
hours based on the OEE index.
By repeating this process for all the parts that run through a given
machine, it is possible to determine the total capacity required to run
production.
3.3.2 Capacity available
When considering new work for a piece of equipment or machinery,
knowing how much capacity is available to run the work will eventually
become part of the overall process. Typically, an annual forecast is used
to determine how many hours per year are required. It is also possible
that seasonal influences exist within the machine requirements, so a
quarterly or even monthly capacity report may be required. To calculate
the total capacity available, the volume is adjusted according to the

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period being considered. The available capacity is difference between

the required capacity and planned operating capacity.

3.4 Similarities between Capacity Planning & Aggregate Planning

Most business owners and managers strive to produce the highest
quality products at the lowest production costs. In business terms,
"capacity" means the maximum amount of productivity possible.
Capacity planning is one means of managing resources to garner the
most profit for every dollar spent. This type of planning can be set up at
different levels. The planning system helps a company handle an
increase or decrease in demand, meet changes in technology and take
advantage of new opportunities.
3.4.1 Capacity Management and Planning
Capacity management involves setting up a system to fulfill all
manufacturing orders on time. The system includes plans and schedules
for production, taking into consideration materials needed and shipping
requirements. Capacity planning is done for long-term, medium-term
and short-term periods.
3.4.2 Aggregate Planning
Aggregate planning is medium-term capacity planning that typically
covers a period of two to 18 months. Like capacity planning, aggregate
planning considers the resources needed for production such as
equipment, production space, time and labor. Companies use aggregate
planning to ensure they have ample time to carry out production plans to
meet customer demand, smooth operations along the supply chain and
reduce production costs.
Aggregate planning, also called aggregate scheduling, is an approach to
operations management focused on satisfying demand. This may be in
relation to production, the workforce itself or inventory management.
Aggregate planning ties facility planning in with scheduling decisions
and does so in a way that is quantitative, meaning it produces numbers
to back up an operations plan. Aggregate plans help match supply and
demand while minimizing costs by applying upper-level forecasts to
lower-level, production floor scheduling. Plans generally either chase
demand, adjusting the workforce accordingly, or are level plans,
meaning that labor is relatively constant with fluctuations in demand
being met by inventories and back orders.
3.4.3 Aggregate Production Planning Strategies
Types of aggregate production planning strategies include the chase
strategy, level strategy and a mixed strategy. In the chase strategy, the
size of the workforce and production is modified as needed to meet
demand throughout the planned period. In the level aggregate planning
production strategy, production rates remain steady throughout the
period. When a company implements a mixed strategy, inventory and
workforce levels are adjusted when required to meet demand.
3.4.4 Other Types of Capacity Planning

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In addition to aggregate planning, which deals with resource

requirements, companies can also use capacity planning to determine
future capacity needs at other levels. For example, capacity
requirements planning takes into consideration the materials needed for
production throughout the planned period. Another type of capacity
planning -- rough-cut -- takes place at the master-scheduling level. Like
aggregate planning, this planning strategy considers the time needed to
complete production but is focused on short-term rather than medium-
term planning.

3.5 Production Planning & Scheduling

The goal of production planning is simply to maintain flow. The
individual in charge of production planning adjusts the workforce and
process flow to obtain a regular use of company resources with minimal
downtime, minimal bottlenecks and a level of output consistent with all
the resources being put into the process.
Production planning, or production scheduling, is a term that covers all
aspects of operations, from workforce activities to product delivery.
Production planning is almost exclusively seen in manufacturing
environments; however, many of the techniques employed in production
planning can be and are used by many service-oriented businesses.
Production planning is primarily concerned with the efficient use of
resources. While it is sometimes referred to as operations planning, and
it employs many of the same techniques, the primary distinguishing
characteristic is that production planning is focused on the actual
production, whereas operations planning looks at the operation as a
whole.
3.5.1 Static Versus Dynamic Planning
There are two main types of production planning: static and dynamic.
Static planning carries an assumption that all steps in a process can be
defined and will not change. In contrast, dynamic planning assumes that
steps in the process will change, so nothing is planned until the demand
is received. Dynamic planning works very well in environments where
there is a high degree of customization. An example of a static plan is a
retail clothing company, in which production levels are determined up to
a year in advance. An example of a dynamic plan is a floral shop; there
may be a few arrangements for display and possible purchase, but the
primary focus is on creation of custom arrangements after an order is
received.
3.5.2 Forward Incremental Planning
Forward incremental planning, or FIP, is a dynamic planning method.
FIP is implemented from the initial receipt of an order. The actions
required to fulfill that order are prioritized. The essential goal of FIP is
to reduce lag time. While it can be quite effective, its primary limitation
is that it assumes no other action is in progress -- as in, no machines are
tied up and the workforce was essentially idle until the order was

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received. This may be a huge limitation for some industries, but for
companies that produce products with high levels of customization, FIP
is a powerful tool.
3.5.3 Backward Incremental Planning
Backward incremental planning, or BIP, is the other side of the FIP
coin. BIP looks at the requirements from the due date backward and
organizes the process accordingly. A good example of this is a bakery.
The cake must be fresh for its pickup date, so the baker would look at
the steps required to produce the cake and the estimated time required to
bake and decorate it. BIP works well in cases where a deadline is more
of a requested completion date and completing the order sooner
produces no benefit.

3.6 The Importance of Planning & Scheduling

A smart company owner understands the importance of planning and
scheduling. In fact, these two important business activities form the
basis of almost all business operations on some level. Take the time to
learn more about the importance of planning and scheduling for your
small company.

Identification
Planning and scheduling are closely related; they're both processes that
apply to almost every element of starting and running a business. For
example, when you create a business plan and write down each section
of how the business will run, you are participating in the planning
process. You must also write a complete schedule to go along with that
plan so that you know what to work on each day as you work toward the
opening day of the business. For work projects, you must establish a
project plan and well-defined goals, then set a corresponding schedule
for accomplishing those goals.
Significance
There are a couple of important reasons why planning and scheduling
are important for your business. For one, a solid plan and schedule helps
keep costs down and allows you to operate according to a budget. For
instance, if you take the time to create a plan for an online advertising
campaign, you'll be able to narrow down your target audience and avoid
the unnecessary cost of advertising to people who aren't interested in
your products. Creating a schedule for running your online ads may also
allow you to take advantage of price promotions offered by the
advertising service. You can also set strict ad budget restrictions based
on your plan. Having a plan and schedule also helps make your business
goals seem more realistic and achievable.
Types
In addition to general planning and scheduling activities, many
businesses must also prepare specific schedules and plans. For instance,
a manufacturer must create an operations plan and schedule for the

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production process. Companies that have to order supplies and raw

materials on a regular basis need an ordering schedule. If the company
utilizes shift workers, there must also be a schedule detailing the
availabilities of employees and needs of the business.
Solutions
Creating a project plan and schedule is a two-step process that requires
one or more computer programs. When planning, it's helpful to simply
create a table with columns denoting every aspect of the project,
including a description of the project that needs to be completed, a
timeline for the project's completion including a due date, the name of
the project leader, and the project's budget. You can create such a table
in a word processing or spreadsheet program. After the initial plan is
complete, enter a summary of specific tasks along with deadlines into a
calendar program to receive reminders of upcoming deadlines. Such
reminders are useful in remaining on-time with projects.
Expert Insight
One issue that may arise in the process of planning and scheduling is a
situation where the business owner has to address multiple objectives at
the same time. As Michael L. Pinedo, author of "Planning and
Scheduling in Manufacturing and Services" states, "This implies that the
two problems often cannot be solved separately; they may have to be
solved together." For example, if one of your business objectives is to
increase sales figures, an additional goal tied to that objective might be
to train your sales professionals. These competing needs may
complicate the process and cause delays in the project plan until both
issues are addressed.

4.0 CONCLUSION
We have discussed capacity and production planning which are very
important aspects of a project because they both relate the project to the
market. Capacity and production plans enable the firm to plan well in
advance what to produce and in what quantity too.
5.0 SUMMARY
We have discussed capacity and production planning and have
established the link between them.

6.0 TUTOR-MARKED ASSIGNMENT

1. What do you understand by the installed capacity of a plant?
2. Strategies of Capacity Planning
3. Definition of Capacity Planning
4. Similarities between Capacity Planning & Aggregate Planning

7.0 REFERENCES/FURTHER READINGS

Leon, I. (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

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Krajewski, L.J., Ritzman, L.P. (2005). Operations Management:

Processes and Value Chains. Upper Saddle River, New Jersey: Prentice
Hall.
Lazowska, E.D. (1984). Quantitative System Performance. Prentice-
Hall. ISBN 0-13-746975-6.

UNIT 8: PROJECT COST ANALYSIS

CONTENTS

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CRD 426 MODULES

1.0 Introduction
2.0 Objectives
3.0 Main Body
3.1 Project Cost Analysis
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
In Unit 4, we discussed competition and marketing plans. We saw how
competition takes place in the market place. We also discussed
components of marketing plans as prepared by project initiators. The
marketing plan as we discussed is very important to both the project
initiators and the evaluators.
In this unit, we shall discuss project cost analysis which is very
important in this course.

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• explain what project cost analysis is
• discuss how the analysis can be prepared.

3.0 MAIN CONTENT

3.1 Project Cost Analysis

Project cost analysis provides total frameworks for calculating or
estimating the total cost of a project. For example, a firm wants to set up
a garri processing plant to enable it serve the food needs of a growing
population. How does the firm know the cost of the envisaged garri
processing plant?
To guide our discussions, let us define project cost as all those costs that
are incurred in the process of setting up a project. The costs must be
attached to the project. And the list of the items must be exhaustive. But
we need to arrange the cost items in an orderly and consistent manner so
that like items stay together. To ease our discussions and to make them
as easy as possible, we shall divide project cost items into the following
sub-headings:
• Cost of land
• Cost of building
• Cost of machinery and equipment
• Cost of utilities
• Cost of furniture and other fittings
• Cost of vehicles
• Pre-operational expenses
• Working capital

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Although we have listed the cost sub-headings, we shall go ahead and

prepare a small checklist that will guide us. After the checklist, we will
work through a practical demonstration using a vegetable oil refining
plant as an example.

4.0 CONCLUSION
Project cost analysis is an important aspect of our study of project
evaluation. Project cost analysis is important to both the project initiator
and the financial analyst who may want to evaluate a project.

5.0 SUMMARY
In this unit, we discussed project cost analysis. In doing this we agreed
that cost of land, buildings, machinery and equipment, utilities, furniture
and fittings, etc., all form part of the total project cost. We also used a
check list to guide the preparation of the cost analysis. Finally we used a
worked example of a vegetable oil refining plant to throw more light on
the project cost analysis.

6.0 TUTOR-MARKED ASSIGNMENT

Why do you think that it is important to know the total cost of a project?

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.
Wearne, S.H. (1989). Control of Engineering Projects. London: Thomas
Telford.

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CRD 426 MODULES

UNIT 9: PROJECT EVALUATION CRITERIA

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Traditional Criteria of Project Evaluation
3.2 The Discounted Cash Flow (DCF) Method
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

Let us recall that the focus of this course is project evaluation. From unit
1, we discussed the project cycle. From there we moved on to discuss
factors affecting location of projects. We also discussed capacity and
production planning, demand analysis, supply analysis, project cost
analysis, projected income statements, cash flows and the balance sheet.

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CRD 426 DEVELOPMENT PLANNING

All these have set the stage for us to tie the discussions. We now want to
discuss a very crucial aspect of this course, which is the project
evaluation criterion. Project evaluation criteria seek to present the
methods to be adopted to measure the value of an investment project.
The evaluation enables us to choose between two or more projects once
the values are known. Any project evaluation criterion to be adopted
should posses the following characteristics:
• It should provide a means to distinguish between acceptable and
unacceptable projects.
• It should also be able to rank projects in order of their desirability.
• It should be a criterion that is applicable to any conceivable project.
• It should recognise that bigger cash flows are preferable to smaller
ones.
• It should recognise that early cash flows or benefits are preferable to
later cash flows or benefits.
Although there are a lot of project evaluation criteria in the literature, we
shall discuss the most widely accepted criteria which are the traditional
criteria and the discounted cash flow (DCF) criteria.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

• discuss project evaluation criteria
• distinguish between the traditional criteria and the discounted cash
flow relative to project evaluation.

3.0 MAIN CONTENTS

3.1 Traditional Criteria of Project Evaluation

In the traditional criteria, we shall discuss two methods, namely: the
payback period and the accounting rate of return method.

The Payback Period

The payback period is one of the most popular methods of project
evaluation. The payback period is defined as the number of years
required to recover the original cash outlay invested in a project. If the
project yields constant annual cash inflows, the payback period can be
computed by dividing cash outlay by the annual cash inflow. So we say
thus:
Payback period Cash outlay (investment) = Annual Cash inflow

Example
A project requires a cash outlay of N200,000 and yields an annual cash
inflow of N50,000 for a period of 10 years; calculate the payback
period.

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CRD 426 MODULES

The payback period is N200, 000 = 4 years.

N50, 000

However, it is to be noted that in the case of unequal cash inflows, the

payback period can be computed by adding up the cash inflows until the
total is equal to the initial cash outlay. The payback period is greatly
admired by project evaluators because it is very simple to understand.
Another good virtue of the payback period is that it costs less than most
of the other sophisticated methods.
However, despite its simplicity, the payback period may not be a
desirable investment criterion. In the first place, it fails to recognise the
cash flows that come in after the payback period. Again it fails to
consider the pattern of cash inflows and that early cash inflows rather
than later cash inflows. Despite its weakness, the payback period is very
popular analogy. It tries to emphasizes early recovery of an investment.
This means that it gives an insight into the cash inflows of the project.

The Accounting Rate of Return (ARR) Method

The accounting rate of return (ARR) is a method that uses accounting
information to measure the profitability of an investment. The
accounting rate of return (ARR) is computed by dividing average
income after taxes by the average investment.
ARR = Average Income
Average Investment
Example
A project costs N100,000 and has a scrap value of N40,000. The stream
of income before depreciation and taxes are N40,000, N50,000 and
N60,000 for the first three years. The tax rate is 50% and depreciation is
on straight line basis.
Calculate the accounting rate of return for the project.

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CRD 426 DEVELOPMENT PLANNING

As an accept or reject criterion, the ARR method will accept all those
projects whose ARR is greater than the minimum rate established by
management. If the ARR is lower than the minimum rate established by
management, then the project should be rejected. The ARR method is
very simple to understand and use. It can also be easily calculated using
accounting information.

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However, the ARR suffers from three main weaknesses. First it uses
accounting profits not cash flows in appraising projects. Secondly ARR
ignores the time value of money. The profits occurring in different
periods are valued equally.
Thirdly, it does not allow the fact that profit can be reinvested to earn
more profits.

3.2 Discounted Cash Flow (DCF) Methods

We have discussed two of the traditional methods used in the evaluation
of projects. One is the payback period while the other is the accounting
rate of return (ARR). Although two of them are simple to use and
understand, they are not theoretically sound. Both of them fail to
consider the timing of cash flows. Both fail to consider the time value of
money.
Because of these limitations, we shall consider two superior investment
criteria which fully recognise the timing of cash flows. The two methods
are the net present value (NPV) method and the internal rate of return
(IRR) method. These two methods are referred to as discounted cash
flow (DCF) methods or the tme-adjusted methods.

The Net Present Value (NPV) Method

This method correctly recognises the fact that cash flows arising
different time periods differ in value and are comparable only when
their equivalent- present values are found out.
The following steps are followed when computing the net present value
(NPV).
1. A discount rate is selected to discount the cash flows. The correct
discount rate should be the firm‟s cost of capital which is the minimum
rate of return expected by the investors to be earned by the firm.
2. The present value of cash inflows and outflows are computed using
cost of capital as the discounting rate.
3. The net present value (NPV) is the present value of cash inflows less
present value of cash outflows.
The acceptance rule using the NPV method is to accept a project if the
NPV is positive, and to reject it if the NPV is negative.
If NPV is greater than zero, then the value of the firm is expected to
increase. It is also important for us to understand the interpretation of
NPV. The net present value may be interpreted to mean the immediate
increase in the wealth of a firm if the investment proposal is accepted. It
is equal to an unrealised capital gain. The net present value can also be
interpreted to represent the amount the firm could raise at a required rate
of return in addition to the initial cash outlay to distribute immediately
to its shareholders and by the end of the project life to have paid off all
the capital raised plus interest on it.

Example

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CRD 426 DEVELOPMENT PLANNING

Calculate the net present value of a project which cost N500,000. But
generates cash inflows of N150,000, N300,000 and N400,000 over a
three year period. The required rate of return is 10%.

In terms of merit, the NPV method is very significant since it recognizes

the time value of money. It also is consistent with the objective of
maximising the wealth of shareholders. However, the NPV suffers from
the following limitations.
Firstly, it is fairly difficult to use.
Secondly, in computing the NPV, it is assumed that the discount rate
which usually is a firm‟s cost of capital is known. But as we know, the
cost of capital is a fairly difficult concept to measure in real life.
Thirdly, NPV may not yield a consistent answer when the projects being
compared involve different amounts of investment.

The Internal Rate of Return (IRR) Method

The internal rate of return (IRR) can be defined as that rate which
equates the present value of cash inflows with the present value of cash
outflows of an investment. Put in another way, the internal rate of return
is the rate at which the NPV of an investment is zero. It is called the
internal rate because it depends solely on the outlay and the resulting
cash inflows of the project and not any rate determined outside the
investment.
Let C = Cash outlays of an investment
A1 = Cash inflows received in (I+R). year I discounted at the cost of
capital R.
A2 = cash inflows received in year 2, (I+R)² discounted at the cost of
Capital R.
A3 = cash inflows received in year 3, (I+R)3 discounted at the cost of
Capital R.
Write the basic equation

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CRD 426 MODULES

The value of R in the equation at which total cash outlays equal total
cash inflows is called the internal rate of return (IRR). Usually the value
of R can be found out by trial and error. Generally, if the calculated
present value of the expected cash inflows is lower than the present
value of cash outflows, a lower rate should be tried. On the other hand,
if the calculated present value of the expected cash inflows is higher
than the present value of cash outflows, a higher rate should be tried.
Example
A barbers‟ shop costs N32,400 to establish and is expected to generate
cash inflows of N16,000,N14,000 and N12,000 over its life of three
years. Calculate the internal rate of return.

The net present value is –N514 at 16% discount factor. Let us try a
lower rate like 14%
You will observe from the above calculations that when we tried 16%
discount rate, the NPV was negative at –N514, when we tried
14%discount rate, the NPV became positive at N498. Therefore, the
internal rate of return we are looking for lies between 14% and 16%.
The basic accept-or-reject rule, using the IRR method, is to accept the
project if its internal rate of return is higher than the firm‟s required rate
of return. However, the project should be rejected if its internal rate of

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CRD 426 DEVELOPMENT PLANNING

return is lower than the firms cost of capital. It is important that we

understand the interpretation of the internal rate of return (IRR).
The internal rate of return (IRR) represents the highest rate of interest a
firm would be ready to pay on funds borrowed to finance the project
without being financially worse-off, by repaying the loan principal plus
accrued interest out of the cash inflows generated by the project.
We should also see the internal rate of return method as a very sound
method. As we said, it is a discounted cash flow method and also it
considers the time value of money. It is also compatible with the firm‟s
desire to maximise the owners‟ wealth. However the IRR method is
fairly difficult to understand and it involves complex computations.

Self Assessment Exercise

Distinguish between the traditional project evaluation methods and the
discounted cash. Show criteria.

4.0 CONCLUSION
We have discussed project evaluation criteria which we said constitute a
very crucial topic in this course. We discussed traditional criteria of
project evaluation. Here we mentioned the payback period and the
accounting rate of return (ARR). We also discussed discounted cash
inflow criteria. Here we mentioned the net present value (NPV) method
and the Internal Rate of Return (IRR).

5.0 SUMMARY
Project evaluation criteria provide us with the tools with which we can
choose from various investment proposals using acceptable techniques.
The evaluation criteria guide the project initiator and assist him/her to
choose among alternative projects. Also banks use project evaluation
criteria to decide whether or not to lend money for a project.

6.0 TUTOR-MARKED ASSIGNMENT

Why are the discounted cash flow (DCF) techniques better and more
acceptable than the traditional methods of project evaluation?

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

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CRD 426 MODULES

UNIT 10: RISK AND COST ANALYSIS: THE EVALUATION

METHODS

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Purpose of Evaluation
3.2 Types of Evaluation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
The evaluation of on-going and completed projects is one of the basic
responsibilities of the Planning and Development Division.

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CRD 426 DEVELOPMENT PLANNING

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• explain the meaning of Evaluation
• analyse the purpose of evaluation and classify difference types of
project evaluation.

3.0 MAIN CONTENT

3.1 Purpose of Evaluation

The final phase in the project cycle is project evaluation. The analyst
looks systematically at the elements of success and failure in the project
experience to learn how to plan better for the future. The basic objective
of such a study is to ascertain the real worth of a project or programme
as far as possible. Broadly speaking, evaluation may be defined as "a
process which attempts to determine as systematically and objectively as
possible the relevance, effectiveness and impact of activities in the light
of the objectives". It is, thus, a critical analysis of the factual
achievements/results of a project, programme or policy vis-a-vis the
intended objectives, underlying assumptions, strategy and resource
commitment. In specific terms, it makes an attempt to assess objectively
the following:-
(a) the relevance and validity of the objectives and design of the
project/programme in terms of broader issues of development policy,
sector/sub-sector priorities and strategies as well as other problems of a
wider nature;
(b) the efficiency and adequacy of the pace of progress of the
project/programme where the focus is mainly on managerial
performance and productivity;
(c) the effectiveness of the project/programme - a major part of an
evaluation exercise-in realizing the intended objectives from a variety of
angles; and
(d) the identification of reasons for the satisfactory or unsatisfactory
accomplishment of the results of the project/programme and to deduce
critical issues and lessons which may be of relevance to other on-going
and future projects/programmes of a similar nature.

3.2 Types of Evaluation

Evaluation can be applied for different purposes as well as to a specific
activity, project or programme. It is not restricted to the completion
stage only but involves periodic investigations at many stages. The
different types of project evaluations carried out are: (i) ex-ante
evaluation, (ii) on-going evaluation and (iii) terminal evaluation/ex-post
evaluation. The ex-ante evaluation/pre-approval appraisal has already
been discussed with methods and techniques in Chapter-5. The on-going
evaluation is carried out by the organization of its own to re-assess the

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projected feasibility of the PC-I content because of the time lag, while
external evaluation is done by an agency other than the body involved in
the implementation of a project. On-going and post-completion
evaluations are discussed below:-

(a) On-going/Mid-term Evaluation

The main purpose of an on-going/mid-project evaluation is to assist the
project management to make appropriate adjustments in the changed
circumstances or to rectify any shortcomings in the original design, so
as to improve its efficiency and overall performance.
(b) Post-Completion Evaluation
The purpose of an ex-post or post-hoc evaluation is to discover the
actual, as opposed to the projected, results of implementing a project.
The aim of evaluation is primarily to compare the actual outcome of the
project with the projections made at the appraisal stage. The
examination of different aspects of the project can provide important
lessons derived from experience for the new projects. The overall
impact of the project will result in a number of effects which can be
classified as costs and benefits, direct and indirect or tangible and
intangible. Ex-post evaluation takes place after the completion of the
project and is often more in-depth as it focuses on the analysis of
impact. Besides, it is time-consuming, costly and calls for persons with
special skills.

SELF ASSESSMENT EXERCISE

Discuss the nature of evaluation of a project.

4.0 CONCLUSION
In this unit, we discussed the nature of economic analysis and compared
it with the financial analysis of a project. We discussed net present
benefit cost ratio and the internal rate of return (IRR).

5.0 SUMMARY
Introduction to meaning of evaluation, the purpose of evaluation and
types of evaluation. society.

6.0 TUTOR-MARKED ASSIGNMENT

Write short note on midterm evaluation and post-completion evaluation?

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers. 140

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MODULE 3: QUANTITATIVE ASPECTS OF DATA AND

PLANNING

UNIT 11: DATA PLANNING AND POLICY MAKING

UNIT 12: THE DEVELOPMENT PLANNING PROCESS: SOME

BASIC MODELS

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CRD 426 MODULES

UNIT 11: DATA PLANNING AND POLICY MAKING

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Purpose of Evaluation
3.2 Types of Evaluation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
There is a saying that 'if you fail to plan, you will be planning to fail'.
This is similar to the idiom that says 'look before you leap'. The wisdom
in both sayings is that you are more likely to succeed than fail in an
activity when you make and implement plans for it. This is particularly
true when the activity require outlays of money, time and effort, and

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when failure can be very costly. So is data organization and

management.
Data management activities are usually performed by information
systems, and that the activities usually demand the use of resources such
as data, people, equipment, energy and time. Of course, the more data
and information that are created or acquired by a system for processing,
storage, output and communication, the more resources that will be
required. But resources are not free, and some resources, such as time,
are fixed. Accordingly, various procedures, policies and plans may be
established by different information systems to guide and regulate the
processes of data creation, management and use.
In this unit you will learn about some of these guidelines and policies.
You will learn about the nature of policies that organizations and
information systems often establish to guide their data management
activities. You will also learn about the importance of making and
implementing rules, plans and policies for data organization and
management.

2.0 OBJECTIVES
After studying this unit, you should be able to:
1. Explain the role of data planning in the process of data management.
2. Describe aims of information resources management.
3. Discuss the importance of data and information policies in data
management.
4. Describe the types of information that data policy manuals usually
contain.

3.0 Main Content

3.1 Planning for data

The planning of any human activity invariably aims to answer, before
the commencement of the activity, the following five basic questions:
- Why should the activity be done?
- Where should the activity be done?
- When should the activity be done?
- What tasks must be done in the activity?
- Who should do which tasks in the activity?
Planning involves obtaining prior information to enable the planner to
answer each of the above questions.
Data management activities consume valuable resources, and hence,
must be planned effectively to ensure success and avoid mistakes and
wastage. In other words, planning for data management requires that
one finds prior answers to such questions as:
- What information should be produced for various people who need
information in an organization or information system, and why?

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CRD 426 MODULES

- What data should be collected, stored, analyzed, communicated, etc.,

toward producing the required information?
- How should the data be collected, stored, analyzed, communicated,
etc? When should the data be collected, stored, analyzed,
communicated, etc? Who should be responsible for the different
activities in the data management cycle?

SELF-ASSESSMENT EXERCISES
(a) Answer the following questions: Do you:
(i) Always keep letters and greetings cards that you receive from
friends?
(ii) Keep copies of letters that you hand write?
(iii) Keep copies of official letters that you write?
(iv) Keep your books always well arranged on your table shelves?
(v) Always carefully read over your answers in an examination?
(vi) Frequently change methods you use for obtaining information?
(vii) You use radio/TV to obtain information more than newspapers?
(viii) Share information with friends immediately you get it?
(ix) Often try to confirm the accuracy of any information that you
receive from: Your friends? Your parents? Your teachers? Newspaper?
(x) Arrange the following potential sources of data and information in
the decreasing order in which you prefer to use them: books,
newspapers, teachers, internet, personal notebooks of your course mates,
radio, TV, parents, etc
(b) Use your answers in (a) to explain your own personal policies
toward data and information in your life.

3.2 Information resource management

Data management processes are often intertwined with those concerned
with information management. The reason is that data are the vehicles
through which people convey information, and through which people
obtain information.
Information is nowadays, recognized as a vital resource that can be used
and re-used to improve the knowledge of individuals and organizations.
Hence, information is now regarded as a resource, just like natural,
human and financial resources had been for a long time.
The recognition of information as a vital resource has given rise to a
branch of management known as information resource management
(IRM). The basic idea of IRM is that information resources should be
properly and carefully managed by competent information
professionals, just as finance has been managed by accountants for
many years. The main ideas championed by IRM professionals are:
- That information resources include information and data, as well as the
technologies for creating, acquiring, storing, processing and
communicating data, and for producing and using information.

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- That information and data are very valuable because they cost money
to acquire, process and use, and because they can be used to improve the
value of human, financial, natural and knowledge resources.
- Those managerial principles must be devised for managing
information resources. Hence, all data, information and knowledge
management activities must be carefully planned, performed and
evaluated to minimize their cost and to maximize their benefits to
organizations and information systems.
- That information resources must be managed by qualified information
professionals. In other words, qualified information professionals and
knowledgeable people should plan and manage information resources.
The basic argument of people who champion information resources
management is that organizations and information system will be better
able to develop and manage their information and data resources when
they accept and apply the above principles. Do you believe them?

3.3 Data and information policies

A policy is a set of statements that describe the circumstances,
objectives and constraints to be followed by people in an organization or
information system concerning a particular activity or issue.
You would remember, for instance, some policies of the primary school
that you attended some years ago. You would recall that there were rules
or policies regarding punctuality and lateness at school, regarding the
behaviour expected of pupils, regarding punishment for various offence,
regarding the roles of teachers, parents, etc. You would recall also that
some of these school rules were written and pasted on notice boards, and
that many others are not written but were nevertheless known and
respected by pupils, teachers and parents. In a similar way, data
management policies are usually formulated by organizations and
information systems to explain why and how the various data
management activities should be performed.
Data policies are usually formulated to ensure that only potentially
useful data are created or acquired for processing and management by
an organization or information system. Potentially useful data are those
from which more useful data or information can be produced.

3.4 Example: Data policy issues in data collection

Appropriate data policies can be formulated to guide each of the
activities in a data management cycle that was first introduced in Unit 2.
May be you should review Unit 2 now to refresh your memory.
Here we will illustrate the basic objective of data policies by looking at
the issues that are usually addressed by data policies for one of the data
management activities - data collection and acquisition. Data collection
and acquisition activities are performed by information systems to

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obtain data for subsequent storage, communication and processing to

produce information.
Data policies for data collection and acquisition will often provide
guidelines and other helpful information that can be used by people in
organizations and information systems for answering the following
questions:
Why should certain types of data be collected, acquired or created?
(a) The usual reason for collecting or acquiring data of any kind is in
order to enable subsequent processing and interpretation of the data to
produce information and other more valuable data required by people
(referred to as information users) within and outside an organization or
information system. Users need information either to improve their
knowledge, make decisions or solve problems. In other words, the types
of information that users would require usually depend on such things as
the types of subjects they are studying, the type of work they do, the
issues they have to decide on, and the problems they have to solve, and
sometimes, the types of leisure activities they engage in.
(b) What specific types of data should the organization or information
system collect, acquire or create?
The data policy would explain data to be collected, should be collected
or created only on specific groups of people, certain types of
organizations, or certain subjects, activities, events, places, etc. The
policy might also require that the data to be collected or acquired should
meet certain minimum standards of accuracy, detail, timeliness, etc. As
noted above, the policy would justify the specific types of data to be
collected or acquired on the basis of the information that will be
produced from the data for users by the organization or information
system.
(c) What symbols should be used to create data, and/or in what format
and from what media should data be collected or acquired?
As explained in Module 1, data can be created or acquired in numeric,
textual, graphical, pictorial and sound symbols and formats. For
example, an event can be described in words, or recorded in a video
tape, an audio tape, or in a series of photographs. The data policy will
seek to provide guidelines as to which formats should be used for
acquiring or creating data for the organization or information system.
The reason is that each of the different formats in which data can be
created or acquired requires different technologies and equipment.
(d) From what sources should data be collected or acquired?
Data can be collected from various sources. Data can be collected from
people in a questionnaire survey, or by means of forms which certain
people might be required to fill when they request for or purchase goods
or services. Such data are referred to as primary data. However data can
also be extracted from books, magazines, newspapers, computers and
the Internet. Such data are referred to as secondary data. Data might also
be collected from within and outside an organization or information

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system. These are internal and external data respectively. The data
policy will seek to explain the types of data and information sources that
should be emphasized by the organization or system.
(e) When and how frequently should data be acquired, collected or
created?
A data policy will sometimes explain how frequently certain data should
be collected - whether hourly, daily, weekly, monthly, annually, etc. The
policy may also specify when certain data should be collected. For
instance, candidates in an examination are often required to fill
attendance forms at the start of the examination and not after the
examination. Can you guess the reason for this?
What should be the functions or responsibility of different
organizational units in the data capture, acquisition and creation
processes?
Data collection is usually performed by different organizational units or
systems components. For example, at the start of an academic year or
semester, students are usually required by their schools and colleges to
fill forms indicating what courses they desire to take in their respective
departments, and are at the same time also required to fill forms and pay
tuition and other fees in the accounts department. They may also be
required to fill forms in order to check into hostels of residence. Hence,
data policies often specify the responsibilities of the different
organizational units and personnel in respect of various data collection
activities.
The above questions and the explanations provided underneath them
focus only on data collection and acquisition activities. Of course,
similar questions and explanations can be given in respect of each of the
other data management activities. You should at this point write out
questions similar to those above for at least one of the other data
management activities such as: data analysis and summarization, data
storage and retrieval, data protection and archiving, data communication
and transfer, etc.

SELF-ASSESSMENT EXERCISES
Write out sample data protection and archiving questions that a data
management policy might provide to assist people in an organization or
system to answer.
[Hint: Try to replace the words 'acquisition', 'collection' and. ‘creation'
with "protection' and "archiving" in the questions provided in the text.]

3.5 Data policy manuals

A data policy is a basic guide to action that sets the boundaries within
which data management activities are to take place. Most organizations
and information systems establish general principles to regulate their
data and information activities. A policy may be written or unwritten.

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The advantage of a written policy is that it can easily be referred to in

case of disagreement about appropriate and inappropriate activities.
A written policy is usually referred to as a policy manual. The following
are some of the advantages of policy manuals. Policy manuals
- Provide plans of action in respect of most data management issues,
activities, events and problems;
- Forces people within an organization or information system to think
carefully through whatever they want to do with data;
- Enable people within an information system to perform their
respective data management functions and tasks in a standardized,
consistent manner;
- Often establish data quality control points which often help to ensure
data quality; help to preserve ways of doing things, even though
employees may change;
- Can be used as material for training and job orientation of new
employees;
- Serve as a starting point for thinking about how to improve on how
data management activities can be improved within an organization and
information system.
Sample statements that a written data management policy manual might
contain can be expressed as follow:
1. This data policy should be used as a guide in all departments of this
organization for determining the data to be acquired, collected or
created.
2. Data to' be collected should also be determined 'through, periodic
surveys of the actual and potential information needs of middle and top,
level managers. Such surveys should be conducted every five years.
3. As far as practicable, data should be immediately captured unto
appropriate storage media at the point' where they are being created.
4. Employees who are responsible for data creation, capture and
acquisition should periodically be trained on their responsibilities in
ensuring that data meet the minimum standards of accuracy.
5. This data acquisition, collection and creation policy should be
reviewed every three years.

3.6 Data planning and policy-making requirements

Effective data planning and policy-making in an organization or
information system demands that people in the organization or
information system
(a) Accept the importance of data, information and knowledge activities,
and the necessity to properly manage the activities;
(b) Establish specific policies to guide and regulate various data
management activities within the organization or information system;
(c) Use the policies as guide for determining what data to collect acquire
or create; for determining what data management activities to perform,
and for creating information systems to perform those activities.

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(d) Evaluate either continuously or periodically whether the established

policies are being followed, and if not, ensuring that they are followed.

4.0 CONCLUSION
Data planning and policy making should always be considered as the
starting point of all data management activities. This is the reason for
explaining data planning and policy-making very early in this course,
and ahead of other activities in the data management cycle. Data cost
money and other resources to collect, store, protect, communicate and
process, and there is no point in spending scarce resources on useless
data.

5.0 SUMMARY
In this unit, you have learned about some important aspects of data
planning and policy-making. Data planning involves answering
questions about why data of different kinds should be collected, stored,
processed or communicated to produce information. It also involve
answering questions about what data management activities should be
performed, how and when the activities should be done, and who should
do them.
Data planning and management is interwoven with information
management because of the very close relationship between data and
information. The increasing necessity for organizations and information
systems to acquire and manage data and information efficiently has
given rise to a branch of management known as information resource
management (IRM). The basic idea of IRM is that information resources
are as valuable as money, and hence should be properly and carefully
managed by competent information professionals, just as financial
resources have been managed by accountants for years.
A data policy is a set of statements that describe the circumstances,
objectives and constraints to be followed by people in an organization or
information system concerning data management activities. Data
policies are usually formulated to ensure that only potentially useful
data are created or acquired for processing by an organization or
information system. Data policies may be written or unwritten.
However, written policies serve as a reference document for ensuring
that people in organizations and information systems use standard and
consistent rules and methods for performing data management activities.

SELF-ASSESSMENT EXERCISES
I. Explain the principles of information resource management.
2. In what ways does a data policy manual help an information system
to properly manage data?

6.0 TUTOR-MARKED ASSIGNMENT

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Select any data management activity (e.g. data collection, data storage)
and explain why data planning be performed before performing the
activity.

7.0 REFERENCES/FURTHER READINGS

McGarry, K. (1993). The changing nature of information: an

introductory analysis. 2nd. ed., London: Library Association.

Vickery, B. and Vickery, A. (1992). Information science in theory and

practice. London: Bowker Saur

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CRD 426 DEVELOPMENT PLANNING

UNIT 12: THE DEVELOPMENT PLANNING PROCESS: SOME

BASIC MODELS

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Aggregate Growth Models: Projecting Macro Variables
3.2 Multisector Models and Sectoral Projections
3.3 Project Appraisal and Social Cost-Benefit Analysis
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
Most development plans have traditionally been based initially on some
more or less formalized macroeconomic model. Such economy-wide
planning models can be divided into two basic categories:
(1) aggregate growth models, involving macroeconomic estimates of
planned or required changes in principal economic variables, and
(2) multisector input-output, social accounting, and computable general
equilibrium (CGE) models, which ascertain (among other things) the
production, resource, employment, and foreign-exchange implications
of a given set of final demand targets within an internally consistent
framework of interindustry product flows.
(3) Finally, probably the most important component of plan formulation
is the detailed selection of specific investment projects within each
sector through the technique of project appraisal and social cost-benefit
analysis.

2.0 OBJECTIVES
The main goal of this unit is to identify the three “stages” of planning—
aggregate, sectoral, and project—provide the main intellectual tools of
the planning authority. All of these tools have been, and still are,
extensively used by the World Bank and other development agencies, as
well as developing country governments. We now turn to examine each
of these stages and their associated models.

3.0 MAIN CONTENTS

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3.1 Aggregate Growth Models: Projecting Macro Variables

The first and most elementary planning model used in almost every
developing country is the aggregate growth model. It deals with the
entire economy in terms of a limited set of macroeconomic variables
deemed most critical to the determination of levels and growth rates of
national output: savings, investment, capital stocks, exports, imports,
foreign assistance, and so on. Aggregate growth models provide a
convenient method for forecasting output (and perhaps also
employment) growth over a three- to five-year period. Almost all such
models represent some variant of the basic Harrod-Domar (or AK)
model.
Given targeted GDP growth rates and a national capital-output ratio, the
Harrod-Domar model is used to specify the amount of domestic saving
necessary to generate such growth. Typically, this necessary amount of
domestic saving is not likely to be realized on the basis of existing
savings functions, and so the basic policy problem of how to generate
additional domestic savings or foreign assistance comes into play. For
planning purposes, the Harrod-
Domar model has been typically formulated along the following lines.
We start with the assumption that the ratio of total output to
reproducible capital is constant so that

K(t) = cY(t)
(3.1)

where K(t) is capital stock at time t, Y(t) is total output (GDP) at time t,
and c is the average (equal to the marginal) capital-output ratio. We
assume next that a constant share (s) of output (Y) is always saved (S) so
that

I (t) = K(t + 1) – K(t) + dK(t) = sY = S(t)

(3.2)

where I(t) is gross investment at the time t and d is the fraction of the
capital stock depreciated in each period. Now if g is the targeted rate of
growth of output such that

g = Y(t + 1) – Y(t) = 𝛥Y(t)

(3.3)
Y(t) Y(t)
then capital must be growing at the same rate, because from Equation
3.1 we know that

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CRD 426 DEVELOPMENT PLANNING

𝛥K(t) = c 𝛥Y = (k/y) ΔY = 𝛥Y
K K K Y
(3.4)

Using Equation 3.2, we therefore arrive once again at the basic Harrod-
Domar growth formula (with the capital depreciation parameter):
𝑠
g = sY - dK = - d
𝑐
(3.5)
K

Finally, because output growth can also be expressed as the sum of labor
force growth (n) and the rate of growth of labor productivity (p),
Equation 3.5 can be rewritten for planning purposes as
𝑠
n + p = - d
𝑐
(3.6)

Of course, much development policymaking does not take productivity

as exogenous but is actively focused on raising it. But given an expected
rate of labor force and productivity growth (labor force growth can be
calculated from readily available demographic information, and
productivity growth estimates are usually based either on extrapolations
of past trends or on an assumed constant rate of increase), Equation 3.6
can then be used to estimate whether domestic savings will be sufficient
to provide an adequate number of new employment opportunities to a
growing labor force. One way of doing this is to disaggregate the overall
savings function (S = sY) into at least two component sources of saving,
normally, the propensity to save out of wage income, W, and profit
income, d . Thus, we define

W + π = Y
(3.7)
and
SπΠ + SwW = I
(3.8)

Where Sπ and Sw are the savings propensities from Π and W,

respectively. By manipulating Equation 3.5 and substituting Equations
3.7 and 3.8 into it, we arrive at a modified Harrod-Domar growth
equation:

c(g + d) = (Sπ – Sw)( π ) + Sw

(3.9)
Y

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which can then serve as a formula for ascertaining the adequacy of

current saving out of profit and wage income. For example, if a 4%
growth rate is desired and if d = 0.03, c = 3.0, and
π = 0.5, Equation 3.9 reduces to 0.42 = Sπ – Sw
Y
If savings out of capital income amount to 25%, wage earners must
save at a 17% rate to achieve the targeted rate of growth. In the absence
of such a savings rate out of labor income, the government could pursue
a variety of policies to raise domestic saving or seek foreign assistance.
In countries where inadequate foreign-exchange reserves are believed to
be the principal constraint on economic growth, the aggregate growth
model typically employed is some variant of the two-gap model. Two-
gap models are simply Harrod- Domar models generalized to take
foreign-trade problems into account. In either case, aggregate growth
models can provide only a rough first approximation of the general
directions an economy might take. Thus, they rarely constitute the
operational development plan. Perhaps more important, the simplicity
and relatively low data collection cost of using aggregate growth models
can often blind us to their very real limitations, especially when carried
out in too mechanical a fashion. Average capital-output ratios are
notoriously difficult to estimate and may bear little relation to marginal
capital-output ratios, which are the relevant ratios for forecasting
purposes, and savings rates can be highly unstable. The operational plan
requires a more disaggregated multisector model of economic activity
like the well-known input-output approach.

3.2 Multisector Models and Sectoral Projections

A much more sophisticated approach to development planning is to use
some variant of the interindustry or input-output model, in which the
activities of the major industrial sectors of the economy are interrelated
by means of a set of simultaneous algebraic equations expressing the
specific production processes or technologies of each industry. All
industries are viewed both as producers of outputs and users of inputs
from other industries. For example, the agricultural sector is both a
producer of output (e.g., wheat) and a user of inputs from, say, the
manufacturing sector (e.g., machinery, fertilizer). Thus, direct and
indirect repercussions of planned changes in the demand for the
products of any one industry on output, employment, and imports of all
other industries can be traced throughout the entire economy in an
intricate web of economic interdependence. Given the planned output
targets for each sector of the economy, the inter industry model can be
used to determine intermediate material, import, labor, and capital
requirements with the result that a comprehensive economic plan with
mutually consistent production levels and resource requirements can, in
theory, be constructed.

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Inter industry models range from simple input-output models, usually

consisting of 10 to 30 sectors in the developing economies and 30 to 400
sectors in advanced economies, to more complicated linear
programming or activity analysis models where checks of feasibility
(what is possible given certain resource constraints) and optimality
(what is best among different alternatives) are also built into the model.
But the distinguishing characteristic of the inter industry or input-output
approach is the attempt to formulate an internally consistent,
comprehensive development plan for the entire economy.
Input-output analysis is often extended in two ways. First, by including
data on factor payments, sources of household income, and the pattern
of household goods consumption across various social groups (such as
urban and rural households), a social accounting matrix (SAM) is
created. This is accomplished by adding data from the system of
national accounts, balance of payments, and flow-of-funds databases,
often supplemented with household survey data, to the basic input-
output table. A SAM therefore provides a comprehensive and detailed
quantitative description of the interrelationships in an economy as they
exist at a point in time, making it well suited as a tool for evaluating the
impact of alternative development policies. SAMs for many countries
can be found online. SAMs are often further elaborated with CGE
models, which assume that households maximize utility and firms
maximize profits. Utility (or demand) and production functions are
assumed or estimated from national data. The resulting impact of the
policy is then simulated using standard computer programs. The CGE
approach is more complicated than a SAM, but its value lies in enabling
policymakers to take into account the possible reactions of consumers
and firms to the alternative policies being considered rather than assume
that they will behave the way they did before the new policies were
implemented.

3.3 Project Appraisal and Social Cost-Benefit Analysis

The vast majority of day-to-day operational decisions with regard to the
allocation of limited public investment funds are based on a
microeconomic technique of analysis known as project appraisal. The
intellectual as well as the operational linkage among the three major
planning techniques, however, should not be overlooked. Macro growth
models set the broad strategy, input-output analysis ensures an internally
consistent set of sectoral targets, and project appraisal is designed to
ensure the efficient planning of individual projects within each sector.

3.3.1 Basic Concepts and Methodology: The methodology of project

appraisal rests on the theory and practice of social cost-benefit analysis,
which is also used in the United States and other developed countries.
The basic idea of cost-benefit analysis is simple: To decide on the worth
of projects involving public expenditure (or, indeed, in which public

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policy can play a crucial role), it is necessary to weigh the advantages

(benefits) and the disadvantages (costs) to society as a whole. The need
for social cost-benefit analysis arises because the normal yardstick of
commercial profitability that guides the investment decisions of private
investors may not be an appropriate guide for public-investment
decisions.
Private investors are interested in maximizing private profits and
therefore normally take into account only the variables that affect net
profit: receipts and expenditures. Both receipts and expenditures are
valued at prevailing market prices for inputs and outputs.
The point of departure for social cost-benefit analysis is that it does not
accept that actual receipts are a true measure of social benefits or that
actual expenditures are a true measure of social costs. Not only will
actual market prices often diverge from their true value, but also private
investors do not take into account the external effects of their decisions.
These externalities can be sizable and pervasive. In other words, where
social costs and benefits diverge from private costs and benefits,
investment decisions based entirely on the criterion of commercial
profitability may lead to wrong decisions from the point of view of
social welfare, which should be the government’s primary concern.
Although social valuations may differ significantly from private
valuations, the practice of cost-benefit analysis is based on the
assumption that these divergences can be adjusted for by public policy
so that the difference between social benefit and cost will properly
reflect social profitability, just as the difference between actual receipts
and expenditures measures the private profitability of an investment.
Thus, we can define social profit in any period as the difference
between social benefits and social costs where these are measured both
directly (the real costs of inputs and the real value of outputs) and
indirectly (e.g., employment effects, distributional effects). The
calculation of the social profitability of an investment is then a three-
step process.
1. We must first specify the objective function to be maximized—
ordinarily, net social benefit—with some measure of how different
benefits (e.g., per capita consumption, income distribution) are to be
calculated and what the trade-off between them might be.
2. To arrive at calculations of net social benefit, we need social
measures of the unit values of all project inputs and outputs. Such social
measures are often called accounting prices or shadow prices of inputs
and outputs to distinguish them from actual market prices. In general,
the greater the divergence is between shadow and market prices, the
greater the need for social cost-benefit analysis in arriving at public
investment decision rules.
3. Finally, we need some decision criterion to reduce the stream of
projected social benefit and cost flows to an index, the value of which

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can then be used to select or reject a project or to rank it relative to

alternative projects.
Let us briefly examine each of these steps of project appraisal.
3.3.2 Setting Objectives: Given the difficulty of attaching numerical
values to such objectives as national cohesion, self-reliance, political
stability, modernization, and quality of life, economic planners typically
measure the social worth of a project in terms of the degree to which it
contributes to the net flow of future goods and services in the
economy—that is, by its impact on future levels of consumption.
Recently, a second major criterion, the project’s impact on income
distribution, has received increased attention. If preference is to be given
to raising the consumption standards of low-income groups, the social
worth of a project must be calculated as a weighted sum of the
distribution of its benefits, where additional consumption by low-
income groups may receive a disproportionately high weight in the
social welfare objective function. Beginning in 1991, project analysis at
the World Bank also included an environmental impact evaluation as a
third criterion, along with future consumption and income distribution.

3.3.3 Computing Shadow Prices and Social Discount Rates:: The

core of social cost-benefit analysis is the calculation or estimation of the
prices to be used in determining the true value of benefits and the real
magnitude of costs. There are many reasons for believing that in
developing countries, market prices of outputs and inputs do not give a
true reflection of social benefits and costs. Five such reasons, in
particular, are often cited.
1. Inflation and currency overvaluation. Many developing countries are
still beset by inflation and varying degrees of price controls. Controlled
prices do not typically reflect the real opportunity cost to society of
producing these goods and services. Moreover, in many countries, the
government manages the price of foreign exchange. With inflation and
unaltered foreign exchange rates, the domestic currency becomes
overvalued, with the result that import prices underestimate the real cost
to the country of purchasing foreign products and export prices (in local
currency) understate the real benefit accruing to the country from a
given volume of exports. Bubbles and crises can also lead to larger
distortions. Public investment decisions based on this price will
therefore tend to be biased against export industries and to favor import
substitutions. The reverse holds with systematically undervalued
exchange rates.
2. Wage rates, capital costs, and unemployment. Almost all developing
countries exhibit factor price distortions resulting in modern-sector
wage rates exceeding the social opportunity cost (or shadow price) of
labor and interest rates understating the social opportunity cost of
capital. This leads to widespread unemployment and underemployment
and the excessive capital intensity of industrial production technologies.

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If governments were to use unadjusted market prices for labor and

capital in calculating the costs of alternative public investment projects,
they would underestimate the real costs of capital-intensive projects and
tend to promote these at the expense of the socially less costly labor-
intensive projects that would be more favorable to the poor.
3. Tariffs, quotas, subsidies, and import substitution. The existence of
high tariffs, in combination with import quotas and overvalued
exchange rates, discriminates against the agricultural export sector and
favors the import substituting manufacturing sector. It also encourages
socially wasteful rent seeking on the part of competing exporters and
importers. They vie with each other (often through bribes and threats as
well as direct lobbying efforts) to capture the extra profits that can
accrue to traders with import licenses, export subsidies, tariff protection,
and industrial preferences.
4. Savings deficiency. Given the substantial pressures for providing
higher immediate consumption levels to the masses of poor people, the
level and rate of domestic savings in most developing countries is often
thought to be suboptimal. According to this argument, governments
should use a discount rate that is lower than the market rate of interest in
order to promote projects that have a longer payoff period and generate
a higher stream of investible surpluses in the future.
5. The social rate of discount. In our discussion of the shadow price of
savings, we mentioned the need for governments to choose appropriate
discount rates in calculating the worth of project benefits and costs that
occur over time. The social rate of discount (also sometimes referred to
as social time preference) is essentially a price of time—the rate used to
calculate the net present value of a time stream of project benefits and
costs, where the net present value (NPV) is calculated as:

NPV = Σt Bt – Ct (3.10)
(1+r)t
where Bt is the expected benefit of the project at time t, Ct is the
expected cost (both evaluated using shadow prices), and r is the
government’s social rate of discount. Social discount rates may differ
from market rates of interest (normally used by private investors to
calculate the profitability of investments), depending on the subjective
evaluation placed on future net benefits: The higher the future benefits
and costs are valued in the government’s planning program—for
example, if government also represents future, unborn citizens—the
lower the social rate of discount will be.
In view of these five forces leading to considerable product, factor, and
money price distortions, as well as considerations of external economies
and diseconomies of production and consumption (by definition, factors
not taken into account in private-investment decisions), it has been
widely argued and generally agreed that a strong case can be made for
concluding that a project’s actual anticipated receipts and expenditures

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often do not provide an accurate measure of its social worth. It is

primarily for this reason that the tools of social cost-benefit analysis for
project appraisal are essential to an efficient process of project selection
in developing countries.

4.0 CONCLUSION
The process of formulating a comprehensive, detailed development plan
is obviously a more complicated process than that described by our
three-stage approach. It involves a constant dialogue and feedback
mechanism between national leaders who set priorities and planners,
statisticians, research workers, and departmental or ministry officials.
Internal rivalries and conflicting objectives (not to mention political
pressure from powerful vested-interest groups) are always to be
reckoned with. Nevertheless, our presentation should at least serve to
provide a feel for the mechanics of planning and to demonstrate the
ways in which aggregate, input-output, and project planning models
have been used to attempt to formulate an internally consistent and
comprehensive development plan.

5.0 SUMMARY
:Having computed relevant shadow prices, projected a time stream of
expected benefits and costs (including indirect or external effects), and
selected an appropriate social discount rate, planners are in a position to
choose from a set of alternative investment projects those thought to be
most desirable. They therefore need to adopt a decision criterion to be
followed. Normally, economists advocate using the NPV rule in
choosing investment projects; that is, projects should be accepted or
rejected according to whether their NPV is positive or negative. As
noted, however, NPV calculations are very sensitive to the choice of a
social discount rate. An alternative approach is to calculate the discount
rate that gives the project an NPV of zero; compare this internal rate of
return with either a predetermined social discount rate or, with less
justification, an estimate of either the marginal product of capital in the
economy or the market rate of interest; and choose projects whose
internal rates exceed the predetermined or market rate. This approach is
widely used in evaluating educational investments.
Because most developing countries face substantial capital constraints,
the choice of investment projects will normally also involve a ranking of
all projects that meet the NPV rule. Projects are ranked by descending
net present value (more precisely, by their benefit-cost ratios, which are
arrived at by dividing NPV by the constraint on total capital cost, K—
that is, an NPV/K ratio is calculated for each project). The project or set
of projects (some investments should be considered as a package of
projects) with the highest NPV/K ratio is chosen first, then the next
highest, and so on down the line until all available capital investment
funds have been exhausted.

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6.0 TUTOR-MARKED ASSIGNMENT

(1) Compare and contrast the three basic types of planning models:
aggregate growth models,
input-output analysis, and project appraisal.

(2) What do you think are some of the strengths and weaknesses of these
models from the standpoint of planning in developing nations?

7.0 REFERENCES/FURTHER READINGS

BRAC. http://www.brac.net.

Banerjee, Abhijit V., Timothy Besley, and Timothy W. Guinnane. “Thy

neighbor’s keeper: The design of a credit cooperative with theory and a
test.” Quarterly Journal of Economics 109 (1994): 491–515.

Emran, M. Shahe, Virginia Robano, and Stephen C. Smith, “Assessing

the frontiers of ultra-poverty reduction: Evidence from CFPR/TUP, an
Innovative program in Bangladesh,” Economic Development and
Cultural Change, 62 (2), 339–380, February 2014.

Khandker, Shahidur R., and Baqui Khalily. The Bangladesh Rural

Advancement Committee’s Credit Programs: Performance and
Sustainability. Washington, D.C.: World Bank, 1996.

Matin, Imran, and David Hulme. “Programs for the poorest: Learning
from the IGVGD program in Bangladesh.” World Development 31
(2003): 647–665.

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MODULE 4 FINANCE AND MANPOWER

PLANNING

UNIT 13: INTRODUCTION TO ECONOMIC

ANALYSIS

UNIT 14: MANPOWER PLANNING AND

EVALUATION

UNIT 15: MARKET ANALYSIS

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UNIT 13: INTRODUCTION TO ECONOMIC ANALYSIS

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Financial Analysis and Economic Analysis- A Comparison
3.2 The Nature of Economic Analysis
3.3 Adjustments to Financial Analysis
3.4 Linkage Effects of a Project
4.0 Conclusion
5.0 Summary

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6.0 Tutor-Marked Assignment

7.0 References/Further Readings

1.0 INTRODUCTION
Generally, in a project analysis situation, most analyses focus on the
cash inflows and outflows of a project. Critical expenses and incomes
are usually compared to determine whether a project should be
undertaken or not. But expenses and revenues in most financial analyses
are mainly the consideration of a private investor.
The implication of financial analysis is that it provides a micro view of a
project and concentrates attention on things like accounting profits.
Economic analysis on the other hand considers projects from a macro
point of view. The type of questions asked in an economic analysis are:
1. Will the project under consideration lead to the general well being of
the community, the state and the nation?
2. Will the project generate employment at various levels in the macro
environment?
3. Will the project lead to economic growth?
4. What are the linkages that the project has, i.e., forward or backward
linkages?
5. Will the project generate more technical knowledge?
The questions that we have asked are not exhaustive but only go to
demonstrate the type of questions that economic analyses seek to
answer.

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• explain the meaning of an economic analysis
• distinguish between an economic analysis and a financial analysis.

3.0 MAIN CONTENTS

3.1 Financial Analysis and Economic Analysis – a Comparison

In general theory, a financial analysis tries to solve resource allocation
problems. It tries to use information from projects to determine whether
projects should come on stream or not. Economic analysis also tries to
solve resource allocation problems in an economy. In economic theory,
resources are very scarce and it is part of any good analysis to allocate
resources between competing projects. For example, resource allocation
problems can arise if a community is trying to decide whether to build a
school or a hospital with limited scare resources.
Financial analysis equally tries to allocate resources but from a micro
view point. So, both financial and economic analyses solve resource
allocation problems.
Financial analysis tries to concern itself with issues of both benefits and
costs arising from a project. In the financial analysis, the concern of the

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analysis is to evaluate the stream of costs attached to a project and

deduct same from the stream of benefits.
If the stream of benefits is greater than the stream of costs, then project
in question has a positive value and should be accepted, all things being
equal. However, if the stream of costs is greater than the stream of
benefits, then the project in question has a negative value and should not
be accepted, all things being equal.
Economic analysis also concerns itself with costs and benefits arising
from a project. If the stream of benefits is greater than the stream of
costs, then the project in question has a positive value and should be
accepted.
However, if the stream of costs is greater than the stream of benefits,
then the project in question has a negative value and should not be
accepted, all things being equal. So we could say that financial analysis
and economic analysis both concern themselves with costs and benefits
arising from a project. In the end, they provide answers to the question
of whether a project should be acceptable or not. In evaluating projects,
both use discounting and compounding techniques to arrive at their
answers.
However, there exist conceptual differences between financial analysis
and economic analysis. While financial analysis has a primary objective
of establishing the viability and acceptability of a project from a
financial view point, paying no attention to society, economic analysis
has the objective of establishing the fact that a project is acceptable or
not to the society as a whole. So while financial analysis has a micro
objective, economic analysis has a macro objective.
Finally, in reaching a decision as to whether or not to accept a project,
financial analysis and economic analysis both try to establish a
relationship between costs and benefits.
For example in financial analysis, costs and benefits arising from a
project are usually defined in monetary variables such as profits. But
economic analysis goes really beyond the vague definitions of profit. In
Economic analysis, costs are defined in terms of opportunity costs or
foregone costs to the society as a whole.

SELF ASSESSMENT EXERCISE 1

Compare and contrast financial analysis and economic analysis.

3.2 The Nature of Economic Analysis

In economic analysis, the costs and benefits attached to a project are
usually compared before a decision can be reached on whether or not to
accept a project.
In the literature, there exist three discounted measures of project worth
which we will now discuss:

The Net Present Worth

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The net present worth is the difference between the present worth of
benefits and the present worth of costs. We can write thus:
Net Present Worth = (Present Worth of benefits) - (Present Worth of
costs)
Generally, according to the net present worth theory, a project is
acceptable if the net present worth is positive. If the net present worth is
negative, the project will be rejected.

Benefit-Cost Ratio
If you divide the present worth of benefits of a project by the present
worth of its costs, then you have what is known as the benefit-cost ratio.
We can write thus:
Benefit-Cost ratio = Present worth of benefits
Present worth of costs
Generally, a project is acceptable if the benefit-cost ratio is greater than
1 (one).
If the benefit-cost ratio is exactly 1 (one), that project is a break even
project.

The Internal Rate of Return (IRR)

The internal rate of return is a discount rate where the present worth of
benefits is equal to the present worth of costs.
Under the internal rate of return evaluation method, a project will be
acceptable if its internal rate of return is higher than the firm‟s required
rate of return.
The starting point of economic analysis is the financial analysis of a
project which should be properly concluded before embarking on an
economic analysis. Some adjustments will be made to the calculations to
arrive at economic data.
First, it may be necessary to include or exclude some costs and benefits
which may have been included or excluded from the financial analysis.
Secondly, some project inputs and outputs may have to be revalued if
their shadow prices differ significantly from their market prices.

SELF ASSESSMENT EXERCISE 2

Discuss the nature of economic analysis with emphasis on the methods
of evaluating the worth of a project.

3.3 Adjustments to Financial Analyses

We have stated that the starting point of an economic analysis is a
financial analysis, so if we have financial data on financial analysis, we
need to make some adjustments to the financial analysis to arrive at
economic analysis data. We shall now consider some of the adjustments:

Transfer Payments

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Transfer payments represent transfer of resources from one section of

society to another. They do not make any claim on the country‟s
resources and as such, their impact should be clearly distinguished and
analysed in the economic analysis.
One of the first transfer payments we shall consider is interest. Interest
is a reward for capital. For example, if a project is funded through a
bank loan, the interest component is included in the profit and loss
statement. The interest charges in the profit and loss statement represent
transfer payments from a project to the provider of funds. What the
project lost (interest) has become a gain to the provider of funds.
In effect, both figures are equal and cancel out without any net increase
to society of funds. Therefore in economic analysis, interest charges are
excluded since they only represent transfer payments.
The second transfer payment we shall consider is tax. When a project is
profitable it is expected to pay taxes to the government at the ruling rate.
In computing the profit of a project taxes are deducted to arrive at net
profit. Taxes therefore appear as outgoing cash flows. Taxes represent
transfer payments from a project to government.
In the economic analysis of a project, taxes are excluded because from
the point of view of the society, they are only a transfer of resources
from one section of the economy to another.
The third transfer payment is subsidies. In a traditional private sectors
setting, it would be unheard of to talk of subsidies. But in economic
analysis, subsidies appear as important data. Most public sector projects
enjoy government subsidies to enable the poor gain access to certain
services which ordinarily they cannot afford without government
assistance. Subsidies represent opportunity costs to a nation as a whole.
Therefore in estimating the true cost of a project in an economic
analysis, subsidies should be included.

3.4 Linkage Effects of a Project

Consider a simple case where a university is newly located in an
environment. Many investments will begin to spring up. New housing
developments will begin to spring up; canteens will begin to spring up;
hair dressing salons, etc. will begin to spring up to cater for the needs of
the new university community. Such constitute the linkage effects of a
project.
Generally, there are two types of linkage effects which we shall briefly
discuss:
Forward Linkage Effects
Forward linkage is the stimulus given to industries that use the products
of a project. A case in point is a flour manufacturing project. Flour has
so many uses. If a flour mill is located in an environment, it will lead to
the establishment of such projects as bakeries which will use the flour.

Backward Linkage Effects

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Backward linkage demonstrates the stimulus to industries that supply

the inputs to a project. For example, the establishment of a flour mill in
an environment will lead to demand for wheat which is a major input for
flour mill. The flour mill will lead to investment in wheat cultivation.
Also, the establishment of a car assembly plant will lead to the
establishment of tyre manufacturing plants that need to supply tyres to
the car assembly plant.
Example of an Economic Analysis
In the year 2006, the World Bank was considering the desirability or
otherwise of assisting Nigeria set up an ethanol plant covering
thousands of hectares in the Niger Delta area.
Under the scheme, young farmers will be allocated hectares of land for
subsidized cassava cultivation. Such inputs like fertilizers will be
heavily subsidized while technical advice will be provided by the World
Bank/ Nigerian agricultural experts.

4.0 CONCLUSION
In this unit, we discussed the nature of economic analysis and compared
it with the financial analysis of a project. We discussed net present
benefit cost ratio and the internal rate of return (IRR).

5.0 SUMMARY
Introduction to economic analysis has provided us with the tools to
conduct economic analyses, with financial analyses as a starting point.
Financial analysis is the private sector‟s view of a project without
considering a project‟s impact on the society. Economic analysis is a
macro view of a project, taking into consideration the project‟s impact
on society.

6.0 TUTOR-MARKED ASSIGNMENT

What do you see as the basic differences between the financial analysis
of a project and the economic analysis of a project?

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

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UNIT 14: MANPOWER PLANNING AND EVALUATION

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Manpower Planning and Evaluation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
In Unit 5, we discussed the concept of an engineering evaluation of a
project. Engineering evaluation of a project as we saw seeks to evaluate
the engineering soundness of a project. This is very crucial especially
when the project will be ranked or compared with another project.
Every enterprise requires labour. It is labour that coordinates the other
factors of production like land and capital. In terms of project
evaluation, our concern is to look at the project and examine the human
resources aspects. In terms of manpower planning and evaluation, we
need to examine the following:
• Key employees
• The key responsibilities
• The qualifications
• Hours of work
• Training and development of the staff
• Remuneration of the staff

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• explain manpower planning and evaluation
• discuss the practical applications in industry.

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3.0 MAIN CONTENTS

3.1 Manpower Planning and Evaluation

In general terms organising manpower in an organisation is the process
of assigning duties amongst personnel and coordinating efforts towards
the attainment of the firm‟s objectives. But before organising, there
must be a plan. It is the plan that leads to the shaping of an
organisation‟s structure.
Conceptually, the project initiative in structuring the organisation should
be concerned about two critical things.
• Job definitions in the project under consideration
• Departmentalisation which follows job definitions. In doing this,
similar jobs are grouped together to form a department. The most
common way of organising a project is by function.
For example a manufacturing plant may be divided into three types
namely:
• Production
• Marketing
• Finance
There are two uses of the manpower plan. The first use is by the project
initiator. When the project initiator is structuring the project, the
manpower plan definitely is a critical component. The project initiator
needs to know well in advance who the key employees will be. The key
employees will depend on the nature of the business in question. If the
business is, for example, soap manufacturing, then a lot of the
production staff should be industrial or pure scientists plus other core
support staff. Apart from that, each employee should have their various
responsibilities. For example, in a soap plant, you will have production
staff and also quality control staff. They have difference responsibility.
And of course, the qualifications of the various staff including their
years of experience should be properly documented and evaluated.
The second use of the manpower plan is that financial institutions like
banks, before granting loans or overdraft for a project, usually insist on
being convinced of the management skills that will be available or are
actually available in the firm that seeks to borrow money. They will
look at the people concerned, their qualifications and match them with
the jobs allocated to them.
Hours of work and the salary and wages of the entire work force are
another critical input. The salary and wages of those working on a
project is actually expected to hover around the average for the industry.
In practical terms, the manpower of a project can be grouped into two
namely:
• Direct labour • Indirect labour
(a) Direct Labour

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When we talk about direct labour in a manufacturing project, e.g., a

soap plant, we are talking about staff attached to the actual production of
the soap. The production manager, production supervisor and factory
attendants are all direct labour.
(b) Indirect Labour
Indirect labours on the other hand are those workers who do not work
directly on the manufactured goods but indirectly. They include
accounting and admin staff, marketing staff and others. We have an
example of a manpower plan. It contains the following:
• Manpower requirements of the project broken down into direct and
indirect labour
• Remuneration of the staff

SELF ASSESSMENT EXERCISE

List and explain four departments that could be found in a big
manufacturing firm.

4.0 CONCLUSION
This unit has treated manpower planning and evaluation which is a
critical aspect of evaluation of projects. The unit has focused attention
on the manpower aspects of a project

5.0 SUMMARY
In this unit, we have discussed manpower planning and evaluation. We
have seen how manpower planning involves the assigning of duties to
personnel and have also tried to relate manpower to a firm‟s objectives.
We also saw that departmentalisation is a critical aspect of a manpower
plan. Also we discussed the use of the manpower plan. We saw that the
manpower plan can be used by two different groups of people – the
project initiator and the evaluator.

6.0 TUTOR-MARKED ASSIGNMENT

Why is a manpower plan important in a start-up project?

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

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UNIT 15: MARKET ANALYSIS

CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Market Analysis
3.1.1 What are the factors of market analysis
3.1.2 Dimensions of Marketing Analysis
3.1.3 Different Methods of Market Analysis
3.1.4 Different Types of Business Analysis Tools
3.2 Types of Market Failure
3.3 Types of Stock Market Analysis
3.4 How to do a market analysis
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION
A key part of any business plan is the market analysis. This section
needs to demonstrate both your expertise in your particular market and
the attractiveness of the market from a financial standpoint.
The goal of a market analysis is to determine the attractiveness of a
market and to understand its evolving opportunities and threats as they
relate to the strengths and weaknesses of the firm.

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• explain the meaning of market analysis
• Different Methods of Market Analysis

3.0 MAIN CONTENTS

3.1 Definition of Market Analysis

A market analysis is a quantitative and qualitative assessment of a
market. It looks into the size of the market both in volume and in value,
the various customer segments and buying patterns, the competition, and
the economic environment in terms of barriers to entry and regulation.
A market analysis studies the attractiveness and the dynamics of a
special market within a special industry. It is part of the industry
analysis and thus in turn of the global environmental analysis. Through
all of these analyses, the strengths, weaknesses, opportunities and
threats (SWOT) of a company can be identified. Finally, with the help
of a SWOT analysis, adequate business strategies of a company will be

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defined. The market analysis is also known as a documented

investigation of a market that is used to inform a firm's planning
activities, particularly around decisions of inventory, purchase, work
force expansion/contraction, facility expansion, purchases of capital
equipment, promotional activities, and many other aspects of a
company.
A marketing analysis is a study of the dynamism of the market. It is the
attractiveness of a special market in a specific industry. Marketing
analysis is basically a business plan that presents information regarding
the market in which you are operating in. It deals with various factors.
3.1.1 What are the factors of market analysis
The most common factors are the SWOT which is an acronym for;
Strengths, Weaknesses, Opportunities, and Threats. By assessing the
company‟s strengths and weaknesses, you can make a strategy on which
factors to focus upon. If you have a good labor force, ample investment
and good advertising experts then you are going to make your marketing
strategy focusing on those things. Similarly if your technology is
comparatively poorer and you lack online presence then you are going
to avoid those things. You also look at external factors like situations
which may you with an opportunity or threat. Economic factors,
political instabilities or even social changes can give you opportunities
which you can seize and do better. They can also create threats which
are going to hamper your business dealings. Considering all these
factors will give you a marketing analysis from which you can
implement your decisions.

3.1.2 Dimensions of Marketing Analysis

There are certain dimensions which help us to perform a marketing
analysis. These things help us understand the market we operate in
better. These dimensions include;
Market Size: The size of the market is a key factor in a marketing
analysis. The bigger the market the more competitors you are likely to
have. For a big market, you need to make sure your products and
services stand out. Otherwise, the customers can easily switch to a rival
product. Not only that, a bigger market makes you rethink your pricing
policy. Set your price too high then you are going to lose your customer
base to other competitors. Set it too low and people will think that you
are just providing cheaper poor quality goods. If the market size is small
then you can get away with charging a high price. All these facts are
kept in the marketing analysis. Based on that you go ahead with your
marketing plan.
Growth rate of the market: The market growth rate is a huge factor in
any sort of marketing analysis. This is because you get the idea of how
long the said market will last. Before you make an investment you need
to analyze the market‟s growth rate. If it is likely to grow over time then

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you can invest more in it. If it has no growth then you are likely to be
discouraged from investing anything at all. How much time and
importance you give to the market depends on its growth rate.
Market Trends: Market trends are a significant part of the marketing
analysis. Having knowledge about the trends help you to decide what
kind of product you are going to sell. When you are starting off a
business you need to know what the current trend is. What is the thing
that the customers like? How much they are willing to spend? What
other trends may capture their attention? These are the sort of things
which will go on your analysis. On the other hand, market trends can
change any day. This can turn out to be an opportunity for your
business. If that‟s the case then you can seize it and make the most of it.
Changes in trend can also be a threat for you. If you are comfortable
producing one kind of good then a market trend change will affect you
the most.
Market Profitability: Most companies‟ motive to get into the business
is to make a profit. In other words, they are profit-motive businesses. So
before getting into a business you need to analyze the profitability of the
market. If the market has a good profitability then only you are going to
invest heavily. Otherwise, it would be a waste of your time and capital.
In order to calculate the profitability of the market, there are a few
things one has to consider. These things include; buyer power, supplier
power, barriers to entry and so on.
Key Success Factors: The key success factors are those elements which
help the business to achieve great success in the market. Such elements
are required to stand out among the rest of the competition. These are
things which you did well that have enabled you to produce great
results. Key success factors include;
1. Technology progress
2. Economies of scale
3. Efficient utilization of resources
Distribution Channels: Distribution channels are very important for a
business. Without those, you won‟t be able to get your products to your
customers. So it becomes a big factor in a marketing analysis. This is
because you need to assess how well the channels are. If the existing
ones are good enough or you need to develop newer ones. Sometimes
you come up with brand new channels like online marketing.
Industry Cost Structure: The industry cost structure is a significant
factor while running a business. It basically sees how much cost is
required to get your products for sale. Sometimes firms can come up
with ways to decrease that cost and thereby make a bigger profit without
increasing the market price. Doing a marketing analysis will help you to
come up with newer ways to reduce cost. At the same time, it helps to
create strategies for developing a competitive advantage of your rivals.
3.1.3 Different Methods of Market Analysis

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Companies need information about the market and surrounding business

environment in order to maintain success. Various methods of market
analysis are available so companies can gather the requisite information
for external factors. Common market analysis options include surveys,
focus groups, observation, field trials, or other methods. Regardless of
the approach used, the methods of market analysis should provide
valuable information the company did not have before. The gathered
data should also allow a company to improve operations and be stronger
than competitors.
Surveys are among the most common market analysis tools. Companies
can send out mailers and e-mails or use telephone surveys to gather
consumer data. The information from the survey typically provides
information on the desires, perceptions, and wants of consumers. New
products, product quality, or product lines are often the result of this
information. These surveys may also reveal information on other
products purchased.
i. Focus groups are a bit more personal when compared to standard
surveys. Companies often select a few individuals to come in and
discuss or test a new product. The information here allows a company to
review consumer feedback and ask the focus group participants
questions. Though focus groups are a bit more expensive than surveys,
these methods of market analysis can glean more information. A
drawback to focus groups can be the internal bias in any individual in
the group.
ii. Observation may be among the easiest methods of market analysis.
Essentially, internal stakeholders simply look around the market and
business environment at what other companies are doing. A review of
competitors and other successful products can help a company
determine the future of the market. A flaw in this method is the inability
to apply quantitative analysis to the analysis process. Observation may
also not determine the internal profits a competitor earns from its
products.
iii. Field trials typically represent one of the most expensive methods of
market analysis available to the company. The business can create a
small group of products and test them in select markets around the
larger region. Information from each test market allows a company
toassess how general consumers react along with any associated
marketing or other programs attached to the product. If successful, the
market analysis can help a company complete a rollout in a nationwide
sense. As the company already has a partial system in place for
distributing goods, a complete rollout is typically easier to process after
a field trial.
3.1.4 Different Types of Business Analysis Tools
Business analysis tools are different methods stakeholders use to assess
a company‟s operations. In most cases, the purpose of the analysis is to
determine how effective or efficient a company is in the overall market.

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A few different tools are accounting ratios, SWOT analysis, and the
balanced scorecard. Each one takes a different approach when reviewing
the company‟s financial and nonfinancial aspects. Both internal and
external stakeholders can use business analysis tools as a determination
of a company‟s overall strength in the business environment.
Accounting ratios are among the easier analysis tools to compute and
use in business assessment. These ratios use information from both the
income statement and balance sheet in order to provide indicators of a
company‟s financial strength. In particular, the ratios measure a
company‟s liquidity, profitability, asset use, and financial leverage
along with other financial areas. While a good tool for use at the end of
each month, financial ratios do have some flaws. First, the ratios are
useless by themselves as they need another source for comparison;
second, the ratios only use information from the financial statement for
review.
SWOT stands for strengths, weaknesses, opportunities, and threats. In
terms of business analysis tools, SWOT analysis is valuable because it
reviews both internal and external factors that can relate to a company‟s
operations. Strengths and weaknesses are the internal factors;
essentially, they are the things a business does well and does not do
well. Opportunities and threats represent the external factors.
Opportunities are new items or business areas in which a company can
engage, while threats represent the potential competitors in the market
or new opportunities.
The balanced scorecard is an increasingly popular assessment among
other business analysis tools. The scorecard has four different
perspectives: financial, business process, learning and growth, and
customer. Each perspective looks at specific information related to its
overarching focus. Taken together, all perspectives should provide
information that helps a company reach its goals and develop strategies.
The balanced scorecard may also be able to help a company plan future
operations.
Other business analysis tools are available for a company to use if
necessary. Owners and executives can often review other tools, such as
decision trees, risk analysis, or game theory among others. The
important thing to remember is selecting a tool that allows a company to
include all factors necessary for the assessment process. Hiring a
consultant may also be possible to review and improve a company‟s
operations. Either way, a company should use whatever works best for
the business.

3.2 Types of Market Failure

A market failure is a situation where free markets fail to allocate
resources efficiently. Economists identify the following cases of market
failure:
Productive and allocative inefficiency

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Markets may fail to produce and allocate scarce resources in the most
efficient way.
Monopoly power
Markets may fail to control the abuses of monopoly power.
Missing markets
Markets may fail to form, resulting in a failure to meet a need or want,
such as the need for public goods, such as defence, street lighting, and
highways.
Incomplete markets
Markets may fail to produce enough merit goods, such as education and
healthcare.
De-merit goods
Markets may also fail to control the manufacture and sale of goods like
cigarettes and alcohol, which have less merit than consumers perceive.
Negative externalities
Consumers and producers may fail to take into account the effects of
their actions on third-parties, such as car drivers, who may fail to take
into account the traffic congestion they create for others. Third-parties
are individuals, organisations, or communities indirectly benefiting or
suffering as a result of the actions of consumers and producers
attempting to pursue their own self interest.
Property rights
Markets work most effectively when consumers and producers are
granted the right to own property, but in many cases property rights
cannot easily be allocated to certain resources. Failure to assign property
rights may limit the ability of markets to form.
Information failure
Markets may not provide enough information because, during a market
transaction, it may not be in the interests of one party to provide full
information to the other party.
Unstable markets
Sometimes markets become highly unstable, and a stable equilibrium
may not be established, such as with certain agricultural markets,
foreign exchange, and credit markets. Such volatility may require
intervention.
Inequality
Markets may also fail to limit the size of the gap between income
earners, the so-called income gap. Market transactions reward
consumers and producers with incomes and profits, but these rewards
may be concentrated in the hands of a few.
Remedies
In order to reduce or eliminate market failures, governments can choose
two basic strategies:
Use the price mechanism
The first strategy is to implement policies that change the behaviour of
consumers and producers by using the price mechanism. For example,

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this could mean increasing the price of „harmful‟ products, through

taxation, and providing subsidies for the „beneficial‟ products. In this
way, behaviour is changed through financial incentives, much the same
way that markets work to allocate resources.

Use legislation and force

The second strategy is to use the force of the law to change behaviour.
For example, by banning cars from city centers, or having a licensing
system for the sale of alcohol, or by penalising polluters, the unwanted
behaviour may be controlled.
In the majority of cases of market failure, a combination of remedies is
most likely to succeed.

3.3 Types of Stock Market Analysis

Fundamental Analysis
The goal of fundamental analysis is to determine whether a company‟s
future value is accurately reflected in its current stock price.
Fundamental analysis attempts to estimate the value of a particular stock
based on a variety of factors, such as the current finances of the
company and the prevailing economic environment. Fundamental
analysis also may include speaking with a company‟s management team
and assessing how the company‟s products are received in the
marketplace.
When a fundamental review is complete, the analyst may decide the
stock is an attractive opportunity because the market has underestimated
its future prospects. The analyst also may determine the stock to be a
“hold” or a “sell” if the value is fully reflected in the price.
Technical Analysis
Technical analysts evaluate recent trading movements and trends to
attempt to determine what‟s next for a company‟s stock price.
Generally, technical analysts pay less attention to the fundamentals
underlying the stock price.
Technical analysts rely on stock charts to make their assessment of a
company‟s stock price. For example, technicians may look for a support
level and resistance level when assessing a stock‟s next move. A
support level is a price level at which the stock might find support and
below which it may not fall. In contrast, a resistance level is a price at
which the stock might find pressure and above which it may not rise.
Sentimental Analysis
Sentimental analysis attempts to measure the market in terms of the
attitudes of investors. Sentimental analysis starts from the assumption
that the majority of investors are wrong. In other words, that the stock
market has the potential to disappoint when “masses of investors”
believe prices are headed in a particular direction.

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Sentiment analysts are often referred to as contrarians who look to

invest against the majority view of the market. For example, if the
majority of professional market watchers expect a stock price to trend
higher, sentiment analysts may look for prices to disappoint the majority
and trend lower.
Which approach is best? There is no clear answer to that question. But
it’s important to remember three things: Past performance does not
guarantee future results, actual results will vary, and the best approach
may be to create a portfolio based on your time horizon, risk tolerance,
and goals.

3.4 How to do a market analysis

The objectives of the market analysis section of a business plan are to
show to investors that:

In order to do that, the following plans are recommended:

1. Demographics and Segmentation
2. Target Market
3. Market Need
4. Competition
5. Barriers to Entry
6. Regulation

The first step of the analysis consists in assessing the size of the market.
Demographics and Segmentation
When assessing the size of the market, your approach will depend on the
type of business you are selling to investors. If your business plan is for
a small shop or a restaurant then you need to take a local approach and
try to assess the market around your shop. If you are writing a business
plan for a restaurant chain then you need to assess the market a national
level.
Depending on your market you might also want to slice it into different
segments. This is especially relevant if you or your competitors focus
only on certain segments.
Volume & Value
There are two factors you need to look at when assessing the size of a
market: the number of potential customers and the value of the market.
It is very important to look at both numbers separately, let's take an
example to understand why.
Imagine that you have the opportunity to open a shop either in
Town A or in Town B: 77 Table: Town A vs. Town B
Town A B
Market value #200m #100m
Potential customers 2 big companies 1,000 small

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companies
Competition 2 competitors 10 competitors
Table: Town A vs. Town B
Although Town B looks more competitive (10 competitors vs. 2 in
Town A) and a smaller opportunity (market size of #100m vs. #200 in
Town A), with 1,000 potential customers it is actually a more accessible
market than Town A where you have only 2 potential customers.
Potential customer?
The definition of a potential customer will depend on your type of
business. For example if you are opening a small shop selling office
furniture then your market will be all the companies within your
delivery range. As in the example above it is likely that most companies
would have only one person in charge of purchasing furniture hence you
wouldn't take the size of these businesses in consideration when
assessing the number of potential customers. You would however factor
it when assessing the value of the market.
Market value
Estimating the market value is often more difficult than assessing the
number of potential customers. The first thing to do is to see if the figure
is publicly available as either published by a consultancy firm or by a
state body. It is very likely that you will find at least a number on a
national level.
If not then you can either buy some market research or try to estimate it
yourself.

Methods for building an estimate

There are 2 methods that can be used to build estimates: the bottom up
approach or the top down approach.
The bottom up approach consist in building a global number starting
with unitary values. In our case the number of potential clients
multiplied by an average transaction value.
Let's keep our office furniture example and try to estimate the value of
the 'desk' segment. We would first factor in the size of the businesses in
our delivery range in order to come up with the size of the desks park.
Then we would try to estimate the renewal rate of the park to get the
volume of annual transactions. Finally, we would apply an average price
to the annual volume of transactions to get to the estimated market
value.
Here is a summary of the steps including where to find the information:
1. Size of desks park = number of businesses in delivery area x number
of employees (you might want to refine this number based on the sector
as not all employees have desks)
2. Renewal rate = 1 / useful life of a desk
3. Volume of transactions = size of desks park x renewal rate
4. Value of 1 transaction = average price of a desk
5. Market value = volume of transactions x value of 1 transaction

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You should be able to find most of the information for free in this
example. You can get the number and size of businesses in your
delivery area from the national statistics. Your accountant should be
able to give you the useful life of a desk (but you should know it since it
is your market!). You can compare the desk prices of other furniture
stores in your area. As a side note here: it is always a good idea to ask
your competitors for market data (just don't say you are going to
compete with them).
Target Market
The target market is the type of customers you target within the market.
For example if you are selling jewellery you can either be a generalist or
decide to focus on the high end or the lower end of the market. This
section is relevant when your market has clear segments with different
drivers of demand. In my example of jewels, value for money would be
one of the drivers of the lower end market whereas exclusivity and
prestige would drive the high end.
Now it is time to focus on the more qualitative side of the market
analysis by looking at what drives the demand.

Market Need
This section is very important as it is where you show your potential
investor that you have an intimate knowledge of your market. You know
why they buy!
Here you need to get into the details of the drivers of demand for your
product or services. One way to look at what a driver is, is to look at
takeaway coffee. One of the drivers for coffee is consistency. The coffee
one buys in a chain is not necessarily better than the one from the
independent coffee shop next door. But if you are not from the area then
you don't know what the independent coffee shop's coffee is worth.
Whereas you know that the coffee from the chain will taste just like in
every other shop of this chain. Hence most people on the move buy
coffee from chains rather than independent coffee shops.
From a tactical point of view, this section is also where you need to
place your competitive edge without mentioning it explicitly. In the
following sections of your business plan you are going to talk about
your competition and their strengths, weaknesses and market positioning
before reaching the Strategy section in which you'll explain your own
market positioning. What you want to do is prepare the reader to
embrace your positioning and invest in your company.
To do so you need to highlight in this section some of the drivers that
your competition has not been focusing on. A quick example for an
independent coffee shop surrounded by coffee chains would be to say
that on top of consistency, which is relevant for people on the move,
another driver for coffee shop demand is the place itself as what coffee
shops sell before most is a place for people to meet. You would then

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present your competition. And in the Strategy section explain that you
will focus on locals looking for a place to meet rather than takeaway
coffee and that your differentiating factor will be the authenticity and
atmosphere of your local shop.
Competition
The aim of this section is to give a fair view of who you are competing
against. You need to explain your competitors' positioning and describe
their strengths and weaknesses. You should write this part in parallel
with the Competitive Edge part of the Strategy section.
The idea here is to analyse your competitors angle to the market in order
to find a weakness that your company will be able to use in its own
market positioning.
One way to carry the analysis is to benchmark your competitor against
each of the key drivers of demand for your market (price, quality, add-
on services, etc.) and present the results in a table.
Below is an example for a furniture shop in France. As you can see from
the table all the actors on the market are currently focused on the low
medium range of the market leaving the space free for a high end
focused new player.
Barriers to Entry
This section is all about answering two questions from your investors:
1. what prevents someone from opening a shop in front of yours and
take 50% of your business?
2. having answered the previous question what makes you think you
will be successful in trying to enter this market? (start-up only)

As you would have guess barriers to entry are great. Investors love them
and there is one reason for this: it protects your business from new
competition!
Here are a few examples of barriers to entry:

how to process uranium is)

ge marketing costs required to get to a certain level of
recognition)

tributors,
proprietary network)

The answer to the questions above will be highly dependent on your

type of business, your management team and any relations it might
have. Therefore it is hard for me to give any general tips about it.
Regulation

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If regulation is a barrier at entry in your sector then I would advise you

to merge this section with the previous one. Otherwise this section
should be just a tick the box exercise where you explain the main
regulations applicable to your business and which steps you are going to
take to remain compliant.

4.0 CONCLUSION
We have fully discussed the market analysis. We discussed the
definition and method of market analysis.

5.0 SUMMARY
Understanding market analysis and different Types of Business Analysis
Tools

6.0 TUTOR-MARKED ASSIGNMENT

(1) What are the factors of market analysis
(2) Dimensions of Marketing Analysis
(3) Different Methods of Market Analysis
(4) Different Types of Business Analysis Tools
(5) Types of Market Failure
(6) Types of Stock Market Analysis

7.0 REFERENCES/FURTHER READINGS

Leon Ikpe (1999). Project Analysis and Evaluation. Lagos: Impressed
Publishers.

MODULE 5: PROBLEMS OF PLANNING IN COOPERATIVES

IN THIRD WORLD COUNTRIES

UNIT 16: MICRO PROBLEMS OF PLANNING IN CO-

OPERATIVES

UNIT 17: MACRO PROBLEMS OF PLAN IMPLEMENTATION

AND PLAN FAILURE IN THIRD WORLD COUNTRIES

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UNIT 16: MICRO PROBLEMS OF PLANNING IN CO-

OPERATIVES

CONTENTS

1.0

Introduction

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2.0

Objectives
3.0

Main Content
3.1

The Problems
3.2

Inconsistent Policy
3.3

Lack of Education and Administrative Guidance

3.4

Lack of Capital
3.5

Lack of Storage Facilities

3.6

Lack of Processing and Inefficient Marketing Scheme

3.7

Lack of Infra structure and Social Facilities

3.8

Lack of Patronage and Membership Qualities

3.9

Fraud
3.10

Failure to Employ Competent Staff

3.11

Poor Management
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

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This unit deals with the problems confronting agricultural co-operatives

in Nigeria. You will recollect that in Unit 2, we dealt with co-operatives
and make particular reference to agricultural co-operatives. These
problems discussed in this unit retarded the growth of agricultural
Cooperatives. Definitely if efforts are geared towards the solutions of
these problems the rate of agricultural development will be increased
and more food production will be noticed in the markets which will
directly leads to increase in farmers’ income and standard of living in
the rural areas. The general effect will be self-sufficient in food
production, a final direct effect on the National Output and an increase
in the foreign exchange earnings as it was the case in the early 1960s
with agriculture in Nigeria.

2.0 OBJECTIVES
At the end of this unit, you should be able to:
• identify the problems of agricultural co-operatives; and
• examine the problems with their solutions.

3.0 MAIN CONTENT

3.1 The Problems

Agricultural co-operatives all-over the worlds are subject to problems
that may hinder the growth and development of any group. Problems
which are specific to farmers group in Nigeria will be fully discussed
here. These include the following:

3.2 Inconsistent Policy

Government lack basic consistent policy on the establishment and
management of agricultural co-operatives. What we have may be
referred to as management statements based on projects which in
themselves are planned and run on an ad-hoc basis. In this regard, any
project initiated by a particular government regime is usually phased out
with the exit of such a government. The Operation Feed the Nation
(OFN) Programme gave way to Green Revolution Programme with
change of government in 1979.

The instability of the Federal Department of Agricultural Co-operatives

is another factor which hinders development of Agricultural
Cooperatives in Nigeria. The Federal Department of Agricultural
Cooperatives was carved out of the Federal Department of Co-
operatives where it was a division in 1979. It was moved to the Federal
Ministry of Agricultural Co-operatives Policy. The department provides
institutional supports for effective performance of agricultural co-
operatives in the country, through:

a. Provision of on-farm storage depots to farmers co-operatives

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b. Effective distribution and marketing of inputs (fertilizers and agro-

chemicals) and outputs through the National Agricultural Co-operative
and Marketing Organization (NACMO).
c. Facilitating co-operative groups access to credit and security through
the Nigerian Agricultural Insurance Company (NAIC) respectively.

In 1989, the Federal Department of Agricultural Co-operatives activities

were almost grinding to a halt consequent upon its transfer to
Directorate of food, Road and Rural Infrastructure (DFRRI) under the
Presidency. The commencement of the Federal Government
rationalization of ministries in 1992, returned the Agricultural
Cooperatives Department to .the Federal Ministry of Agriculture. The
frequent movement of the department hampered .the performance of its
function within this period. There is need for consistency in the
implementation of the agricultural co-operative polity. Agencies
responsible for the implementation of agricultural co-operatives
development policy need be provided and enabling environment for
effective performance and achievement of their laudable objectives.

3.3 Lack of Educational and Administrative Guidance

The poor performance of the agricultural co-operatives in Nigeria is also
attributed to lack of administrative guanaco and inefficient management
capabilities of members and elected representatives. Farmers willing to
form co-operatives may lack knowledge of what to do and how to go
about it. This dampens their enthusiasm and they revert to individual
peasantry. Besides, the problems of extension services make it very
difficult for extension officers to have frequent contact with the fanner
co-operators.
Adequate planning need be made for continuing education of farmer
cooperators. Farmers all over the world rely on extension agents for
educational guidance on how to form and manage co-operative
societies. They need to know the elements such as membership size
personal character of prospective member of the society, co-operative
principles, laws and values, management principles and functions etc.
This problem can be addressed through vigorous co-operative education
and management training programmes at Federal, State Governments
and co-operatives movement level.

3.4 Lack of Capital

The most frequently demeaned services by farmers is financial
assistance. They actually need adequate capital to start any meaningful
agricultural production. It could be recollected that so many studies have
been carried out with facts and figures and came to the conclusion that
capital is the basis of farmers joining the co-operative societies and only
few i.e. below 45% have benefited from financial assistance of the
society when really in need of fund.

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This is an indication that co-operative societies are short of funds to

meet the financial needs of their members. It therefore implies that
cooperatives need to intensity efforts in sourcing for capital from other
financial institutions in order to fulfill the aspirations of members.
However, there are difficulties in obtaining finance from those
institutions especially in terms of collateral especially from the
commercial banks.

3.5 Lack of Storage Facilities

Storage may be defined as the act of preserving and keeping agricultural
produce or any commodity for future use without necessarily losing its
quality. This problem is most critical in developing countries.
Until we address this particular problem over 70% of our food
production will always be lost annually. The importance of storage is
enormous and cannot be overemphasized.

3.6 Lack of Process and Inefficient Marketing Scheme

You should remember our discussion of the factors in unit three. The
main objective of farmers’ co-operatives is to increase member’s
production through the provision of enabling services. However, due to
absence of our inadequate storage, processing facilities and marketing
outlets, increase production merely results in farmer’s frustration.
Hence, there is need for provision of adequate processing: storage
facilities and marketing outlets for agricultural produce.

3.7 Lack of Infrastructural and Social Facilities in the Rural Areas

Lack of facilities such as transportation, electricity, water supply, health
services, recreational facilities etc. constitutes a hindrance to
effectiveness of agricultural co- operatives in rural areas. Existence of
these facilities provides an enabling environment for agricultural
cooperatives to thrive. Hence, the farmers should be provided with good
access roads, good water supply (needed by people, livestock and
crops), electricity, basic health care services and appropriate educational
facilities. These will tend to stabilize the rural population thus arresting
the rural-urban migration, (which is prevalent in the country because of
greater wages and comparatively higher standard of living in the urban
areas). Therefore, to have a sustained agricultural growth, the farmer
(co-operator) should not only be white and blue collar job in tl1e cities)
but also be assured of comfortable living conditions in his/her own rural
area.

3.8 Lack of Patronage and Membership Qualities

Patronage by the farmer members is one of the key requirements of any
co- operative organization. Therefore, the contribution of every member
of the co-operative society not necessarily in terms of money but in
interest and active participation in running of the society is important for

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its success. In Nigeria, members patronage of their societies especially

farmer’s co-operative societies is very poor. Quite often, a high
proportion of members are apathetic to the group activities. This may
arise from a number of reasons among which include:
1. Farmers may feel that they spend too much time and energy on the
activities of co- operatives and that the benefits they get are not
commensurate with the time and energy expended on the society.
2. The returns from 1arms operated by farmers individually may exceed
their own share from a co-operative enterprise.
3. Co-operative leaders may be authoritarian or government may exert
excessive control on the co -operatives.
4. Farmer - members of co-operative society may feel that the surpluses
or the society are not equitably disturbed to them according to their
efforts. They also feel cheated if they discover any act of
misappropriation of their funds by their representatives. Managers,
Secretaries. Etc.
5. The society may be unable to meet its financial obligations promptly
e.g. paying each for the farmers, produce .at the time of delivery. A
study by Aweto (1984).revealed that about 46% of society’s members
do not sell all their produce through their society. It was discover that
these farmers prefer selling a proportion of their produce to private
licensed buying agent who pay cash for the produce when they are in
need of money rather than sell to their society. This is due to the fact
that the society is not able to make advance payment for the produce
delivered by the members.
Another major fault in co -operative farming is the small size and
qualities of the members. Members may be too few to make for
effective farm operation. Besides, they may be too poor to make any
substantial contribution to the initial share capital of tile society.

3.9 Fraud
Fraudulent and dishonest practices have been widely identified as the
most serious all which hinders the growth of co-operative endeavors in
the country.
Corruption and embezzlement could be widespread among co-operators
themselves or amongst the co-operative fund. This consequence has
made many co-operative societies or union bankrupt. Sometimes, the
administrators or co-operative personnel such as co-operative officers
exploit the ignorance of the members by embalming the society’s fund.
Corruption can also occur if there is not adequate auditing of the
society’s account.
This situation usually discourages farmer co-operators from
participating fully in the co-operatives activities. Apart from this, it
prevents potential co-operators from being involved in co-operative;
activities .The problem of misappropriation of fund is further worsened
by the numerous problems posed by the depressed economy. Thus,

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cooperatives should evolve management strategies such as internal

check or control system for preventing fraud. They also need to ensure
that their business transactions are well managed so as to alleviate the
problems of their business transactions are well managed so as to
alleviate the problems of their employees and members.

3.10 Failure to Employ Competent Staff

Many co-operative societies do not engage the services of qualified and
competent manager, secretaries etc. The practice of employing a Senior
Secondary School Certificate holder or worse still, a candidate yet to
pass his examination, as secretary, manager, book-keeping is common
with co-operatives societies and unions. The only co-operative
education and training received by these “managers” etc is the three
months in-service training organized at the co-operative union levels.
This invariably resulted in the poor performance of these societies.

3.11 Poor Management

As a result of employing incompetent staff without adequate education
training, there is bound to be poor management of the societies hence
many members discouraged in forming or joining co-operatives
especially the farmers. Most agricultural co-operatives have died a
natural death due to the poor management of all its activities which has
been well explained under 3.9 (Fraud) most of the business transactions
are not all managed coupled with the books of accounts which are
poorly handled.

SELF-ASSESSMENT EXERCISE
i. List all the problems confronting co-operatives in Nigeria. ii. Discuss
any two of them

4.0 CONCLUSION
Unless these problems militating against the rapid growth of agricultural
co-operatives are attended to, there could be little or no success recorded
along this line hence there is need for adequate attention to the solutions
of all these problems.

5.0 SUMMARY
The various problems confronting agricultural co-operatives have been
identified and examined while there is the need for an urgent or
immediate solution to all the problems from the government and the
cooperative groups.

6.0 TUTOR-MARKED ASSIGNMENT

Examine the micro and macro problems of co-operatives in Nigeria. In
your own opinion, give some practical ways of solving the problems.

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7.0 REFERENCES/FURTHER READINGS

Adeyemo, R. (1989). Co-operatives and Development in Sub-Saharan

Africa. Ekopanverlag. Germany.

Aweto, R. A. (1996). Agricultural Co-operatives.

Umebali, E.E (2001). Management of Informal Sector Investment Rural

Resources and Farm Business. Computer Edge Publishers,
Enugu.

Bashir, M.M (2014). Agricultural Cooperative. Alico computer and

AHY Federal Cooperative, Kaduna.

Otokiti, S.O (2004). World Business and Business. Pumark Nigeria

Limited, Lagos.

Umebali, E.E (2014). Readings in Cooperative Economic and

Management. Computer Edge Publishers, Enugu.

Onafowokan, O.O (2013). Cooperative and Microfinance Revolution.

Soma Prints Limited, Lagos.

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UNIT 17: MACRO PROBLEMS OF PLAN IMPLEMENTATION

AND PLAN FAILURE IN THIRD WORLD COUNTRIES

CONTENTS

1.0

Introduction
2.0

Objectives
3.0

Main Content
3.1 Theory versus Practice
3.2 Deficiencies in Plans and Their Implementation
3.3 Insufficient and Unreliable Data
3.4 Unanticipated Economic Disturbances, External and Internal
3.5 Institutional Weaknesses
3.6 Lack of Political Will
3.7 Conflict, Post conflict, and Fragile States
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

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The results of development planning have been generally disappointing.

The widespread rejection of comprehensive development planning
based on poor performance has had a number of practical outcomes, the
most important of which is the adoption in a majority of developing
countries of a more market-oriented economic system.

2.0 OBJECTIVES
The main objective of this unit is to identify two interrelated sets of
answers—one dealing with the gap between the theoretical economic
benefits and the practical results of development planning, and the other
associated with more fundamental defects in the planning process,
especially as they relate to administrative capacities, political will, and
plan implementation.

3.0

MAIN CONTENTS

3.1 Theory versus Practice: The principal economic arguments for

planning briefly outlined earlier in this chapter—market failure,
divergences between private and social valuations, resource
mobilization, investment coordination, and the like—have often turned
out to be weakly supported by the actual planning experience. It is
doubtful whether plans have generated more useful signals for the future
than would otherwise have been forthcoming; governments have rarely,
in practice, reconciled private and social valuations except in a
piecemeal manner; because they have seldom become operational
documents, plans have probably had only limited impact in mobilizing
resources and in coordinating economic policies.
To take the specific case of the market failure argument and the
presumed role of governments in reconciling the divergence between
private and social valuations of benefits and costs, the experience of
government policy in many developing countries has been one of often
exacerbating rather than reconciling these divergences—government
failure rather than market failure.
Government policy often tends to increase rather than reduce the
divergences between private and social valuations. For example, public
policies have raised the level of wages above labor’s shadow price or
scarcity value by various devices such as minimum-wage legislation,
tying wages to educational attainment, and structuring rates of
remuneration at higher levels on the basis of international salary scales.
Similarly, investment depreciation and tax allowances, overvalued
exchange rates, low effective rates of protection, quotas, and credit
rationing at low interest rates all serve to drop the private cost of capital
far below its scarcity or social cost. The net effect of these factor price

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distortions has been to encourage private and public enterprises to adopt

more capital-intensive production methods than would exist if public
policy attempted to correct the prices.

3.2 Deficiencies in Plans and Their Implementation: Plans are often

overambitious. They try to accomplish too many objectives at once
without consideration that some of the objectives are competing or even
conflicting. They are often grandiose in design but vague on specific
policies for achieving stated objectives.
In this they have much in common with the excessive lists of 60 to 100
or more issue areas in conditionality agreements set out by the World
Bank and the International Monetary Fund (IMF). Finally, the gap
between plan formulation and implementation is often enormous (many
plans, for reasons to be discussed, are never implemented).

3.3 Insufficient and Unreliable Data: The economic value of a

development plan depends to a great extent on the quality and reliability
of the statistical data on which it is based. When these data are weak,
unreliable, or nonexistent, as in many poor countries, the accuracy and
internal consistency of economy-wide quantitative plans are greatly
diminished. And when unreliable data are compounded by an
inadequate supply of qualified economists, statisticians, and other
planning personnel (as is also the situation in most poor nations), the
attempt to formulate and carry out a comprehensive and detailed
development plan is likely to be frustrated at all levels.

3.4 Unanticipated Economic Disturbances, External and Internal:

Because most developing countries have open economies that are
dependent on the vicissitudes of international trade, aid, “hot”
speculative capital inflows, and private foreign investment, it becomes
exceedingly difficult for them to engage in even short-term forecasting,
let alone long-range planning. The oil price increases of the 1970s
caused havoc in most development plans. But the energy crisis was only
an extreme case of a general tendency for economic factors over which
most governments in the developing world had little control to
determine the success or failure of their development policies.

3.5 Institutional Weaknesses::The institutional weaknesses of the

planning processes of most developing countries include the separation
of the planning agency from the day-to-day decision-making machinery
of government; the failure of planners, administrators, and political
leaders to engage in continuous dialogue and internal communication
about goals and strategies; and the international transfer of institutional
planning practices and organizational arrangements that may be
inappropriate to local conditions. In addition, there has been much
concern about incompetent and unqualified civil servants; cumbersome

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bureaucratic procedures; excessive caution and resistance to innovation

and change; interministerial personal and departmental rivalries (e.g.,
finance ministries and planning agencies are often conflicting rather
than cooperative forces in governments); lack of commitment to
national goals as opposed to regional, departmental, or simply private
objectives on the part of political leaders and government bureaucrats;
and in accordance with this lack of national as opposed to personal
interest, the political and bureaucratic corruption that is pervasive in
many governments.

3.6 Lack of Political Will: Poor plan performance and the wide gap
between plan formulation and plan implementation are also attributable
to a lack of commitment and political will on the part of many
developing-country leaders and highlevel decision makers.22 Political
will entails much more than high-minded purposes and noble rhetoric. It
requires an unusual ability and a great deal of political courage to
challenge powerful elites and vested-interest groups and to persuade
them that development is in the long-run interests of all citizens even
though some of them may suffer short-term losses. In the absence of
their support, be it freely offered or coerced, a will to develop on the
part of politicians is likely to meet with staunch resistance, frustration,
and internal conflict.

3.7 Conflict, Post conflict, and Fragile States::In extreme cases,

violent conflict or the large-scale failure of a state to otherwise function
meaningfully has resulted in catastrophic failure of even the most basic
development objectives. In these cases, development assistance is
usually essential.

4.0 CONCLUSION
In view of the forgoing examples, we may conclude that the gap
between the theoretical economic benefits of planning and its practical
results in most developing countries has been quite large. The gap
between public rhetoric and economic reality has been even greater.
While supposedly concerned with eliminating poverty, reducing
inequality, and lowering unemployment, many planning policies in
developing countries have in fact unwittingly contributed to their
perpetuation. Some of the major explanations for this have to do with
failures of the planning process itself; these failures in turn arise out of
certain specific problems.

5.0 SUMMARY
Economic signals and incentives in many developing countries have
served to exaggerate the private valuations of the returns to education at
the secondary and tertiary levels to a point where the private demand for
ever more years of schooling greatly exceeds the social payoff. The

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tendency to ration scarce high-paying employment opportunities by

level of completed education and the policy of most governments in the
developing world to subsidize the private costs of education at the
higher levels together have led to a situation in which the social returns
to investment in further quantitative educational expansion seem hardly
justified in comparison with alternative investment opportunities.

6.0 TUTOR-MARKED ASSIGNMENT

1. There is much talk today about the demise of development planning.

Many observers assert
that development planning has been a failure. List and explain some of
the major reasons for plan failures. Which reasons do you think are the
most important? Explain your thinking.

7.0 REFERENCES/FURTHER READINGS

BRAC. http://www.brac.net.

Banerjee, Abhijit V., Timothy Besley, and Timothy W. Guinnane. “Thy

neighbor’s keeper: The design of a credit cooperative with theory and a
test.” Quarterly Journal of Economics 109 (1994): 491–515.

Emran, M. Shahe, Virginia Robano, and Stephen C. Smith, “Assessing

the frontiers of ultra-poverty reduction: Evidence from CFPR/TUP, an
Innovative program in Bangladesh,” Economic Development and
Cultural Change, 62 (2), 339–380, February 2014.

Khandker, Shahidur R., and Baqui Khalily. The Bangladesh Rural

Advancement Committee’s Credit Programs: Performance and
Sustainability. Washington, D.C.: World Bank, 1996.

Matin, Imran, and David Hulme. “Programs for the poorest: Learning
from the IGVGD program in Bangladesh.” World Development 31
(2003): 647–665.

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