Project Design and Analysis

Project Design,
Monitoring and
Evaluation
Outline
1. Introduction to Basic Concepts
 Concept of Planning
 Defining Project
 The link between Project and Program
 Approaches to Project Planning
 Data Needed in Project Planning
 Types of Projects
2. Project Cycle Management
 Definition of Project Cycle Management
 Stages in Project Cycle Management
 Participation/Stakeholder Analysis
 Problem Analysis
 Objectives Analysis
 Project Planning Matrix/Logical Framework
3. Aspects of Project Preparation and Analysis
 Feasibility Studies (Market, Technical, Operational, Social,
Environmental, Financial and Economic)
Concept of Planning
 Need for planning:
What is planning?
Planning: the process of preparing a blue print of actions to
attain stated objectives within a time frame.
In planning, we consider:
 The determination of objectives
 The specification of targets
 The strategy for modification of resources
 The blue print of actions
Concept of Planning…
 “The plans of the diligent lead to profit as surely

as haste leads to poverty”
 “If you fail to plan, you plan to fail”
 Planning has the following advantages:
 it enables us to formulate what we intend to

achieve within a given time
 Think ahead and prepare for the future
 Ensure the right direction
 Identify issues that will need to be addressed
Advantages of planning...
 Consider whether a project is possible
 Make the best use of resources
 Clarify goals and develop vision
 Establish the reason for doing something
 Choose between options
 Achieve the best results
There are many barriers to planning. These include:

 Lack of time, or not making time to plan
 Not knowing how to plan
 Difficulty in getting the right people together
 Finding it difficult to plan because the future is so
uncertain
 Wanting to do things immediately because the
need is urgent, rather than think about them
 Since a good plan depends on accurate information, the
framework enables various specialists to judge the accuracy
of the information provided and the appropriateness of the
assumptions. The format gives an idea of costs, year by year,
so that those responsible for providing the necessary
resources can do their own planning.
 The administrative and organizational problems likely to be
encountered during implementation are also detailed in the
project format. This enables the planners to make
arrangements for strengthening the project management if
this appears weak. At the same time managers, planners,
and stakeholders are given better criteria for monitoring the
progress of implementation, as the objectives, targets and
work plans are set out at the onset of implementation.
 Designing a good project is easier said than done! In the
development community, evaluations have identified the
following primary causes of poor performance in projects:
 Poor project design, planning and preparation, where one or
more of the essential factors for success are overlooked
 projects not relevant to the beneficiaries
 risks and assumptions insufficiently taken into account
 factors affecting long-term sustainability ignored
 inability to make the right decisions at the right time over the
lifetime of the project (which is related to inadequate
monitoring and feedback)
 lessons from past experience not incorporated into new
projects and practice (lack of evaluations, or inadequate use
of them).
Examples showing lack of Planning
 Someone from another country imports forks because he sees
people eating with their fingers. But people in that country
usually eat with their fingers
 A sanitation project is started because people are dying of
diarrhea. But people believe that diarrhea is caused by evil
spirits
 An agricultural project wants to help very poor people. An
agriculturalist starts a program of vegetable growing. While the
project is technically very successful, very poor people do not
benefit because they have no land
 A fisheries project digs ponds, but they do not hold enough
water because the soil does not contain enough clay. No
enough technical information was obtained
 A project builds latrines, but the women do not use them
because the area is badly lit and they fear attack by men. Socio-
cultural factors have not been taken into account
 These problems can be avoided through more rigorous
project formulation, and better project cycle
 management – in particular better monitoring and evaluation.
 The key ingredients for project success are:
 proper and participatory planning
 addressing real problems that are priorities for the
stakeholders
 a competent and motivated project team
 sufficient management and organizational support
 the different parties involved sticking to their commitments.
Who should plan?
 A key question in the process of planning is ‘who should be
involved? A successful project is the result not only of the accuracy
of the technical solution, but also of the acceptance by all the parties
involved of the need for, and the approach to implementing the
project.
 Think through the following situations in terms of time, decision-
making, conflict, responsibility, knowledge, ownership, resources
and motivation
 Imagine a manager in a relief and development organization. What
are the advantages of the manager planning a project alone? What
are the disadvantages?
 Imagine a few members of staff of a relief and development
organization planning a project together. What are the advantages?
What are the disadvantages?
 Imagine members of staff of a relief and development organization
planning a project with community members. What are the
advantages? What are the disadvantages?
 Which of these situations is best? Why?
Defining a Project?
 To put projects into perspective, you need a definition—a common
starting point. All too often people call any work they have to do a
“project.” Projects actually have a very specific definition.
 If a set of tasks or work to be done does not meet the strict definition,
then it cannot be called a project. To use the project management
techniques presented in this book, you must first have a project.
 Project Definitions
 The project is best defined in two ways:
 1. By comparing a project to a routine
 2. By knowing the operational constraints associated with projects
 A ‘‘project’’ has different meanings in each organization and may also
vary from one department to another.
 A project is a complex set of activities where resources are used in
expectation of returns and which lends it to planning financing and
implementing as a unit. A project usually has a specific starting point
and a specific ending point intending to accomplish specific
objectives.
Defining a Project?...
 It usually has a well defined sequence of investment and
production activities and a specific group of benefits that can
be identified, quantified and valued either socially or
monetarily. Projects also have boundaries which make it
distinguishable from each other. In addition to its time
sequence of investments, production and benefits, the project
normally has a specific geographical location, with identifiable
targets and beneficiaries.
 To enable analysis of projects as defined above, a project
format is conventionally used. This format provides an
analytical framework for a proposed investment in which the
cost and benefit accounts are prepared year by year in the
form of a project cost and benefit stream.
 Information from a wide range of sources feed into the
framework.
 Since a good plan depends on accurate information, the
framework enables various specialists to judge the accuracy
of the information provided and the appropriateness of the
assumptions. The format gives an idea of costs, year by year,
so that those responsible for providing the necessary
resources can do their own planning.
 The administrative and organizational problems likely to be
encountered during implementation are also detailed in the
present project format. This enables the planners to make
arrangements for strengthening the project management if
this appears weak. At the same time managers, planners,
and stakeholders are given better criteria for monitoring the
progress of implementation, as the objectives, targets and
work plans are set out at the onset of implementation.
 The project format facilitates systematic and objective
examination of results of alternatives. For instance, the
effects of a proposed project on national income and other
objectives can be compared with the effect of projects in
other sectors, or other projects in the same sector, or
alternative formulations and design of the same project
including not undertaking the project altogether.
 Once national objectives are known, unreliability of data at
the national level can be overcome by confining the project
meant to achieve a national objective in a specific location
with a specific target and beneficiaries. Thus local information
on which to base the analyses can be efficiently gathered,
field trials undertaken and judgment can be made about
social and cultural institutions that might influence the choice
of project design and its pace of implementation.
1. A project is an exception. Unlike routines, projects involve
investigation, compilation, arrangement, and reporting of findings in
some way that provides value. The answers to the basic project
questions cannot be found in the routines of your department, which
is what makes it exceptional. The processes involved with the project
fall outside your department’s ‘‘normal’’ range of activities and
functions.
2. Project activities are related, regardless of departmental
routines. Projects are rarely so restricted in nature that they involve
only one department. The characteristics of a department involve
related routines, but projects are not so restricted. Thus, a project is
likely to involve activities that extend beyond your immediate
department, which also means that your project team may include
employees from other departments.
 3. Project goals and deadlines are specific. Recurring tasks
invariably are developed with departmental goals in mind. Financial
departments crunch numbers, marketing departments promote sales
and develop new markets, and filing departments organize
paperwork. The goals and related tasks tend to move forward
primarily in terms of time deadlines. The same is true for
departmental deadlines; they are recurring and dependable, tied to
specific cyclical dates or events in other departments. Projects,
though, have an isolated and finite number of goals that do not recur,
plus identifiable starting and stopping points. Whereas departmental
routines are general in nature, project activities are clearly specific.
 4. The desired result is identified. A project is well defined only
when a specific result is known. By comparison, departmental
routines involve functions that may be called ‘‘process maintenance.’’
That means that rather than producing a specific outcome, a series
of recurring routines are aimed at ensuring the flow of outcomes
(e.g., reports) from one period to another.
 The department gets information from others, processes it, and
passes it on in a refined form, and this series of steps takes place
continuously. While a project involves the same basic idea—
receiving information, analyzing it, and reporting conclusions—there
are two clear distinctions worth keeping in mind. First, the work is
nonrecurring, so the demands of a project cannot be easily identified
in every case. Second, the desired result is identified in isolation
from other functions of the department.
 A project is a sequence of unique, complex, and connected activities
having one goal or purpose and that must be completed by a specific
time, within budget, and according to specification. This definition
tells you quite a bit about a project. To appreciate just what
constitutes a project take a look at each part of the definition.
 Sequence of Activities
 A project comprises a number of activities that must be completed in
some specified order, or sequence. An activity is a defined chunk of
work.
 The sequence of the activities is based on technical
requirements, not on management prerogatives. To determine
the sequence, it is helpful to think in terms of inputs and outputs.
 What is needed as input in order to begin working on this
activity?
 What activities produce those as output?
 The output of one activity or set of activities becomes the input
to another activity or set of activities.
 Specifying sequence based on resource constraints or
statements such as “Pete will work on activity B as soon as he
finishes working on activity A” should be avoided because they
establish an artificial relationship between activities. What if Pete
wasn’t available at all? Resource constraints aren’t ignored when
you actually schedule activities. The decision of what resources
to use and when to use them comes later in the project planning
process.
 Unique Activities
 The activities in a project must be unique. A project has never
happened before, and it will never happen again under the
same conditions. Something is always different each time the
activities of a project are repeated. Usually the variations are
random in nature— for example, a part is delayed, someone
is sick, a power failure occurs. These are random events that
can happen, but you never are sure of when, how, and with
what impact on the schedule. These random variations are
the challenge for the project manager.
 Complex Activities
 The activities that make up the project are not simple,
repetitive acts, such as mowing the lawn, painting the house,
washing the car, or loading the delivery truck. They are
complex. For example, designing an intuitive user interface to
an application system is a complex activity.
 Connected Activities
 Connectedness implies that there is a logical or technical
relationship between pairs of activities. There is an order to
the sequence in which the activities that make up the project
must be completed. They are considered connected because
the output from one activity is the input to another. For
example, you must design the computer program before you
can program it. You could have a list of unconnected activities
that must all be complete in order to complete the project. For
example, consider painting the interior rooms of a house.
With some exceptions, the rooms can be painted in any
order. The interior of a house is not completely painted until
all its rooms have been painted, but they may be painted in
any order. Painting the house is a collection of activities, but it
is not considered a project according to the definition.
 One Goal
 Projects must have a single goal, for example, to design an inner-city
playground for ADC (Aid to Dependent Children) families. However,
very large or complex projects may be divided into several
subprojects, each of which is a project in its own right. This division
makes for better management control. For example, subprojects can
be defined at the department, division, or geographic level. This
artificial decomposition of a complex project into subprojects often
simplifies the scheduling of resources and reduces the need for
interdepartmental communications while a specific activity is worked
on. The downside is that the projects are now interdependent. Even
though interdependency adds another layer of complexity and
communication, it can be handled.
 Specified Time
 Projects have a specified completion date. This date can be self-
imposed by management or externally specified by a customer or
government agency. The deadline is beyond the control of anyone
working on the project. The project is over on the specified
completion date whether or not the project work has been
completed.
 Within Budget
 Projects also have resource limits, such as a limited amount of people,
money, or machines that are dedicated to the project. While these resources
can be adjusted up or down by management, they are considered fixed
resources to the project manager. For example, suppose a company has
only one Web designer at the moment. That is the fixed resource that is
available to project managers. Senior management can change the number
of resources, but that luxury is not available to the project manager. If the
one Web designer is fully scheduled, the project manager has a resource
conflict that he or she cannot resolve.
 According to Specification
 The customer, or the recipient of the project’s deliverables, expects a certain
level of functionality and quality from the project. These expectations can be
self-imposed, such as the specification of the project completion date, or
customer-specified, such as producing the sales report on a weekly basis.
 Although the project manager treats the specification as fixed, the
reality of the situation is that any number of factors can cause the
specification to change.
 For example, the customer may not have defined the requirements
completely, or the business situation may have changed (this
happens in long projects).
 It is unrealistic to expect the specification to remain fixed through the
life of the project.
 Systems specification can and will change, thereby presenting
special challenges to the project manager.
The Links between Projects and Programs
 It is necessary to distinguish between projects and
programmes because there is sometimes a tendency to use
them interchangeably.
 While a project refers to an investment activity where
resources are used to create capital assets which produce
benefits over time and has a beginning and an ending with
specific objectives, a programme is an on-going development
effort or plan.
 A programme is therefore a wider concept than a project. It
may include one or several projects at various times whose
specific objectives are linked to the achievement of higher
level of common objectives.
 Perhaps the distinction between projects and programs
would be clear if we see the basic characteristics of projects.
 Projects in general need to be SMART.
 S – Specific
 A project needs to be specific in its objective. A project is
designed to meet a specific objective as opposed to a
program, which is broad. A project has also specific activities.
Projects have well defined sequence of investment and
production activities and a specific group of benefits. A
project is also designed to benefit a specific group of people.
 M - Measurable
 Projects are designed in such a way that investment and
production activities and benefits expected should be
identified and if possible be valued (expressed in monetary
terms) in financial, economic and if possible social terms.
 Though it is sometimes difficult to value especially secondary
costs and benefits of a project, attempt should be made to
measure them. Measure costs and benefits must lend
themselves for valuation and general projects are thought to
be measurable.
 A – Area bounded
 As projects have specific and identifiable group of
beneficiaries, so also have to have boundaries. In designing
a project, its area of operation must clearly be identified and
delineated. Though some secondary costs and benefits may
go beyond the boundary, its major area of operation must be
identified. Hence projects are said to be area bounded.
 R – Real
 Planning of a project and its analysis must be made based on
real information. Planner must make sure whether the project
fits with real social, economic political, technical, etc
situations. This requires detail analysis of different aspects of
a project.
 T – Time bounded
 A project has a clear starting and ending point. The overall
life of the project must be determined. Moreover, investment
and production activities have their own time sequence.
Every cost and benefit streams must be identified, quantified
and valued and be presented year-by-year.
Types of Projects
 Basically three types of projects can be identified depending
upon how new resources committed to them relate to existing
economic activities.
 First the largest type of project, around which project analysis
grew up, involves new investment
 New investments are designed to establish a new productive
process independent of previous lines of production.
 They often include a new organization, financially
independent of existing organizations.
 Secondly there are expansion projects which involve
repeating or extending an existing economic activity with the
same output, technology and organization.
Projects
 Thirdly there are updating projects which involve replacing or
changing some elements in an existing activity without major change
of output.
 Updating projects involve some change in technology but within the
context of an existing, though possibly reformulated organization.
 With changing economic circumstances the balance between these
types of projects may change.
 Whatever type of project is being analyzed, the effect of using new
resources has to be distinguished from the effect of existing
operations.
 The incremental resource cost has to be identified, that is that will be
committed in a project over and above what would otherwise have
been used.
 Similarly the incremental benefits, the additional benefits over and
above what would otherwise have occurred, have to be identified.
 Both incremental costs and incremental benefits have to be valued.
Projects
 For new investments the whole of the output and the whole of
the costs will be incremental for expansion and updating
projects, the effects of the new resources have to be
separated from the effects of the existing resources.
 Project costs are generally easier to identify and estimate
than project benefits.
 Costs may be met directly by a particular institution; benefits
are frequently more diverse.
 A distinction can be drawn between directly productive and
indirectly productive projects.
 The former are those where the immediate costs and benefits
accrue to a single organization; a consequence is that this
organization is able to calculate and commit any resulting
surplus to new activities.
Projects
 Indirectly productive projects broadly speaking are those
where the benefits received from new resources do not
accrue to the organization responsible for carrying the costs.
 In these circumstances, any resulting surplus is not
concentrated in the hands of a single organization.
 Most infrastructure projects, such as roads are indirectly
productive; the benefits accrue to users and producers whilst
costs are met by government.
 Of course, several projects, especially large ones, may be a
mixture of directly and indirectly productive activities, for
example, a rural development project involving both
increases in agricultural output through farmer investment as
well as roads, schools and other infrastructure facilities.
Projects
 The importance of the distinction between directly and
indirectly productive projects is that benefits from new
resources are more difficult to estimate in the case of
indirectly productive projects. Nonetheless, whenever
possible they should be incorporated in the project statement.
Projects
 Project Parameters
 Five constraints operate on every project:
 ■ Scope
 ■ Quality
 ■ Cost
 ■ Time
 ■ Resources
 These constraints form an interdependent set; a change in one can require
a change in another constraint in order to restore the equilibrium of the
project.
 In this context, the set of five parameters form a system that must remain in
balance for the project to be in balance. Because they are so important to
the success or failure of the project, I want to discuss them individually.
Projects
 Scope
 Scope is a statement that defines the boundaries of the project. It
tells not only what will be done but also what will not be done. In the
information systems industry, scope is often referred to as a
functional specification. In the engineering profession, it is generally
called a statement of work. Scope may also be referred to as a
document of understanding, a scoping statement, a project initiation
document, and a project request form. Whatever its name, this
document is the foundation for all project work to follow. It is critical
that scope be correct.
 Beginning a project on the right foot is important, and so is staying
on the right foot. It is no secret that scope can change. You do not
know how or when, but it will change. Detecting that change and
deciding how to accommodate it in the project plan are major
challenges for the project manager.
Projects
 Quality
 Two types of quality are part of every project:
 ■ The first is product quality. This refers to the quality of the
deliverable from the project. The traditional tools of quality control
are used to ensure product quality.
 ■ The second type of quality is process quality, which is the quality
of the project management process itself. The focus is on how well
the project management process works and how can it be improved.
Continuous quality improvement and process quality management
are the tools used to measure process quality.
 A sound quality management program with processes in place that
monitor the work in a project is a good investment. Not only does it
contribute to customer satisfaction, it helps organizations use their
resources more effectively and efficiently by reducing waste and
rework. Quality management is one area that should not be
compromised. The payoff is a higher probability of successfully
completing the project and satisfying the customer.
Projects
 Cost
 The dollar cost of doing the project is another variable that
defines the project. It is best thought of as the budget that has
been established for the project. This is particularly important
for projects that create deliverables that are sold either
commercially or to an external customer. Cost is a major
consideration throughout the project management life cycle.
The first consideration occurs at an early and informal stage in
the life of a project. The customer can simply offer a figure
about equal to what he or she had in mind for the project.
Depending on how much thought the customer put into it, the
number could be fairly close to or wide of the actual cost for
the project.
Projects
 Time
 The customer specifies a time frame or deadline date within which
the project must be completed. To a certain extent, cost and time are
inversely related to one another. The time a project takes to be
completed can be reduced, but costs increase as a result. Time is an
interesting resource. It can’t be inventoried. It is consumed whether
you use it or not. The objective for the project manager is to use the
future time allotted to the project in the most effective and productive
ways possible. Future time (time that has not yet occurred) can be a
resource to be traded within a project or across projects. Once a
project has begun, the prime resource available to the project
manager to keep the project on schedule or get it back on schedule
is time. A good project manager realizes this and protects the future
time resource jealously.
Projects
 Resources
 Resources are assets, such as people, equipment, physical
facilities, or inventory, that have limited availabilities, can be
scheduled, or can be leased from an outside party. Some are
fixed; others are variable only in the long term. In any case,
they are central to the scheduling of project activities and the
orderly completion of the project. For systems development
projects, people are the major resource. Another valuable
resource for systems projects is the availability of computer
processing time (mostly for testing purposes), which can
present significant problems to the project manager with
regard to project scheduling.
Projects
 Principles of Project Management
 When you think of the principles of management, you usually
associate them with the management of people. The
management of people includes defining what the business
unit will do, planning for the number and type of staff who will
do it, organizing the staff, monitoring their performance of the
tasks assigned them, and finally bringing a close to their
efforts. Those same principles also apply to projects.
 Project management is a method and a set of techniques
based on the accepted principles of management used for
planning, estimating, and controlling work activities to reach
a desired end result on time—within budget and according to
specification.
Approaches to Project Planning
 Top-down approach – by central agencies which is best for
new endeavors.
 Bottom-up approach – people centered or starts from the
grassroots and it is community based approach.
 Participatory approach – it is a blended top-down and
bottom-up approaches and it is a balance to strike between
the two extremes. This approach brings about ownership
feeling, commitment and confidence of stakeholders.
 Traditional and New Approach to Project Appraisal
 Traditional (old) method: Emphasize growth objectives (i.e.,
it excludes equity objectives). Its justification for ignoring
equity objective because it is thought that government use
fiscal means (tax and subsidies) to redistribute to projects
desired income in a society – market correction is
incomplete.
 New approach: Assumes that all units of income do not
make the same contribution to growth. The distribution
between poor and rich people is not equally treated. More
weight is given to the poor in the new approach. The new
methodology is based on UNIDO guideline, L & M and
Square and van der Tak (LMST). The most important
elements of the methodology are:
 Production efficiency: for all traded goods is determined
independently of the domestic consumption pattern. Efficiency is
determined in relation to trade i.e., all inputs and outputs are
valuated at world price. World price are independent of market
imperfections that prevail in the domestic market. This means
that it is based on neoclassical doctrine of comparative
advantages. Indeed, countries with no free market price
(socialist) can also use world prices as a basis for investment
decision making.
 Interpersonal and inter-temporal: Utility components are
reestablished using the social principle of consumption valuation
between different groups and different generation or moments in
time.
 The method is said to play a key role in overall planning by
emphasizing crucial macro planning variables in micro level
selection of projects criteria- can be applied to determine the total
number of projects and sectoral allocation for the economy as a
whole.
 Market correction is complete.
Data (info) Needed in Project Planning
 The necessary data may be classified as follows:
 Physical data: assessment of physical resources in the
project area and potential or otherwise for agricultural
production. This may include:
 Pedological data eg. Soil
 Hydrological data eg. Surface and ground water
 Climatical data
 Topographical data
 Funa and flora- distribution of plants and animals.
 Technical data: These data may be collected from agricultural
scientists, agronomists, manufacturers. Project planning
involves pre-project technologist information, i.e., the existing
technology information. The information about inputs and
outputs.
Data (info) Needed in Project Planning
 Demographic data: information on target population,
household, number of people etc.
 Socio cultural and institutional factors: Traditions, culture,
perception of development, class structure, ethnic groups,
social facilities, administration, etc.
 Economic data: farm management data- eg. input-output
coefficients, non-farm economic data, regional data, sectoral
economic data, national economic data, international
economic data- eg. world price data, etc.
 These data helps us to assess the current situation and gives
possibility of forecasting. The data mostly will be both cross
sectional and time series data.
Review Questions
 What is planning?
 Distinguish between a project and a routine
 Identify the most important project
parameters that constrain a project
CHAPTER TWO
PROJECT CYCLE MANAGEMENT

Definition of Project Cycle Management
 Project Cycle Management (PCM) was introduced by the
European Commission in the early 1990’s to improve the
quality of project design and management and thereby to
improve aid effectiveness.
 PCM developed out of an analysis of the effectiveness of
development aid undertaken by the Development Assistance
Committee of the west during the late 1980’s. Evaluation
findings from research works indicated that a significant
proportion of development projects had performed poorly,
and identified a number of causes:
 Poor project planning and preparation
 Many projects not relevant to beneficiaries
 Risks were insufficiently taken into account
 Factors affecting the longer-term sustainability of project benefits
were ignored
 Lessons from past experience were rarely incorporated into new
policy and practice
Why PCM? PCM
 Experiences:  Sectoral approach
 Unclear strategic framework  Demand driven solutions
 Supply driven projects  Improved analysis
 Poor analysis of situation  Objective-oriented planning
 Activity-oriented planning  Verifiable impact
 Non-verifiable impact  Emphasis on quality
 Disbursement pressure  Focus on sustainability
 Short-term vision  Standardized formats
 Imprecise project documents
 The process of planning and managing projects can be drawn as
a cycle. Each phase of the project leads to the next
 In other words, the way in which projects are planned and
carried out follows a sequence that has become known as the
project cycle.
 The cycle starts with the identification of an idea and develops
that idea into a working plan that can be implemented and
evaluated.
 Ideas are identified in the context of an agreed strategy. It
provides a structure to ensure that stakeholders are consulted
and relevant information is available, so that informed decisions
can be made at key stages in the life of a project
 “PCM obliges practitioners in project design to focus on the real needs of the
beneficiaries by requiring a detailed assessment of the existing situation and
by applying the logical framework method……Right from the beginning,
aspects assuring sustainability are incorporated in the project design. The
strength of PCM is that project documents are structured according to a
standardized format dealing with all relevant issues, including the
assumptions on which the project is based. At each stage in the project
cycle, these issues are examined and revised where necessary and carried
forward to the next stage. This system makes the project concept and
context in which it operates clear and visible, and enables therefore better
monitoring and evaluation.”
 PCM Principles
 Project cycle stages - structured & informed decision-making
 Adherence to the phases of the project cycle to ensure a structured and
well-informed decision-making process.
 Client orientation - involvement of stakeholders in decision-making
 Client orientation through the use of participatory planning workshops at
key phases of the project cycle, and the formulation of the Project Purpose in
terms of sustainable benefits to be delivered to beneficiaries.
Incorporation of aspects of sustainability into project design to
ensure sustainable benefits.
 Logframe planning - comprehensive & consistent analysis
 Use of the Logical Framework Approach to ensure a consistent

analytical approach to project design and management.
Sustainability - mechanisms for continued flow of benefits
 An integrated approach which links the objectives of each
project into the objectives of the national and sectoral objectives
within the partner country; ensures that project work plan’s and
budgets are prepared on the basis of the project log frame; and
using the basic format to ensure consistent and comprehensive
treatment of key issues throughout a project’s life.
 Integrated approach - vertical integration & standardized
documentation
 PCM brings together aid management principles, analytical tools and
techniques, and applies them within the structured decision-making
process of the project cycle to ensure that projects are relevant, feasible
and sustainable
 ¨ projects are relevant to the agreed strategy and to the real needs
of beneficiaries:
 projects are linked to sectoral, regional and national objectives
 beneficiaries are involved in the planning process from an early
stage
 problem analysis is conducted on participatory basis
 objectives are clearly stated in terms of benefits to target groups
 ¨ projects are feasible in that objectives can be realistically achieved
within the constraints of the operating environment and the capabilities
of the implementing agencies:
 objectives are logical and measurable
 risks and assumptions, and the implementing agencies’ capabilities
are taken into account
 monitoring concentrates on relevant targets
 ¨ projects are sustainable
 factors affecting sustainability are addressed as part of
project design
 results from evaluation are used to build lessons learned into
the design of future projects
 A cycle is a sequence of events which a project follows.
 These events, stages or phases can be divided into severally
equally valid ways, depending on the executing agency or
parties involved.
 In practice, this division is less distinct than that discussed here,
with elements of one activity spilling over into one or more of the
others.
 In fact, comprehensive project planning should be an iterative
process whereby results in one stage of the project influence
decisions in the other stages.
Project Cycle…
 The project can therefore be conceived on the basis of:
 Needs – to make available to all people in an area minimum
amount of certain basic material requirements or services. A
needs assessment survey establishes the urgency for
intervention;
 Market demand –domestic or overseas;
 Resource availability –opportunity to make profitable use of
available resource.
 Technology – to make use of available technology
 Natural calamity –hedging against the adverse effects of
natural events as drought or floods; and
 Political consideration
Project Cycle…
 A project cycle is the different stages through which a project passes
or it is a sequence of events, which a project follows.
 There are several models of project cycles. Some of them are:
traditional and process approach of the World Bank project cycle,
the European Union project cycle, the Asian Development Bank
project cycle, the Integrated Planning and Management project
cycle, the UNIDO project cycle etc.
 The first and most well known model is the traditional version of the
World Bank developed in 1970s, with four main stages which further
developed into five in 1978 to close the cycle and known as Baum
cycle. The stages are:
 Identification
 Preparation (pre-feasibility and feasibility studies)
 Appraisal
 Implementation
 Evaluation
Project Cycle…
Identification
Preparation
Evaluation
Implementation
Appraisal
Project Cycle…
 The second important project cycle model is the Process
Approach and comprises: listening (making project idea or
concept from local communities), piloting (start small scale
projects and identify important actors, etc.), demonstrating
(conducting trials on representative scale eg. at Kebele
level), and mainstreaming (extending the project to a larger
scale eg. at Woreda level).
listening
Piloting
Mainstreaming
Demonstrating
Project Cycles...
The third is
Identify
Evaluate
(success Lesson Design
or failure) Learning
Implement
(get it
started)
Review Monitor
59
Project Cycle…
The fourth is
Programming
Evaluation Identification
Implementation Formulation
Financing
Project Cycle…
 During the Programming phase, the situation at national and
sectoral level is analyzed to identify problems, constraints and
opportunities which development cooperation could address.
 This involves a review of socio-economic indicators, and of national
and donor priorities. The purpose is to identify and agree the main
objectives and sectoral priorities for development cooperation, and
thus to provide a relevant and feasible programming framework
within which projects can be identified and prepared. For each of
these priorities strategies will be formulated that take account of the
lessons of past experience.
 During the Identification phase, ideas for projects and other
development actions are identified and screened for further study.
 This involves consultation with the intended beneficiaries of each
action, an analysis of the problems they face, and the identification
of options to address these problems. A decision can then be made
on the relevance of each project idea (both to the intended
beneficiaries and to the programming framework), and on which
ideas should be further studied during the Formulation phase.
Project Cycle…
 During the Formulation phase, relevant project ideas are
developed into operational project plans. Beneficiaries and other
stakeholders participate in the detailed specification of the
project idea that is then assessed for its feasibility (whether it is
likely to succeed) and sustainability (whether it is likely to
generate long-term benefits for the beneficiaries). On the basis
of this assessment, a decision is made on whether to draw up a
formal project proposal and seek funding for the project.
 During the Financing phase, project proposals are examined by
the funding agency, and a decision is taken on whether to fund
the project. The funding agency and partner country agree the
modalities of implementation and formalize these in a legal
document which sets out the arrangements by which the project
will be funded and implemented.
Project Cycle…
 During the Implementation phase, the project is mobilized and
executed. This may require the tendering and award of contracts for
technical assistance or works and supplies. During implementation,
and in consultation with beneficiaries and stakeholders, project
management assesses actual progress against planned progress to
determine whether the project is on track towards achieving its
objectives. If necessary the project is re-oriented to bring it back on
track, or to modify some of its objectives in the light of any significant
changes that may have occurred since its formulation.
 During the Evaluation phase, the funding agency and partner
country assess the project to identify what has been achieved, and
to identify lessons that have been learned. Evaluation findings are
used to improve the design of future projects or programs. Although
in the generic cycle the evaluation phase comes after
implementation, it is common practice also to conduct a mid-term
evaluation during implementation, to identify lessons that can be
applied during the remaining life of the project.
 The details of what occurs during each phase differ between
institutions, reflecting differences in procedures. However,
within all institutions the cycle shares three common themes:
1. The cycle defines the key decisions, information requirements
and responsibilities at each phase.
2. The phases in the cycle are progressive – each phase needs
to be completed for the next to be tackled with success.
3. The cycle draws on evaluation to build experience from
existing projects into the design of future programs and
projects.
 Project cycle management integrates the phases in the
project cycle so that issues are examined systematically, by
means of an approach and methodology which ensures that
objectives and issues of sustainability remain in focus.
Project Cycles...
 Stage 1: Project Conception
 At this stage, an idea regarding a required intervention in a
specific area to address an identified problem is formed or
developed. This idea is usually hatched through discussion
by specialists and local leaders in a community as a need-
based issue and crystallized into a proposal.
 Stage 2: Project Identification: the issue that a project could
address. It also involves feasibility studies (technical,
economic & financial)
 Potential projects arising from the ideas crystallized in the
first stage above are determined.
Project Cycles...
 The information in the proposal from project conception may
be submitted by an individual or community representative to
an agent or agency capable of identifying a institution to
provide the necessary support to realize the expectation.
 The type of information provided at this stage is usually
general and descriptive.
 The information is basically provided to justify an intervention
through an expression of a felt need in the area.
 Usually some objective judgment is applied to assess the
proposal or set of proposals to establish if the proposal can
proceed to the next stage in the cycle. In many ways, stages
1 and 2 are so interlinked that some prefer to consider both
as forming the “identification phase”.
66
Project Cycles...
 Project involves appreciative enquiry:
 Needs assessment
 Capacity assessment
Need: Normative:- a situation defined by an expert

Felt:- ascertained by clients
Expressed:- a demand for service
Comparative:- an inferred measure of need
 Needs Assessment: -
 the project should come out of what people say they want and not
from assumptions that we make
 Circumstances change: there may be new people, new needs, old
needs might have been addressed, problems might affect people
differently
 Needs assessment gives people an opportunity to prioritize their
needs
 Tools that enable communities identify their needs include:
 Listening, Interviewing, Focus groups, Community mapping
Project Cycles...
 Steps in needs assessment:
1. Clearly understand: purpose, budget and time
2. Identify the specific information you need to acquire
3. Determine if the information already exists or can be
obtained with your resources
4. Design the methodology and instrumentation (if necessary)
5. Collect and analyze data
6. Prepare the report
Project Cycles...
 Capacity Assessment: - to identify strengthes and
weaknesses
 It involves six types of assets
 Human- skills
 Social-relationships, political structures, networks,
community centers, local primary schools
 Natural-land, trees, water, air, climate, minerals
 Physical-buildings, transport, water supply,
sanitation, energy sources, telecommunication
 Economic-money, savings, revolcing funds, grain
stores
 Spiritual-faith, unity among church members
Project Cycles...
 Once project ideas have been identified, the process of project
preparation and analysis starts.
 Stage 3: Project preparation:- it must cover the full range of
technical, institutional, financial and economic conditions necessary
to achieve the project’s objective.
 Critical element of project preparation is identifying and comparing
technical and institutional alternatives for achieving the project’s
objectives. Different alternatives may be available and therefore,
resource endowment (labor or capital) would have to be considered
in the preparation of projects.
 Preparation thus require feasibility studies that identify and prepare
preliminary designs of technical and institutional alternatives,
compare their costs and benefits, and investigate in more details the
more promising alternatives until the most satisfactory solution is
finally worked out. It involves generally two steps:
 Pre-feasibility studies
 Feasibility studies
Project Cycles...
 Pre-feasibility Study
 The identification process will give the background information for
defining the basic concept of the project, which leads to the
feasibility study stage. Once a project proposal is identified, it needs
to be examined.
 To begin with, a preliminary project analysis is done.
 A prelude to the full blown feasibility study, this exercise is meant to
assess (i) whether the project is prima facie worthwhile to justify a
feasibility study and (ii) what aspects of the project are critical to its
variability and hence warrant an in-depth investigation.
 At the pre-feasibility study stage the analyst obtains approximate
valuation of the major components of the projects costs and
benefits.
 Some of the main components examined during the pre-feasibility
study include:
Project Cycles...
 Availability of adequate market
 Project growth potential
 Investment costs, operational cost and distribution costs
 Demand and supply factors; and
 Social and environmental considerations
 Using this preliminary data supplied by the various discipline
specialists a preliminary financial and economic analysis will
be conducted.
 If the project appear viable form this preliminary assessment
the analysis will be carried to the feasibly stage.
Project Cycles...
 The major difference between the pre-feasibility and
feasibility studies is the amount of work required in order to
determine whether a project is likely to be viable or not.
 If the preliminary screening suggests that the project is prima
facie worthwhile, a detailed an analysis of the marketing,
technical, financial, economic, and ecological aspects will is
undertaken.
 The focus of this phase of capital budgeting is on gathering,
preparing, and summarizing relevant information about
various project proposals, which are being considered for
inclusion in the capital investment.
 Based on the information developed in this analysis, the
stream of costs and benefits associated with the project can
be defined.
Project Cycles...
 At this stage a team of specialists (Scientists, engineers,
economists, sociologists) will need to work together.
 At this stage more accurate data need to be obtained and if the
project is viable it should proceed to the project design stage.
 The final product of this stage is a feasibility report.
 The feasibility report should contain the following elements:
 Market analysis
 Technical analysis
 Institutional and organizational analysis
 Financial analysis
 Economic analysis
 Social analysis, and
 Environmental analysis
 The details are to be discussed in chapter three
Project Cycles...
 Project preparation stage involves a more thorough exercise of
collection of data and information on the proposed project.
 The exercise is conducted by personnel with technical and
analytical skills in consultation with the target and beneficiary
community.
 At this stage of the cycle, the objective of the project is defined
and alternative solution described.
 The project preparation contains the design of a set of
operational proposals that are technically, financially and
economically feasible.
 Decisions are made on the scope of the project, location, site and
size, among others.
 The detail of a feasibility study depends on the complexity of the
project and on how much is already known about the proposals.
Project Cycles...
 In fact a succession of increasingly detailed feasibility studies are
sometimes called for in complex projects.
 The feasibility studies provide an opportunity to shape the project
to fit its physical and social environment and exclude preparation
relatively poor alternative ways of achieving the project goal.
 A careful preparation may cost up to 10 percent of the total
project investment but this is absolutely necessary to ensure the
project’s effectively.
 Stage 4: Project Appraisal
 Analysis of a proposed project to determine its merit and
acceptability in accordance with established criteria. This is the
final step before a project is agreed for financing. It checks that
the project is feasible against the situation on the ground, that the
objectives set remain appropriate and that costs are reasonable.
Project Cycles...
 Project appraisal involves a further analysis of the proposed
project. At this stage, a critical review of the proposal is
undertaken.
 The systematic and comprehensive review is usually undertaken
by an independent team of experts in consultation with the
stakeholders of the project.
 The feasibility study would enable the project analyst to select
the most likely project out of several alternative projects.
Selection follows, and often overlaps, analysis. It addresses the
question - is the project worthwhile? Wide ranges of appraisal
criteria have been developed to judge the worthwhile of a
project. They are divided into two broad categories, viz., non-
discounting criteria and discounting criteria.
Project Cycles...
 To apply the various appraisal criteria suitable cut off values
(hurdle rate, target rate, and cost of capital) have to be
specified. The level of risk pursued influences these.
 Despite a wide range of tools and techniques for risk analysis
(sensitivity analysis, scenario analysis Monte carol
simulation, decision tree analysis, portfolio theory, capital
asset pricing model, and so on), risk analysis remains the
most intractable part of the project evaluation exercise.
 This exercise also involves the undertaking of detailed
engineering design; manpower and administration
requirement as well as marketing procedures should be
finalized.
Project Cycles...
 This provides an opportunity to re-examine every aspect of the
project plan to assess whether the proposal is justified before
large sums are committed.
 The appraisal process builds on the project plan but may involve
new information if the appraisal team feels that some of the data
used at preparation or some assumptions are faulty.
 The implications of the project on the society and the
environment are also more thoroughly investigated and
documented.
 Similarly, the technical design, financial measures, commercial
aspects, incentives, economic parameters are thoroughly
scrutinized. On the basis of an appraisal report, decisions are
made about whether to go ahead with the project or not. The
appraisal may also change the project plan or develop a new
plan.
Project Cycles...
 Stage 5: Project Selection
 After appraisal, the visible project proposals are chosen for
implementation on the basis of the priorities of the
stakeholders and the available resources. For instance,
Treasury may impose a ceiling on the ministries with a big
portfolio of investments, calling for prioritization of the core
and lower priority projects.
 Stage 6: Negotiation and Financing
 Once the project to be implemented is agreed on for donor
funded projects, discussions are held on funding and
associated aspects of funding such as conditionals for grants,
repayment period and interest rates of loans, flow of funds,
contributions from stakeholders and if there is co-financing or
not.
Project Cycles...
 This culminates into an Agreement Document for the project
which binds all the parties involved during implementation of the
project.
 Stage 7: Planning for Implementation
 This is the stage either before actual implementation begins or
before the start of a new implementation phase of the project.
 The exercise is conducted at the level of the project and involves
the implementers, the beneficiaries and the funding agency or all
stakeholders.
 The exercise involves enabling the realism of project objectives,
scope, financial arrangements and implementation schedule
given the overall resource structure of the project and the
working environment. The likelihood of further changes occurring
either in design or physical and policy environment to affect the
project are also discussed.
Project Cycles...
 During the exercise, the team should define, as clearly as
possible, the objectives and hierarchy of objectives.
 One technique for defining and analyzing the objectives is the
Logical Framework Approach or Goal-Oriented Project Planning
(GOPP).
 It allows definition of activities, or inputs, outputs and objectives
with corresponding verifiable indicators and assumptions to
attain the goals of the project.
 A plan of operation for a specified period is usually desirable to
form a basis for activities to be undertaken during the plan
period.
 Stage 8: Implementation
 This is the crucial stage of any project since the objective of the
earlier effort in the stages above was to have projects to be
undertaken.
Project Cycles...
 At this stage, activities of the project are actually carried out and
funds are disbursed to facilitate the activities.
 The management should ensure that the project is carried out
according to the design.
 However, depending on the physical and policy environment,
there may be need for flexibility in response to the reality on the
ground. Monitoring of progress and reporting, therefore, becomes
crucial implementation is a process of refinement or learning from
experience and actually be considered as a “mini cycle” within the
larger project cycle.
 The implementation period usually has three phases the
investment period, the development period, and full development.
This forms the life of the project. The investment period refers to
when the major project investments are undertaken and could
take one to three years, depending on the nature of the project.
Project Cycles...
 Project implementation is a phenomenon by which project
studies are translated into reality within their specified time
and budget.
 As much, the implementation phase is very crucial to the
success of the project.
 The success at this stage demonstrates the effectiveness of
the planning and execution capability of the project promoter.
 Project implementation involves a number of activities which
are interrelated.
 This stage could be divided into, among others, scheduling,
financing, negotiation and contracting, discussing,
constructor training, erection, installation and commissioning.
 If any one of these are not undertaken properly, the progress

of the implementation will be affected adversely.
Project Cycles...
 Project implementation phase covers the period starting from
the time decision is made to invest the project up to the start
of normal production.
 This phase involves heavy financial commitment.
 Moreover, it is understood that the burden of project
implementation depends on the size and complexity of the
project to be implemented.
 The development period occurs as the production peaks up
and continues until the project ends.
 Both financial and economic analyses of the project relate to
the time horizon
Project Cycles...
 Factors affecting Implementation
1. Technical factors;- know-how about technology
2. Economic and financial factors:- credit, subsidies, pricing
3. Commercial factors;-marketing of outputs, supply of inputs
4. Socio-cultural factors;-tradition, kinship, social structure
5. Political factors;-power structure, leadership patterns
6. Institutional, organizational and managerial factors:-
7. People‘s participation
8. Integration and coordination; both vertical and horizontal
Project Cycles...
Stage 9: Monitoring and Reviewing
 This should be an on-going activity during implementation.
Monitoring can be carried out by the beneficiaries, the managing
staff, supervisory staff and the project management staff. The
aim should be to ensure that the activities of the project are being
undertaken on schedule to facilitate implementation as specified
in the project design. Any constraints in operationalizing the
design can quickly be detected and corrective action taken.
 Are the right inputs being supplied/delivered at the right time?
 Are the planned inputs producing the planned outputs?
 Are the outputs leading to the achievement of the planned
objectives?
 Is the policy environment consistent with the design
assumptions?
 Are the project objectives still valid?
Project Cycles...
 Stage 10: Evaluation
 This stage involves a systematic review or examination of the
elements of success and failure in the project experience
during the project life to learn how better to plan for the future.
 This implies that evaluation is a continuous exercise during
the project life and is much related to project monitoring.
Monitoring provides the data on which the evaluation is
based.
 However, formalized evaluation is undertaken at specified
periods.
 There is usually a mid-term and a terminal evaluation.
 Evaluation can also be undertaken when the project is in
trouble as the first step in a re-planning effort. Careful
evaluation is also undertaken before any follow-up project.
Project Cycles...
 Evaluation can be done internally or by external reviewers.
 Some organizations have monitoring and evaluation units.
 Such a unit can provide project management with useful
information to ensure efficient implementation of projects,
especially if it operates independently and objectively,
because what the unit needs is to judge projects on the basis
of objectives, original project design and the reality on the
ground (the operating physical and policy environment).
 With no free hand, the feedback mechanism will be stifled
and information be “held-back” instead of being “fed-back”.
 The aim of evaluation is largely to determine the extent to
which the objectives are being realized.
Project Cycles...
 This phase regards evaluation of success or failure elements of a
project with relevance to the future usually takes place throughout
the project, but sometimes only at the end undertaken by sponsoring
company, agency, etc.
 Are or have objectives being/been met? If not, were the objectives
realistic?
 Was the technology proposed appropriate?
 Were the institutional, management arrangements suited to the
conditions?
 Were the financial aspects carefully worked out?
 Were the economic aspects carefully explored?
 Did management quickly respond to changes?
 Was its response carefully considered and appropriate?
 How could the project’s structure be changed to make it more
flexible?
Project Cycles...
 Key qualities of monitoring and evaluation mechanisms
 Timely - data is collected and fed back into the system in time for
adjustment to be made
 Accessible - the right mechanism is available for the right task
 Simple user-friendly, and thus readily adapted to the project ongoing
and systematic
 Data - produces a consistent flow of verifiable data
 Offer a variety of approaches - to meet the needs of different
projects and cultures; and
 Promote follow-up - results encourage their use in follow-up
activities.
 Evaluation measures and indicators are still the building blocks,
giving us the means of telling whether a desired state is being
achieved. One way of classifying these building blocks is in terms of
the aspects of evaluation relate to ‘dimensions’.
Project Cycles...
 Project planning should be seen as ongoing process, which
involves learning by reflecting and acting
 It is important to take time to stand back, think, rethink, learn
from others
Project Cycles...
Project planning is an ongoing process, which involves learning by
reflecting and acting
action
TIME
Participatory Monitoring and Evaluation
 Why should we do monitoring and Reviewing and evaluation?
 There are two main reasons for measuring our performance
 ACCOUNTABILITY we need to show those who give us resources
and those who benefit form our work that we are using the resources
wisely.
 LESSON LEARNING BY MEASURING, analyzing and reflecting on
our performance, we can learn lessons that will enable us to either
change our project plans or change our approach to other projects.
 Evaluation Criteria
 A major issue that affects any evaluation is the choice of criteria. The
Commission uses the following criteria:
 Relevance - the appropriateness of project objectives to the
problems that it was supposed to address, and to the physical and
policy environment within which it operated
 RELEVANCE does the project address needs?
 Project preparation and design – the logic and completeness of
the project planning process, and the internal logic and coherence of
the project design
 Efficiency - the cost, speed and management efficiency with
which inputs and activities were converted into results, and the
quality of the results achieved
 EFFICIENCY are we using the available resource wisely?
 Effectiveness - an assessment of the contribution made by
results to achievement of the project purpose, and how
assumptions have affected project achievements
 EFFECTIVENESS are the desired output being achieved?
 Impact - the effect of the project on its wider
environment, and its contribution to the wider sectoral
objectives summarized in the project’s Overall Objectives
 IMPACT has the wider goal been achieved? What changes have
occurred that help beneficiaries?
 Sustainability - the likelihood of a continuation in the
stream of benefits produced by the project, particularly
continuation of the project’s activities and achievement of
results, and with particular reference to development factors
of policy support, economic and financial factors, socio-
cultural aspects, gender, appropriateness of technology,
ecological aspects, and institutional capacity
 SUSTAINABILITY will the impact be for a large group for a long period of
time?
 Linkage to the Logframe
 The steps involved in an evaluation exercise closely follow
the hierarchical objective structure of the project design. By
following this systematic approach all aspects of the project’s
achievements are evaluated.
 “It is a process of collaborative problem-solving through the
generation and use of knowledge. It is a process that leads to
corrective action by involving all levels of stakeholders in shared
decision-making.”
 It is a collaborative process that involves stakeholders at different
levels working together to assess a project or policy, and take any
corrective measure required
 The stakeholder groups typically involved in participatory M and E
activity include: end users of a project, NGOs, private sector
businesses who get involved in the project and government staff
 Key Principles:
 Local people are active participants-not just sources of info
 Stakeholders evaluate, outsiders facilitate
 Focus on building stakeholder capacity for analysis and problem
solving
 Process builds commitment to implementing any recommended
corrective actions
Conventional M &E Participatory M &E
Who? External experts Stakeholders, including

communities and project staff;
outsiders:- facilitate
What? Predetermined indicators, to Indicators identified by

measure inputs and outputs stakeholders, to measure
process as well as outputs or
outcomes
How? Questionnaire surveys, by outside Simple, qualitative or

“neutral” evaluators, distanced quantitative methods, by
from project stakeholders themselves
Why? To make project and staff To empower stakeholders to

accountable to funding agency take corrective action
 Methods in Participatory Monitoring and Evaluation
1. Stakeholder workshops: - to bring together government
officials, project management, and other stakeholders
2. Participatory methods such as rural appraisal, SARAR (Self-
esteem, Associative strengths, Resourcefulness, Action
planning, Responsibility) and Beneficiary Assessment
 Participatory Rural appraisal:- visual methods often to analyze
“before and after” situations, through the use of community
mapping, problem ranking, wealth ranking, seasonal and daily
time charts, and other tools.
3. Self-assessment Methods:- interviewing, focus group
discussions
Monitoring and reviewing systems…
 Budgets
 Whether we are seeking donor funding or using found we
already have, it is important to writ3e a budge for the project.
A budget is necessary for transparent final management. The
donor needs to see a budget before approving the funds.
Likewise, the leadership or board committee of our
organization should see a budget before releasing found.
They can then hold us accountable for spending the money
in the way we say we will.
 This means that we must budget very carefully. If we do not
consider all the things we will need to spend money on, then
we will find we are unable to carry out some of the activities,
and the project may fail. If we budget too much for some
things, the donor may question it and be unwilling to fund the
project.
 A separate budget template should be completed for each output
 if the same activities are needed for more than one output, create a
separate table for those activities, noting all the relevant outputs in
the output box.
 If our project will last longer than one year, complete a separate
budget for each year. The activities may vary each year – refer to
the activity planning worksheet and activity schedule.
 Refer to the activity planning worksheet for a list o materials and
personnel required for each activity
 Remember to include contributions made by beneficiaries, such as
labor and time.
 Link the puts and activities to those in the log frame using reference
number
 Make sure the budget includes only the costs of activities we
specified in the proposal we should spend only what we say we will.
 Donors will require a completed project budget. This is a summary of
the detailed budget. Often donors will say what categories to include
in the project budget. The template below includes all of the
categories that are likely to need to be included.
 To fill in each row, go back to the detailed budget tables and compile
the information for example, look through all the budget tables for
transport costs, add up the costs and insert them into the relevant
row of the project budget. Remember vehicle depreciation, tax and
insurance in transport costs, as well as fuel and maintenance.
 Make sure large costs are noted separately. For example, as staff
costs tend to be expensive, list all the roles separately. Only budget
for the time staff members will actually spend working on the project.
For example, this might be only one quarter of their time. Ensure
that the cost of social security and pension contributions are
included where appropriate. Remember to include the staff costs of
those who will oversee the project, but will not necessarily have
been included in the detailed budget tables for each output.
 Managing currency fluctuation
 If we are seeking do nor funding form another country, the
budget should be prepared in a stable currency (e.g US
dollars $ pounds sterling £ or Euros €).
 Keep the project funds in a stable currency for as long as
possible. This will reduce the risk of the project funds
depreciating.
 At set intervals, such as each month or quarter, transfer the
amount of money needed for the coming month or quarter
into a local currency account.
 Look at the budget and use the activity schedule to show
exactly how much money is needed each time. The bank
may charge each time this transfer is done.
 Weigh up this cost against the risk of currency fluctuations.
Evaluation
 Evaluation can be defined as a periodic assessment of the
relevance, efficiency, effectiveness, impact, economic and
financial viability, and sustainability of a project in the context
of its stated objectives.
 The purpose of evaluation is to review the achievements of a
project against planned expectations, and to use experience
from the project to improve the design of future projects and
programs.
 Evaluation draws on routine reports produced during
implementation and may include additional investigations by
external monitors or by specially constituted missions.
 It is a periodic assessment of project (Mid-term and
 It assesses the relevance, efficiency, effectiveness, sustainability
of the project in relation to its objectives
 It focuses more on results-to-purpose and purpose-to-overall
objectives
Evaluation
Costs
 Actual input costs compared to plan. This is the basis of
variance analysis. Was there a budget revision? How did the
nature and timing of inputs compare with the plan? Did the
partner agency or other donors fulfill their planned contributions?
These data will have been monitored and reported in progress
reports. Such reports are a key source of data for evaluation.
Activities
 Actual schedule and completion compared with plan. Were
there delays or time savings? Which organization was
responsible for delays? What effect did deviations from plan
have on the project?
These data will have been monitored and reported in progress
reports.
Evaluation
 Results
 Indicators of how activities were transformed into results and
services. Many of these indicators will be process indicators that
report successful completion of a task – eg. Business Centre
established and equipped. Others will be quantified targets such as
number of managers trained in market analysis.
 A third level is concerned with the efficiency of project activities.
 Efficiency indicators compare actual inputs as a ratio of actual
 outputs: e.g. average cost of training per participant; number of
SMEs being advised per Business Adviser per month; percentage of
retrained public sector workers finding jobs in the private sector.
 Most of these data will be obtainable from project records and will
have been reported in progress reports.
 Calculation of these ratios will permit comparisons to be made over
the life of the project to see if performance has improved, and
comparison with other projects.
Evaluation
 Project Purpose
 Indicators of the achievement of sustainable benefits for the target
group.
 These effectiveness indicators show whether or not the project has
achieved its purpose and whether project services are sustainable –
ie. will they continue to be provided to the target group once external
assistance has been completed.
 If the project’s actual performance does not compare well with the
plan, the evaluator must investigate further.
 Is the poor performance due to problems arising from the initial
problem analysis, from the project design, or from implementation?
 Three of the sustainability factors are of special importance here.
 To what extent was the institutional and managerial capacity of the
project accurately assessed?
 To what extent was necessary policy support properly implemented?
 To what extent was the financial viability of the project adequately
appraised?
Evaluation
 Lastly, the evaluation should examine the standard and quality of
goods and services generated by the project, in the opinion of
final beneficiaries - eg. Have trainees gained new skills?
 Do their employers find those skills to be relevant and beneficial?
 Evaluation of effectiveness and sustainability will require the
evaluator to gather data from outside the project organization,
through meetings and visits to beneficiaries and other
organizations.
 Overall Objectives
 Contribution of the project to the wider sectoral objectives.
Because each individual project is just one element in a program
of activities, assessment of overall objectives may be best
undertaken as part of a thematic or sectoral evaluation - eg.
evaluation of a country program
Evaluation…
 The difference between monitoring, reviewing and
evaluation
 Many people think of monitoring, reviewing and evaluation as
the same thing, but they are different.
 The main differences are that they are carried out at different
stages of the project.
 MONITORING is done continuously to make sure the project
is on track, fro example, every month
 Reviewing is done occasionally to see whether each level of
objectives leads to the next one and whether nay changes
need to be made to the project plans, for example, every six
months.
 Evaluation is usually done at the end of the project to assess
its impact.
Implementation and evaluation…
Monitoring Reviewing Evaluation
When is it Continuously Occasionally Occasionally
done? Throughout life of a - in the middle or at the - at the end or beyond
project end of the project the phase or project
What is Efficiency Effectiveness, relevance Longer-term impact and
measured? - use of inputs actives, and immediate impact sustainability
outputs assumptions - achievement of -achievement of purpose
purpose and goal and unplanned
change
Who is Staff with in the Staff and people form People from outside the
involved? organization outside the organization organization
What sources of Internal documents Internal and external Internal and external
information are Eg: monthly or quarterly documents documents
used? reports work and travel Eg. Annual reports, Eg. Consultants reports.
logs, minutes of meetings consultants reports National statistics,
impact assessment
report
Who uses the Managers and project staff Mangers, staff donors, Managers, staff donors,
results? beneficiaries beneficiaries other
organisations
How are the To make minor changes Changes in policies Major changes in policy
results used? strategy and future strategy and future work
work
 Where possible, primary stakeholders should take part in
monitoring, reviewing and evaluation. This is to ensure that
they have strong ownership of the project so that benefits are
achieved and sustained.
 By using indicators to measure progress, we will know
whether or not we have achieved our objectives, however,
what they will not automatically tell us is why the objectives
have not been achieved. We will need to investigate this in
order to learn lessons and be fully accountable to those
funding and those benefiting form our work. Factors might be
internal or external. internal factors might include overlooking
risks, identifying the wrong needs or misidentifying
stakeholders. Community members are likely to be key in
identifying reasons why objectives have not been fulfilled.
Monitoring and reviewing systems
 Remember to include monitoring and reviewing in the activity
planning worksheet. Think about who will collect the evidence for
the indicators and who will analyze it, identify who will be
responsible for making decisions about changing the project
design as a result of lessons learned. Ensure that stakeholders
are involved in this process.
 If the information gathered during project identification and
research is not enough to give baseline data for the indictors that
have been identified, then a baseline survey should be carried
our before the project implantation starts. This means that there
will be data to compare progress against. For example, an
indicator is ‘attendance by girls at the primary school increased
by 50%’. For the baseline survey, the number of girls attending
the primary school should be counted. When progress is
monitored later on, the number of girls attending school can be
counted and then compared with the figures in the baseline
survey.
 Activity Schedule (Known as a Gantt Chart)
 The activity schedule enables us to consider when our activities will
happen and for how long. This will help us to think about when would be
appropriate to carry out the different activities. Timing will depend on
things such as:
 Seasonal weather patterns
 Availability of trainers
 Availability of materials.
 The activity schedule helps us to look at the sequencing of actives
because some activates will depend on to others being completed first
 Use the active schedule during the project to monitor progress. Ask
question like:
 Why are these actives not happening to schedule
 What will be the effect of this on other project activities
 How can we catch up
 The activity schedule should be viewed as a flexible document and can
be altered if new circumstances arise.
 To complete the summary reports
 Copy the summary and indicators from the log frame into the
first two columns
 Report against each indicator in the progress column. Add
any unplanned activities that have been carried out
underneath.
 Comment against each indicator and make recommendations
where appropriate. Note unexpected outcomes in the
comments and recommendations column and the extent to
which the assumptions are being met
 In the ratings column, place a number to show whether, at the
current time, the objective likely to be achieved or not.
Non-Numeric Project Selection Models
 a) Sacred Cow:
 In this model, a project is usually suggested by a senior and
powerful individual in an organization and the idea is passed
to the officers below.
 In many cases other offices are required to assist the boss to
achieve what he or she wants.
 Although such projects may not pass rigorous analysis, the
boss may persist until he is convinced that it can no longer
work.
 Many projects in the public sector of developing countries
have been initiated using the approach. Usually, the projects
are initiated by powerful politicians such as Ministers with the
aim of wanting to give their home areas the so-called
‘accelerated development’.
Non-Numeric Project Selection Models…
b) Operating necessity
 In this model, projects are initiated because they are required to
keep a system in operation. These are threatening situations
such as floods which will simply call for projects to be started
without much evaluation. Funding of projects initiated in this
manner is usually done without considering a lot of analysis that
goes with project preparation and identification.
c) Competitive necessity
 Projects are usually initiated and given a lot of support if they will
help an organization to maintain a competitive edge over other
organizations. Such projects are considered to be of survival
importance to an organization and may not necessarily be
required to go through careful numerical analysis. For example,
Kenya Breweries Ltd has developed products such as citizen
beer in order to maintain its competitive position over its rival,
Kuguru Ltd.
d. Product line extension
 This approach is used when a project is intended to develop
and distribute a new product or products.
 Usually such a project, if intended to fill a gap or to
strengthen a weak link or to take the organization to a new
direction, will be judged favorably without careful calculations
of the profitability of the project.
e. Comparative benefit model
 This model is used where a firm has several projects which
must be considered and some ranking given. In this model,
the projects are sorted out into three categories, good, fair
and poor.
 This is done according to some development list. Such a list
may contain some doctrines such as if project is labor
intensive, and then it must be given more priority.
 Admittedly some of these doctrines may not be very valid but
they normally provide guidance to those involved in the
process.
 The projects sorted out into the three categories are again
ranked within each category using a merit list.
 In this way an organization will come up with a priority order
of the available projects.
Stakeholder analysis
 Stakeholders: - are people affected by the impact of an activity &
people who can influence the impact of an activity
 Stakeholders are:
 individuals or groups with a direct, significant and specific
stake or interest in a given territory or set of natural resources
and, thus, in a proposed project.
 People affected by the impact of an activity
 People who can influence the impact of an activity
 Participation or stakeholder analysis seeks to identify the major
interest groups involved (all those affected by or involved) in the
project.
 The conditions and characteristics of local community groups and
organizations likely to be affected are identified and analyzed to
establish whose problems merit priority solution.
119
 It is a four-step process
1. Identify key stakeholders
2. Assess stakeholder interests and the potential
impact of the project on these interests
(expectations, benefits, willingness to mobilize
resources, interests)
3. Assess the stakeholder influence and importance
(power, control of strategic resources)
4. Outline stakeholder participation strategy
 Within a group, men and women can have different problems.
 Moreover, several groups with conflicting interests may exist
within a community and in extreme cases; some groups may
even be anti-development.
 Therefore, it is desirable from the outset to identify and clarify
different social, political, economic, cultural and religious
background of potential target group members.
 Group categorization and detailed group analysis
 The following is an example of how the stakeholders can be
categorized into groups before subjecting them into a
detailed analysis.
 Group Categorization
 Group categorization can be done in many ways but the following is the
generally accepted one:
 Beneficiaries: Groups likely to benefit from the expected project;
 Negatively affected groups/Marginalized stakeholders: Groups likely to
be adversely affected by the expected project. It could be women, indigenous
peoples, and other impoverished or disenfranchised groups. They may be
primary, secondary or opposition stakeholders, but they lack the recognition
or capacity to participate in collaboration efforts on an equal basis.
 Decision makers: Groups with decision-making authority
 Funding agencies: Groups which can bear expenses.
 Implementing agencies: Groups which can implement the expected project.
 Community leaders: Groups representing the community
 Potential opponents: Groups which may oppose or obstruct a project.
Those who have the capacity to affect outcomes adversely through the
resources and influence they command. It is crucial to engage them in open
dialogue.
 Supporting groups: Groups likely to co-operate with the expected project
 Target Group/beneficiary Identification
 A target group is the main group for which positive change is
desired and intended by implementing the project.
 Usually, it is selected from among the groups identified in the
group categorization stage of participation analysis. Selection is
through a process of considering which groups’ interests should
be given the highest priority or which group is the most
deserving.
 Once a target group is identified, their unique or core problems,
the causes of the core problem and impact of the core problem
can be identified and easily analyzed.
 In cases where a consensus is hard to reach out on the
deserving target group, a tentative group can be selected for the
purpose of initial analysis, to be changed later if an alternative
group is found to deserve a higher priority.
 Detailed Group Analysis
 Detailed group analysis is done using several factors.
 Characterize the community members to be affected by the
project by considering the following major issues:
 Interests;
 Potential or actual conflicts
 Inter-dependencies
 Social relationships (social capital).
 Structure, organization, size, and leadership are important

aspects in a group. Social, religious and cultural backgrounds
and gender issues as well as economic, political, and institutional
aspects should be given consideration.
 Problems, needs and demands of the group should be identified
and be related to the group. Also to be identified are: potentials,
strengths, weaknesses, constraints and opportunities (SWOT)
 Strengths of the group, and abilities and potentials that can
be developed;
 Constraints and weaknesses of the group that may hinder
development of such potential.
 Implications for project planning should also be established.
 Roles and positions of groups within the expected project
should be carefully examined;
 Benefits and adverse effects of the expected project should
be spelt out; and
 Factors that could possibly impede implementation of the
expected project, hidden opportunities should be anticipated.
Stakeholder Analysis
 Why stakeholder analysis?
 To identify stakeholders’ interests in, importance to, and
influence over the operation
 To identify local institutions and processes upon which to
build
 To provide a foundation and strategy for participation
 To develop a strategic view of the human and institutional
situation, and the relationship between the different
stakeholders and the objectives identified.
 Because it provides a useful starting point for problem
analysis.
 To identify all stakeholder groups likely to be affected
(either positively or negatively) by the proposed
intervention.
Stakeholder Analysis…
 Stakeholders analysis also helps to:
 Improve the project’s understanding of the needs of those affected
by a problem
 Reveal how little we know as outsiders, which encourages those
who do no know to participate
 Identify potential winners and losers as a result of the project
 Reduce, or hopefully remove, potential negative project impacts
 Identify those who have the rights, interests, resources, skills and
abilities to take part in, or influence the course of, the project
 Identify who should be encouraged to take part in the project
planning and implementation
 Identify useful alliances which can be built upon
 Identify and reduce risks which might involve identifying possible
conflicts of interest and expectation among stakeholders so that
conflict is avoided
 Stakeholder analysis is a continuous process that should engage
different groups, as issues, activities, and agendas evolve.
 Using the information gained by stakeholder analysis, project
planners are better able to organize the preparation process,
and in particular to plan the necessary research required prior to
the conduct of a participatory planning workshop.
 Stakeholder groups are made up of people who share a common
interest, such as an NGO, church leaders and the community.
 Seeing the community as one stakeholder group could be
meaningless because some people may have very different
interests from others in the same community
 Different stakeholders and sub-groups in each stakeholder
category may be affected by the project differently
 Stakeholders could belong to one or more of these groups.
 For example, someone might be a user of a hand pump (user
group), and also involved in the water user association that
manages it (interest group, decision-maker)
 Stakeholders are not only those who shout the loudest.
 Those who are often excluded from the decision-making
process due to age, gender or ethnicity are those who are
most likely to lose out if they are not included in the project
planning
 A stakeholder analysis identifies all primary and secondary
stakeholders who have a vested interest in the problems with
which the project is concerned.
 Primary stakeholders;- who benefit from, or are adversely
affected by, an activity.
 This describes people whose well-being may be dependent on a
resource or service or area (e.g a forest) that the project addresses.
Usually they live in the area or very near the resources in question.
 They often have few options when faced with change, so they have
difficulty adapting. Primary stakeholders are usually vulnerable. They
are the reason why a project is carried out –the end users those
who, because of power, authority, responsibilities or claims over
resources, are central to the conservation initiative.
 As the outcome of any action will affect them directly, their
participation is critical. Primary stakeholders can include local
community-level groups, private sector interests, and local and
national government agencies.
 This category also includes powerful individuals or groups who
control policies, laws or funding resources, and who have the
capacity to influence outcomes. Failure to involve primary
stakeholders at the start can lead to subsequent difficulties in
achieving conservation outcomes.
 Secondary stakeholders:- include all other people and institutions
with an interest in the resources or area being considered.
 Secondary or indirect stakeholders are those with an indirect
interest in the outcome. They may be consumers, donors, national
government officials and private enterprises. Secondary
stakeholders may need to be periodically involved, but need not be
involved in all aspects of the initiative.
 They are the means by which project objectives can be met, rather
than an end in themselves
 Particular effort must always be made to ensure their
participation.
 The full participation of stakeholders in both the design and
implementation of projects is a key (but not a guarantee) to their
success.
 Stakeholder participation: gives local people control over how
project activities affect their lives. It is essential for sustainability
generates a sense of ownership (if initiated early in the design
process)
 The nature and limits of each stakeholder’s stake in the project –
e.g., livelihoods, profit, life styles, cultural values, spiritual values.
 The basis of the stake– e.g., customary rights, ownership,
administrative or legal responsibilities, intellectual rights, social
obligations.
 Resources that each stakeholder has at her/his disposal and
could bring to the project.
 The potential role(s) in the project, if any, of each stakeholder.
 Any capacity gaps that may need to be filled so that the
stakeholder can fulfill her/his role.
 This will form the basis of the project’s capacity-building
strategy.
 Gender Considerations
 It is vital that sufficient information collection and analysis is
undertaken prior to the conduct of a planning workshop. Information
about existing problems comes from a variety of sources including
interviews, surveys, reports and statistics.
 In fact, discrimination by gender is likely to diminish the efficiency
and impact of projects.
 It is essential therefore to analyze the potential impact of an
intervention on men, women and other groups (eg. children, ethnic
minorities, social groups) before important decisions are made on
the intervention, its objectives, strategies and resource allocation.
 Risks in stakeholder analysis
 The analysis is only as good as the information used.
Sometimes it is difficult to get the necessary information,
and many assumptions will have to be made
 Tables can oversimplify complex situations
 Ways of stakeholder analysis
 There are a number of ways of doing stakeholder analysis.
 The approach taken vary depending on the type of a project
being proposed. For example, for an advocacy project, we
would need to consider different aspects of stakeholders than
we would for a development project
 Ideally, stakeholder analysis should be carried out with
representatives of as many stakeholder groups as possible.
 The Planning Workshop
 Once sufficient information collection has been undertaken, a
participatory planning workshop can be held.
 On the basis of the available information, stakeholders will identify
through such techniques as ‘brainstorming’ the key problems that
exist in a given situation. The main technique used at this stage is
the drawing up of a problem tree. A problem tree is simply the
problems set out in a hierarchical order.
 The likely relevance, feasibility and sustainability of an intervention
are likely to be much greater if important stakeholders are consulted
during situation analysis, and invited to participate in the planning
workshop.
 Certain project objectives are impossible to achieve if both women
and men have not been consulted, and have not discussed their
respective roles in relation to project activities.
 In almost all societies, men and women differ in their daily tasks, in
access and control over resources, and in participation in decision-
making.
 Planning workshop provides opportunities for learning for
both the project team and for the stakeholders themselves
 builds capacity and leads to responsibility.
 It is important that stakeholder participation not be exclusive,
or controlled by any one group.
 Once the project has found common ground, and has
negotiated its goal with partners including local stakeholders,
the stakeholder agreement should be recorded in writing.
 This may seem overly formal, but it has been shown time and
again to provide clarity, and to help avoid (or resolve) conflict
in the future.
Method of Carrying out a Stakeholder analysis…
Step 1: Stakeholder Table…
 List all the possible stakeholders in the project. Divide these into
primary and secondary stakeholders
 In the second column, write down the interests of each
stakeholder in relation to the project and its objectives
 In the third column, write down the likely impact of the project
on each stakeholder’s interests. This enables you to know how
to approach the different stakeholders throughout the course of
the project. Use symbols as follows:
+ potential positive impact on interest,
- Potential negative impact on interest
+/- possible positive and negative impact on interest

? Uncertain
 In the fourth column, indicate the priority that the project should
give to each stakeholder in meeting their interests. Use the scale
1 to 5 , where 1 is the highest priority
 Example: A community identified their priority need as improved
access to safe water and produced the following table
Stakeholders Interests Likely impact Priority
Primary
Local community Better health + 1
Women Better health, Walk less far to + 1

collect water, Opportunity to
socialize, Safety while collecting
water
Children Better health, walk less far to + 1

collect water, time to play
Water sellers income - 1
Secondary
Community health Reduced workload, income + 2
workers
Local church Involvement in the project + 3
Health NGOs Better health + 3
MoH Achievement of targets + 4

Donors Effective spending of funds, + 4
achievement of objectives
Step 2: Table showing influence and importance of stakeholders
 Influence:- is the power that stakeholders have over the project
 Importance:- is the priority given by the project to satisfy the needs
and interests of each stakeholder
 Some stakeholders will have more influence on the project than
others
 While some are in a position to influence the project so that it is
successful, there might be others who feel threatened by it
A B
High
Importance
D C
Low
Low Influence High

A B
High
Power
D C
Low
Low Interest High

 Answers to the exercise
Boxes A, B and C are the key stakeholders of the project. They can
significantly influence the project or are most important if project
objectives are to be met
Box A:- Stakeholders of high importance to the project, but with low
influence. They need special initiatives to ensure their interests are
protected
Box B:- Stakeholders of high importance to the project, who can also
influence its success . It is important to develop good working
relationships with these stakeholders to ensure adequate support for
the project
Box C:- Stakeholders with high influence who can affect the project
impact, but whose interests are not the target of the project. These
stakeholders may be the source of risk. Relationships with these
stakeholders are important
Box D:- Stakeholders of low priority but who may need limited
monitoring and evaluation to check that they have not become high
priority
 Exercise 1:
 Go through the list of stakeholders on the stakeholder table
completed in Step 1.
 Think about the amount of influence they have and the extent
to which the project is important to them
 Give each stakeholder a number and put the number in the
place on the table above where the stakeholder falls
 If they have high influence, place them towards the right of
the table
 If the project is of high importance to the them, move the
number upwards towards the top of the table
A B
High
Primary Stakeholders
3
2 7 1. Local community
1 2. Women
9 6
Importance
3. Children
D C
4. Water sellers
5 Secondary Stakeholders
8 5. Community health workers
Low
4
6. Local Church
Low Influence High 7. Health NGOs
8. Ministry of Health
9. Donors
Step 3: Identify appropriate stakeholder participation
Participation is essential in development work, but in practice it is a
concept that has been misused
Participation means different things to different people in different
situations
In its widest sense, participation is the involvement of people in
development projects
For example, someone can be said to participate by:
 Attending a meeting, even though they do not say anything
 Taking part in the decision-making process
 Contributing materials, money or labor
 Providing information
 Answering questions for a survey
Often, so-called participatory projects do not actively involve

stakeholders (especially primary stakeholders) in decision-making
and development projects
 Stakeholder participation in decision-making throughout the whole
project cycle is likely to result in:
 Improved Effectiveness-increased sense of ownership
 Enhanced Responsiveness- project targets effort and inputs at
perceived needs
 Improved Efficiency- the project is likely to be good quality, stay
within budget and finish on time
 Improved Sustainability and Sustainable Impact-more people are
committed to carrying on the activity after outside support has
stopped
 Empowerment and Increased Self-reliance –skills and confidence
 Improved Transparency and Accountability-because stakeholders
are given information and decision-making power
 Improved Equity-if the needs, interests and abilities of all
stakeholders are taken into consideration
 Active participation is likely to have many benefits, although it is not
a guarantee of project success
 Achieving full participation is not easy. It can also take a lot of time,
and conflicting interests are likely to come to the surface
Little input
by others
Being consulted, Work with
Others analyze and others
Decide course action
Control,
Being informed, Co-operation/
others set the agenda
collective action or
Partnership Co-learning
Consultation
Being manipulated; Informing

No real power
Coercion
Decided by others Decided by ourselves
Levels of participation
 Partnership is the type of participation in which two or more
stakeholders share in decision-making and the management of the
activity
 Ideally, this is partnership between project staff and the
beneficiaries.
 However, achieving partnership with primary stakeholders can be
challenging
 A number of problems can arise:
 Partnership may be seen by primary stakeholders as too costly in time
and money when compared with the benefit expected
 Primary stakeholders may lack appropriate information for effective
decision-making
 Some primary stakeholder groups may challenge the right of other
groups to participate. E.g., women may be excluded from participating in
a village water committee
 Organizations may have a management structure that does not
encourage primary stakeholder participation
 Exercise 2:
 Is partnership easy?
 How might the challenges of partnership be overcome?
 To identify the level of participation, which is appropriate for
different stakeholders, draw a summary participation matrix
similar to the one below
 The columns represent the levels of participation and the
rows stand for the stages of the project cycle
 Work through the list of stakeholders in the stakeholder
matrix
 Think about the extent to which thy should participate for
each stage of the project cycle
 Consider the amount of interest or influence they have
 Ensure that primary stakeholders participate as fully as
possible to encourage ownership of the project
Type of Participation
Stage in Project
inform consult partnership control

Identification
Design
Implementation
and Monitoring
Reviewing
Evaluation
During the project cycle we might find that stakeholders, who we

thought should participate to a great extent, are actually not interested
in participating. Or we might find that to be responsive to how the
project is going, we want to encourage some stakeholders to
participate more
 Example: The rural community identified their priority need as improved
access to safe water, and filled in a matrix table with the following information
Type of Participation
inform consult partnership control
Identification Health NGOs Cross section of

Donor community
Design Donor Community Health NGOs Project Staff
Stage in Project
Women MoH
Children Local Church
Water Sellers
Health Workers
Implementation Donor Women, Project Staff
and Monitoring Children
Water sellers
Local church
Health workers
Reviewing Donor Women,

Children
Water sellers
Local church
Health workers
Evaluation Donor MoH
Health NGOs
Community
 Dam Project
 Villagers are concerned about a new dam which has been
proposed in their valley.
 The dam will help provide drinking water for the city.
 It is decided that the project should focus on ensuring the
views of villagers are listened to so that their livelihoods are
not adversely affected.
villages
Commercial farms
Bank Flooded area

Municipality
Proposed dam
City
Proposed pumping station

Exercise 3
 Complete a summary participation matrix for the dam project
 When the table is completed, think about how participation of
stakeholders might actually happen
 For example, if we think a women’s group should be consulted at the
planning stage, consider how this might be carried out
 We might decide to hold a special meeting
 It is important to consider our options so that we can ensure those
who we think should participate in the project respond to our
invitation
 The community should select representative members
 Encourage them to ensure a good gender balance
 These members might then require training and discussion of their
expected roles and responsibilities in the project
 Identify the different stakeholders of the proposed dam by
identifying primary and secondary stakeholders
Research
 All development work should be based on accurate, reliable and
sufficient information. Good information is important in order to:
 Understand the context in which the project is taking place.
 Understand the causes and effects of the issue that is being
addressed
 Understand what others are doing in order to avoid duplication
and to work together if appropriate.
 Ensure that the response takes into account all factors and is the
most appropriate and effective for the situation.
 Understand how the context is changing so the response
addresses potential future needs or prevent problems form
arising.
 Justify the course of action to our organization, beneficiaries,
donors and others we are working with
 Learn from past successes and mistakes
 Provide good evidence for the response
Research
 Research enables us to find out the facts about the need. This will
help us know how best to address it. Research involves talking to
people or accessing written information.
 Thorough research should look at social, technical, economic,
environmental and political factors. This might help to identify new
stakeholders and risks to the project. Consider:
 The area’s history
 Geography, climate, environment, e.g. main features, map,
communication, area seasonal problems.
 Population – numbers, age and sex profile
 Social systems and structures, divisions, status of women, social
institutions.
 Politics – local political hierarchies; effects of central government,
eg: stability, policies of food prices.
 Religion and world view – religious beliefs, groups and churches
Research
 Culture – norms and practices, other cultural groups in the area,
languages
 Living conditions types of housing, water and sanitation
 Economics- sources of income, croups, landholding, average
daily wage
 Education -schools, literacy rates
 Health- mortality rates, causes of death and illness, local health
services
 Services and development programs – government or NGO,
community’s previous experience.
 What is the situation now? For example, if the community has
identified water as their priority need we might want to ask them
questions like “how many people live in the area? How much water
does each person have now? Where does the water come from?
‘How is the water collected now? Who collects the water now? How
long does it take to collect the water? How clean is the water now?
Research
 How will the need grow? What are the future implications if the
need is not met? For example. How many people will be in the
area in five years time?
 How should things be? Government departments or books can
provide some information. For example. How much water does
each person need for a healthy life?
 What possible improvements could be made? This might
involve approaching government departments and technical
experts. The community should also be given an opportunity to
put forward options. For example, ‘What other sources of clean
water are available in the area? Who owns or controls the other
sources? What technical options are there?
 What other local organizations are working on the issue?
Who are they? Can we work together?
Research
 The information collected can be used as a baseline against
which progress during the course of the project can be
compared.
 Use a mixture of secondary and primary information to ensure
that what we are told is valid. For example, if community
members say that their children do not attend school because
they cannot afford school uniforms, it might be a good idea to
check with the local authorities that children actually need to
wear uniforms.
 There are many different ways of collecting information. Some
possibilities are listed below. It is tempting to spend a lot of time
colleting information and then not have time to take action. It is
important to get a balance between having enough information to
enable us to act upon it and gathering too much so that we will
never act!
Research
 Review Secondary Info: This includes books, academic research
papers, government publications, internet and media. Some
information can be misleading.
 Are the facts accurate? Are they supported by evidence? Is the
information up-to-date?
 Why is the organization providing the information? Can the source
be trusted?
 Collect Primary Information
 This might involve
 INTERVIEWS: - helps to gain greater understanding of the issues. It
involves talking to key people in the community in order to discuss
their knowledge, experience and understanding of the issues
 There could be key people including health workers, traders,
religious leaders, village chiefs, teachers and the like
 When choosing people, make sure their views are likely to
represent those of others in the community
Research
 Focus Groups: - is used with a group of 10-20 people. It helps
them to understand and voice some of the problems they face
and the needs they have
 It enables people with different views to discuss their differences,
challenge assumptions and come to a collective understanding
of the needs of the community
 By exploring the issues together from the outset, communities
start to own the development intervention
 Questions to stimulate discussion could include the following:
 What are the main pressures that people in the community are
facing?
 What simple things could be done to improve the situation?
 If you could change one thing in this community, what would it
be? Why?
Research
 COMMUNITY MAPPING
 Once the map has been drawn, encourage discussion by asking

questions such as:
 What are the most important parts?
 To gain greater understanding, the groups should work differently
 What are the areas of disagreement?
Research
 TRANSECT WALKS: Instead of being shown the ‘best
farms’ and the ‘best clinics’, plan a transect walk to provide a
good picture of the area.
 Walk though the community with key informants, observing,
listening and asking. The questions could be open-ended.
 It is important to have a clear idea about what we are looking
for so we can make sense of the answers
 Try walking in a fairly straight line through the area, making a
careful note of whatever is relevant, e.g: the soils, agriculture,
water sources and activities.
 Draw the findings on to a diagram like the one below.
Research
Lower slope Middle slope Mountain

Crops  Sorghum  Sorghum
 Trees
 Maize  Maize
 Pigeon peas
 Grazing
 Farming  Farming
Land use
 Grazing  Cutting trees
 Grazing
Problems  Land shortage  Erosion

 Deforestation
 Low soil fertility
 No nearby water
Opportunities  Paid labor on estates  Erosion control

 Tree nursery  Use of manure
 Tree planting
Research…
 SEASONAL CALENDARS: are used to show month by month changes of
subjects like rainfall, labor, diet, sickness and prices, ask community
members when their year starts, the names of the months and seasons and
choose which to use. Mark the units on the ground or on paper. Using stones
or beans, ask them to indicate the amount of whatever subject is being
discussed. For example, allow them to place up to ten beans for each subject
for each month. Encourage people to discuss until they are in agreement.
Ask questions about why the numbers vary.
 The example shows that income is very low between February and April. By
asking questions, such as ‘Why do incomes increase in May? We can find
out lot f useful information.
 TIMELINE: A timeline is used to show major local events, ecological change,
disease and population trends. Agree how many years to timeline should
cover. Draw a horizontal line on a large piece of paper and write the year
along it. Ask community member to discuss key events and to write them in.
The example below is a timeline of well-being, which is used to reflect on the
well-being of the community in recent years. Events that influenced well-
being are included.
Research…
GGood Good Harvest Good harvests Built animal crush, Moderate rains
Built food stores classrooms and teachers houses shallow well dug
Moderate rains
Rehabilitated 2 classrooms
Ok
1995 1996 1997 1998 1999 2000 2001 2002
Rains spoilt crops
Built pit latrines and
Bad tanks No rains walked
Drought starvation 5km to collect water
Stealing of cattle migration from lake
Research…
 VENN DIAGRAMS: these use circles to represent people, groups
and institutions. The larger the circle, the more important they are.
 They way the circles overlap shows the relationships between them
Local
church
Business
Our organization
Beneficiaries
Government
Other partners Agencies
Research…
 MATRIX SCORING: Draw a matrix and use seeds or stones to
confirm the values, categories, choices and priorities of local people;
for example, trees, soil conservation methods, varieties of crop or
animal. In this example people are comparing the work they can do in
the market.
Research…
Mending Making leaf Selling Brick Selling
shoes plates apples makin firewood
g
Time taken
Profit
Labor needed
Loan needed
Hard work
Best
worst
Research…
 Participatory Rural Appraisal
 In a developing world context at the village level, Participatory
Rural Appraisal (PRA) has proven to be an extremely effective
method for promoting local participation in conservation projects,
and for facilitating local ownership.
 PRA is a set of techniques for gathering community-based socio-
economic information.
 The process involves semi-structured activities that are highly
participatory, drawing on the knowledge and skills of local
communities, and helping them to assess their environment and
resources, their use of resources, their needs and problems, and
ideas for addressing those problems.
 The techniques in the PRA toolkit include, among others,
unstructured or semi-structured group contact sessions,
resource mapping, seasonal activity, resource use matrices, and
resource inventory analysis.
Problem Analysis
 Before we can start to design the project, we need to analyze the
problem identified during project identification.
 Problem analysis identifies the negative aspects of an existing
situation and establishes the ‘cause and effect’ relationships
between the problems that exist. It involves three steps:
1. Identification of the stakeholders affected by the proposed project
2. Identification of the major problems faced by beneficiaries
3. Development of a problem tree to establish causes and effects
Why do we lose?
Why?
Poor defence
Why?
Poor tactics poor skills

Problem Analysis
 Planners use a problem tree analysis technique to identify all the
problems surrounding a given problem condition and displaying this
information as a series of cause and effect relationship.
 A problem tree approach can also be used for a general diagnosis
of a problem in some situation or organization. In this case no
specific problem needs to be taken as the starting point.
 Instead, all existing problems are identified and then interrelated in
the cause and effect linkages for the situation as a whole.
 The problem analysis begins with identifying a core problem (the
trunk).
 The tree is then expanded upwards and downwards as the causes
and effects of the problem are identified.
 From these, a starter problem is selected, and a second problem
related to it, then:
 if the problem is a cause it goes on the level below
 if it is an effect it goes above
 if it is neither a cause nor an effect it goes on the same level
Problem Analysis
 For example, if the focal problem is “poor nutritional status of babies
and infants”, a cause might be “poor availability of high protein
foods”, while an effect might be “high rates of infection among
babies and infants”.
 As the tree develops, the remaining problems are attached to it in
the same way. Once the problem tree is complete, a focal problem is
selected. The focal problem should be agreed on by the different
interest groups as being the central problem to be addressed by the
project or intervention.
High rates of infection
Poor nutritional status
Poor availability of high protein foods
Once complete, the problem tree represents a comprehensive picture of

the existing negative situation
Problem Analysis…
 Once problems and issues have been identified, cause-effect
relationships are established between these issues to form a
“problem tree” diagram for the project situation.
 Taking the raw information generated from the stakeholder-driven
problem identification, the problems are ordered in an organized,
hierarchical fashion flowing from causes (bottom) to effects (top).
 Problem analysis helps primary stake-holders to identify the causes
and effects of the problems they face. It involves drawing a problem
tree, from which project objectives can be identified.
 Use the stakeholder analysis to identify those who should help to
construct the problem tree, making source there is a mix of people
from the community with local knowledge, technical knowledge and
so on.
 Problem analysis can be carried out with different stakeholder groups
in order to see how their perspectives vary.
 To help stakeholders think through all the causes and effects, check
that they have considered social, environmental, political, economic
and technical factors. The problem tree should help raise new issues
that we had not previously considered.
Problem Analysis…
 A problem analysis identifies all problems related to the main
issue and ranks them hierarchically.
 The analysis, usually a “brainstorm” exercise, identifies
issues and problems that are of priority to the parties
involved.
 As such, representatives of all local communities, formal and
informal groups, concerned organizations, government, and
the private sector should contribute to this analysis.
 Problem analysis, objectives analysis, and the subsequent
steps in project design are best carried out through
participatory workshops with an experienced planner and
facilitator.
Problem Analysis…
 By designing a project based on real, existing problems of
the parties involved, the project designers can avoid
imposing their pre-conceptions about the desirable objectives
of the project.
 The two most common difficulties that arise during the
problem analysis are inadequate problem specification, and
the statement of “absent solutions”. Inadequate problem
specification occurs when the detail of the formulation is
insufficient, so that it does not communicate the true nature of
the problem.
 Overly general statements will need to be broken down.
Obviously, getting the level of detail right is a matter of
judgment on the part of the facilitator and the participants.
Problem Analysis…
 Absent solutions are problem statements that describe the
absence of a desired situation (for example “Not enough park
vehicles”), rather than accurately describing the actual
problem (e.g., “Inadequate anti-poaching patrols”).
 The danger with absent solutions is that they risk biasing the
intervention towards that solution. For each absent solution,
the facilitator asks: “If this solution were delivered, what
problem would be solved?”
 Absent solutions may not be an issue at the very bottom of
the problem tree, as they identify what means are needed to
address the problem above.
Problem Analysis…
 Problem trees
 Problem trees problem trees enable stakeholders to get to the
root of their priority need and to investigate the effects of the
problem.
 METHOD OF CONSTRUCTING A PROBLEM TREE
 STEP 1: Agree on the main problem, usually the one identified
during project identification. Write it on a post-it note of piece of
card and place it in the middle of the wall or floor. There might be
other problems identified by the community that could be
expired. Draw separate problem trees for these and compare
them later when starting to think about exactly what the project
will address.
 Begin with the specific problem or need to be solved. List all
other interdependent conditions and problems. Brain storming or
other group’s idea generating techniques can be used, or simply
ask the following questions for each problem as it is identified:
Problem Analysis…
 What is this problem caused by?
 What does this problem cause?
 To ensure a more complete diagnosis, include as many

relevant perspectives as possible as discussed in the
participation analysis earlier.
STEP 2: Identify the causes of the main problem by asking
‘But why?’ until we can go no further. Write each cause on a
separate post-it note or piece of card. Some problems might
have more than one cause. For example.
Problem Analysis…
e LACK OF
INCOME
tre
b lem
ro
ap
se ping
But why? But why?

s)
(C velo
Nothing to sell
au
De
Few jobs
But why? But why? But why?
Poor yields Local factory immigration

closed
Problem Analysis…
 The clientele – those affected by the problem
 Top decision-makers
 Ordinary people within the organization or setting
 Appropriate experts
 National or regional planning organization
 The view of unbiased outsiders
 Others involved.
 Using separate sheets of paper for each, arrange identified
problems and interdependent conditions in their logical, cause
and effect relationship, in the form of a “tree”. Make sure all
elements are correctly connected by arrows indicating the
directions of causal linkage. The resulting diagram represents a
rough but effective causal “model” of the complete problem
environment from the root cause of the problem to the impact of
the problem. For easy reference, the main procedural elements
are stated below as a sequence of analytical steps.
Problem Analysis…
 Step 3: Identify the effects of the main problem by asking ‘so
what?’ Write each effect on a separate post it note or piece of card.
Some problems might have more than one effect. For example:
hool
sc
miss Crop yields decrease
ldr en
i
Ch
So what?
hat?
w y
So pa No money to buy
y to
e s new seeds
on fee
m ol
o
N ho at?
Sc wh So what?
So
Lack of
Developing a problem tree income
(Effects)
Problem Analysis…
 Encourage discussion and ensure that participants feel able
to move the post-it notes r cards around.
 Check through the problem tree to make sure that each
problem logically leads to the next.
 Step 4: Copy the problem tree on to a sheet of paper.
Draw in vertical links to show the relationship between the
causes or effects. Draw horizontal lines to show where there
re joint causes and combined effects.
Problem Analysis…
 Problem Tree steps
 Identify major interest groups involved (all those affected by
or involved in the project)
 Involve a representative of each, if at all possible, in your
analysis of problems.
 If not possible, try to perceive from each of their perspectives
as described in the participation analysis section.
 List as many problems as possible from each of the above
perspectives, remembering that a problem is not the absence
of a solution but the difference between what is desired and
what the current state of affairs is;
 For each of the problems you have listed above ask
yourselves what are (could be) the major causes.
Problem Analysis…
 Add any new problems that you have discovered to the list;
 For each of the problems on the list ask: what are the most
important problems to your list;
 Structure the above problems in cause-effect relationships,
checking to see that you have not overlooked linkages or
other important causes or effects.
 Review your logic to see if your cause-effect relationships are
correct and to see if you have omitted any linkages or major
causes or effects.
 It may help to show it to someone who has not been involved
in its development for an objective critique; and Change as
needed.
Children stop
Reduced Poorer going to school Increased
incomes nutrition mortality
Less money for
Less time for school fees
farm work Increas
ed
Buy water
disease
Increased Use
Cost of water “dirty”
Effects collection sources
Lack of income
Causes
Hand
Increased dd Not enough Open wells pumps
for farm use Increased dd wells Dried up broken
for hh use
Water-
intensive
Population
Farming
pressure
methods
Example of a simple problem tree
Effects Problem Analysis…
Extinction of some Loss of tradition and

communities of sea turtles cultural values
Observations
Declining sea turtle populations
Destruction of turtle Increasing consumption

nesting habitat of turtles and eggs
causes
Conversion Inadequate
of beaches coastal zone Low conservation Irregular law
management awareness in enforcement
communities
Problem Analysis…
 To begin the problem analysis, the group checks the validity of
the formulation of each problem, asking:
 Are the problems precisely worded, and their meaning
understood by everyone in the group?
 Are they real?
 Only one problem per card?

 No hidden or absent solutions?
 Are any information gaps marked?
 To begin building the problem tree, the group selects one

problem from the board that appears to have a number of
causes and effects, and is close to the main conservation
issue identified in the situation analysis.
 This becomes the starter problem around which the problem
tree is built.
Problem Analysis…
 Then the tree is constructed by taking each problem one by
one, and asking “Is this a cause or an effect of a problem on
board?”
 The card for this problem is then pinned on the board below
or above the problem it is related to, depending on whether it
is a cause of that problem or an effect.
 As more and more problems are added to the tree, different
hierarchies of causes and effects begin to emerge.
 Some of the problems will be lower order causes, and some
will be higher order effects.
 As the tree is built, the group keeps asking questions about
the logical, cause / effect relationships between different
problems in the tree. When all of the problems have been
added to the problem tree, the group checks the validity of
the hierarchy, by asking:
Problem Analysis…
 Are the cause-effect relationships logical and complete?
 Have any intermediate steps been left out?
 Then any necessary changes to the tree are made. When the
group is satisfied with the relationships, the lines tracing
these relationships are drawn.
 This completes the problem analysis
 Note that problems identified should be continuously
monitored during project implementation.
Exercise 4
 Develop a problem tree for the following:
Core problem/trunk: poor yields

Low income
Low
consumption
Poor yields
Poor soil No HYV seeds

fertility
No Poor
extension market
Bad practice Low input access
use
Objectives Tree
 An objective tree is similar to a problem tree, except that it
looks at objectives rather than problems.
 An objective tree is a technique for identifying the objectives
that will be achieved as a result of solving the problems cited
in the problem tree. The objectives are also displayed as a
series of cause and effect relationships.
 An objective tree can be developed without first identifying
problems but the easiest way to develop an objectives tree is
to convert a problem tree into objectives tree
 To do this, turn each of the causes in the problem tree in
to positive statements. For example. Poor yields would
become ‘yields increased’. This will result in an objectives
tree. Check the logic. Will one layer of objectives achieve the
next? Add, delete or change objectives if necessary
Objectives Tree…
 Their might be some causes near the bottom of the tree that
are very general.
 They cannot be turned in to objectives that could easily be
addressed in a project. Instead they act as constraints on the
project that need to be considered during risk assessment.
 We might later decide to focus a project or proramme on that
issue by developing a problem tree with the issue as the
main problem
 Examine the problem tree to determine which problems can
be simply reversed into objectives by restating negative
conditions as positive conditions.
 Recognize that not all casual relationships are simply
reversible, so that solving one problem automatically solves
those it caused. For example, although flooding destroys
crops, pumping out the water does not thereby restore the
crops to health
Objectives Tree…
 For such problem relationships, other types of objectives
must be formulated to represent solutions.
 Recognize that some problems in the problem tree may
actually be symptoms of other deeper problems. Add new
objectives if these appear relevant.
 Determine the cause-and –effect relationships among the
objectives and draw the objective tree.
 The level of detail required is a judgment that must be made
by those developing the problem tree.
 In general it is the amount of detail that permits a clear
understanding of the problem and its environment.
 If the analysis is too superficial, the solution chosen could
itself cause a whole series of additional problems because
the cause-and-effect relationships of the first analysis were
not well-defined.
Objectives Tree…
 The objectives analysis follows from the problem analysis.
 It is the positive mirror image of the problem tree, and
describes the desired situation following completion of the
project, for example in five years time.
 It illustrates this desired situation as a hierarchy of means-to-
end relationships in an objectives tree diagram, which is
derived directly from the problem tree.
 The objectives tree provides the basis for determining the
project’s hierarchy of objectives, which will eventually be used
to build the project’s logical framework.
 As with the problem analysis described above, the objectives
analysis process should be conducted as a participatory
exercise with all stakeholders concerned.
Objectives Tree…
 The process of analyzing the objectives begins by simply
converting the negative states of the problem tree diagram
(i.e., the situation now) into positive states (i.e., the situation
the group wants to see).
 To take an example from the problem tree illustrated above,
“low conservation awareness in communities” is converted to
“communities’ conservation awareness increased”, or
“irregular law enforcement” is converted to “law enforcement
improved”.
Ultimate Goals
Objectives Tree…
Sea turtle communities cultural traditions

maintained maintained
Project Goals
Local population of sea turtles increased
Turtle nested Sustainable of

turtles and eggs
Targets
habitat conserved
Improved law Protection and Conservation Local

Outputs
enforcement sustainable awareness in management

management of communities capacity
coastal zone increased increased
Simplified example of objectives clustered into strategies.
Ultimate Goals
Sea turtle communities cultural traditions

maintained maintained
STRATEGY 2 -
STRATEGY 1 - SUSTAINABLE
Project Goals
EFFECTIVE USE OF
MANAGEMENT OF TURTLES AND
TURTLE NESTING Local population of sea turtles increased TURTLE EGGS
HABITAT
Turtle nested Sustainable of

turtles and eggs
Targets
habitat conserved
Improved law Protection and Conservation Local

Outputs
enforcement sustainable awareness in management

management of communities capacity
coastal zone increased increased
Objectives Tree…
 If we try to address all of the objectives we have identified, we
will find we have a very expensive and lengthy project. It is
therefore necessary to focus on one or a few areas of the
objectives tree. If more than one objectives tree has been drawn,
we will need to decide which of these to focus on for the project.
 Example of objectives tree with focus on one area
Access to safe
water
improved
dd for farm More wells Wells Hand

Wastage at hh dug protected
use reduced level reduced pumps
and repaired
yielding
Farming made Population

more water pressure
efficient Water table
Constrained reached
Objectives Tree…
 Look at the objectives tree and identify the branches that the
project could address. For example, for the objectives tree
above, it might be decided to address the right hand branch
(circled).
 It is a good idea to come back to the objectives tree later
when starting to think of project assumptions. All the objective
that are left in the objectives tree can be viewed as
constraints which could affect project success.
Alternative Tree Analysis or Project Selection
 An alternative tree analysis is a technique for identifying alternative
solutions or course of action that can be used to achieve the same
or alternative objectives and the display of this information in a
simple format.
 Examine the objective tree to determine which objectives are
perhaps unrealistic due to resource limitations.
 Using feasibility analysis tools, examine each branch of the objective
tree to determine which alternatives might represent the optimal
project strategy in terms of probability of success, cost/benefit and
most effective approach.
 Sometimes the branches of an objective tree are already a single
project-sized solution sufficient for attaining the next higher
objective.
 A strengths, weaknesses, opportunities and threats (SWOT)
analysis can be undertaken to establish the priority options of
projects to be subjected to further detailed quantitative analysis for
implementation.
Review Exercises
1. What do we mean by “projects should be relevant
to the agreed strategy and to the real needs of
beneficiaries?”
2. What do we mean by “projects should be feasible,

objectives realistically achieved within the
constraints of the operating environment and the
capabilities of the implementing agencies?”
3. What do we mean by “projects should be

sustainable?”
Review Exercises
 Projects should be relevant to the agreed strategy and to the real
needs of beneficiaries
 projects are linked to sectoral, national and Commission objectives
 beneficiaries are involved in the planning process from an early stage
 problem analysis is thorough
 objectives are clearly stated in terms of benefits to target groups
 Projects should be feasible in that objectives can be realistically
achieved within the constraints of the operating environment and the
capabilities of the implementing agencies?”
 objectives are logical and measurable
 risks and assumptions, and the implementing agencies capabilities
are taken into account
 monitoring concentrates on relevant targets
 Projects should be sustainable?”
 factors affecting sustainability are addressed as part of project design
 results from evaluation are used to build lessons learned into the
design of future projects
Review Exercises
1. What are the steps in stakeholder analysis?
2. Why stakeholder analysis:
3. Steps in problem analysis
Review Exercises
1. What are the steps in stakeholder analysis?
 Identify key stakeholders
 Assess stakeholder interests and the potential impact of the project on
these interests (expectations, benefits, willingness to mobilize resources,
interests)
 Assess the stakeholder influence and importance (power, control of
strategic resources)
 Outline stakeholder participation strategy
2. Why stakeholder analysis:

 To identify stakeholders’ interests in, importance to, and influence over
the operation
 To identify local institutions and processes upon which to build
 To provide a foundation and strategy for participation
 To develop a strategic view of the human and institutional situation, and
the relationship between the different stakeholders and the objectives
identified.
 provides a useful starting point for problem analysis.
Review Exercises
3. Steps in problem analysis
STEP 1: Agree on the main problem
STEP 2: Identify the causes of the main problem by asking
‘But why?’
Step 3: Identify the effects of the main problem by asking
‘so what?’
Step 4: Copy the problem tree on to a sheet of paper
Log Frames
 Now that the project has been identified and detailed information
has been collected, we can start to plan exactly how the project
will function.
 A useful way of doing this may be to use a logical framework (log
frame). The process of completing the log frame helps to think
though all the factors that should be considered for planning a
successful project. Even if people are not planning to develop a
log frame, it may help to use the tools included in the log frame
approach when planning projects.
 What is a log frame?
 The log frame is a tool used to help strengthen project design,
implementation and evaluation. Although it is constructed during
the planning stage of a project, the log frame is a living
document, which should be consulted and altered throughout the
project’s life cycle.
Log Frames
 A logical framework is a four by four matrix, which enables
the decision-maker to identify project purposes and goals and
plan for project outputs and inputs.
It is a table of four rows and four columns, where all the key
parts of a project can be inserted as a clear set of
statements; the project goal, purpose, outputs and activities,
with their indicators, evidence and assumptions.
 The log frame is useful in planning a project and to provide
measures of evaluating the project.
 Important assumptions about the casual linkages in the
project are stated on the log frame, and these are useful
when it comes to project implementation.
Log Frames
 It shows the project’s structure and describes the project
logically.
 It does not show every detail of the project; it is an overview
of the key factors. Details can be given in other documents
such as the proposal, budget and activity schedule, which
accompany the log frame.
Summary Indicators Evidence Assumptions
Goal
Purpose
Outputs
Activities
Log Frames
 Having carried out a stakeholder analysis, problem analysis and
research, we can answer the question: ‘Where are we now?’
 The log frame asks a series of further questions:
 Where do we want to be? (GOAL, PURPOSE)
 How will we get there? (OUTPUTS, ACTIVITIES)
 How will we know when we have got there? (INDICATORS)
 What will show us we have got there? (EVIDENCE)
 What are the potential problems along the way?
(ASSUMPTIONS)
NARRATIVE OBJECTIVELY MEANS OF IMPORTANT
SUMMARY VERIFIABLE VERIFICATION ASSUMPTIONS
INDICATORS
Goal:
Agricultural Crop yield / hectare Field observation Field community
productivity increased in increased Periodic reports from participation
the region agriculture office Commitment from both
GO & NGOs.
Purpose:
Promote soil and water Soil and water Field observation Community will take
conservation practices conservation systems Periodic repots of care of the system
through reducing put in place district administrators established
deforestation
Output: Field observation Reliability of rainfall

•Afforestation 50 hectare of land Sample survey No immigration.
•Deforestation of covered with vegetation Field observation
degraded land reduced Agricultural density Community
•Pop pressure reduced reduced participation record
on farm land Birth rate reduced
Inputs: Funds available on time

site identified DA assigned
Labor organized Community
Nursery established Commitment &
Family planning and participation
awareness creation
introduced
Log Frames…
 Why use a log frame?
 Log frames are useful because they:
 Help people organize their thinking
 Help people think logically

 Help identify weaknesses in project design
 Ensure key indicators are identified from the start of the

project so that monitoring and evaluation are easier.
 Ensure that people involved in the project use the same
terminology
 Help people to summarize a project plan on a few sides of
paper. This helps them to communicate their plan simply
with others, although a log frame is no substitute for
writing a full plan.
Log Frames…
However, the log frame approach does have
limitations:
 Project management can become rigid unless the log frame
is continually checked and adjusted.
 As the approach involves participation by a number of
different stakeholders, good leadership and facilitation skills
are needed to ensure stakeholders understand the approach
and actively participate in it.
 Since the approach builds on analysis of a problem, it might
not be viewed as appropriate in cultures where people do not
openly discuss problems.
Log Frames…
Who should complete the log frame
 Where possible, the primary stakeholders should be involved in
developing the log frame. It should be developed by the people
most closely involved in project implantation. It is possible that
the concept of the log frame will not be easily understood by
primary stakeholders. However, as the process is as important
as the end product, participatory processes could be used to
guide stakeholders through the questions and help them to
identify some of the project components. Then, the log frame
table could later be completed by project staff.
Terminology
 Different organizations use different terms for the components of
the log frame. We explain the terms below. Wherever alternative
names are found to be used by other organizations, that name is
provided in brackets. The terms will be explained further in the
section about completing a log frame.
Log Frames…
Summary (Intervention logic)
 The summary outlines the project’s objectives: what it hopes to
achieve and how. There are many different words that describe
different types of objectives. We use the term objective as a general
term for a desired change. In the log frame, the summary separates
out the different levels of objectives to form a ‘hierarchy of
objectives’ and uses special terms to refer to each level.

The Goal refers to the overall problem we are trying to address. It
is sometimes referred to as the wider development objective. This
might be improved incomes, improved access to water or reduced
crime.
 This is the wider or broader, long-term development objective. It is a
desired state where a need or problem no longer exists or is
significantly improved. The project will contribute towards this long-
term impact, but will not achieve it itself.
Log Frames…
 The goal could be the same for a number of projects and for a
number of organizations. The goal might be a government objective
or United Nations Millennium Development Goal. Improved health in
children
 The goal of a project is a value judgment which satisfies one or
more human needs. Decreased incidence and impact of diarrheal
disease.
Purpose
 The purpose is the specific change that we want the project to make
to contribute to the achievement of the goal. It is sometimes called
the immediate project objective.
 PURPOSE is what change or benefit do we want the project to
achieve? Try to include both material benefits and positive social
change in the purpose statement.
Log Frames…
 There should be only one purpose. If we have more than one
purpose, the project will be difficult to manage, so we should
consider having separate projects. Each should have a separate log
frame but will share the same goal.
 Increased immunization in the project area.
 Increased access to, and use of, safe water in the diocese.
Outputs
 What outputs are needed to achieve the purpose? In other words,
what will the project deliver? Outputs are what the project team has
control over. The outputs are what we want to see as a result of our
activities, in order to fulfill the purpose.
 Team of healthcare workers strengthened and functioning
 Improved sources of safe water.
Log Frames…
 ACTIVITIES How will we deliver the outputs? It is likely that
there will be a long list of activities to carry out. However, the
log frame should not include too much detail. A detailed
outline of the activities should be given in a separate activity
schedule (we shall see it later).
 The activity statements should start with an active verb.
 Recruit healthcare workers.
 Upgrade current wells and establish new wells.
 It is not necessary to set targets (quantity or quality) at this
stage. This can be done when column 2 (indicators) is filled
in. Use numbering to ensure that the activities are linked to
their output .
 The activities describe the tasks we will carry out
Exercise: write the purpose, output and activities
Goal: Improved farm productivity by small farmers
Summary indicators Evidence Assumptions/
risks
Goal Improved Yield
productivity
Purpose increased
Improved
practice
Output Farmers’
acceptance
Activities Assigning
DA
Supplying
inputs
FTC
Exercise
Goal: Improved farm productivity by small farmers
Purpose: improved farming methods and varieties of
rice adopted by small farmers.
Output: improved crop varieties acceptable to users
made available and distributed.
Activity: DAs assigned
Farmer participatory research into crop
varieties conducted
Log Frames…
 Indicators (Measurable/Objectively Verifiable Indicators – Ovls)
 Indicators answer the question ‘How do we know when we have
got there? They are signs which measure project performance
against objectives and play an important part in monitoring and
evaluation. Example: - 75% of small farmers in the diocese have
adopted new rice varieties by the end of year 3.
 They demonstrate that certain desired results have been
accomplished.
 Means of verification /MOVs-Evidences are the specific
mechanisms by which quantitative indicators of the
accomplishments of a project may be observed. Example;
Sample survey carried out by project staff at the end of year 3
 Evidence refers to the source of the information needed to
measure performance, who will be responsible for collecting it,
and how often.
Indicators and Evidence
So how are
 Indicators are targets that show progress we going to
towards achieving objectives measure our
success?
 They answer the question ’how do we
know whether or not what we planned is
happening, or has happened?‘
 Indicators help us monitor, review and
evaluate the project
 They enable us know whether the project
plans need adjustment
 They help us learn lessons from a project
in order to avoid making the same Well, the goals
mistakes in other projects scored, games
won, crowd
 Log frames sometime call indicators numbers, media
objectively verifiable indicators coverage
Indicators and Evidence…
 The tem ‘objectively’ is used because indicators should not
depend on the point of view of the person measuring them.
 The prescribed measuring process must be accurate enough
to make the indicator objectively verifiable. An indicator is
objectively verifiable when different persons using the same
measuring process obtain the same measurements, quite
independently of one another.
 It should not matter who measures them the same result
should be reached.
 So, it is better to ask two people to measure attendance at a
meeting by counting the number of people there, than to ask
them to grade attendance on a scale of very poor, poor,
adequate, good or very good.
Objectively Verifiable Indicators…
 At an early stage of planning, indicators are just guiding
values which serve to quantitatively analyze the project
concept.
 We examine what inputs should be used to achieve
quantifiable results / outputs or impacts. These guiding
values must be reviewed again on location, and where
necessary replaced by project-specific indicators.
 The third column of the matrix is to give an exact description
of what information is to be made available, in what form and
if necessary, by whom.
 It is important to think about who should identify and measure
the indicators. Primary stakeholders should have an opportunity
to set indicators because:
 It enhances their ownership
 Primary stakeholders might be able to think of appropriate
indicators that project staff based outside the community would
not have considered
 Some things are most easily measured by the primary
stakeholders themselves
 Primary stakeholders can be encouraged and empowered by the
progress of the project.
 Types of indicators
 There are many different types of indicators to consider. Try to
be creative and use a mixture in order to ensure that the
objectives can be measured effectively and that monitoring and
evaluation needs can be met.
 FORMATIVE indictors (also called Milestones) are used
during an activity, phase or project to show whether progress
is on track
 SUMMATIVE indicators are used at the end of the project for
evaluation.
 DIRECT indictors measure the objective directly, such as the
number of children attending school.
 INDIRECT indicators (also called proxy indicators) are used if
direct indicators are not appropriate or possible if, for
example;
 Results cannot be measured directly, such as quality of life
 Direct indicators are too expensive to measure
 Direct indicators can only be measured after the project has
ended
 For example, to measure an increase in literacy it might be
difficult or costly to interview children, but the number of books
borrowed from the school library might give you an indication
of whether or not literacy has increased.
 It can be very difficult to measure people’s incomes without
offending them. Instead, we could look at changes in
household expenditure. This might involve choosing a list of
items that a household might have, including a few luxury
items, and see how expenditure changes over time. We could
also look at sales of local shops and services, as these are
likely to be affected by changes in the incomes of the local
population.
 It is easier to measure behavior than feelings because it can
be observed. So, if we want to measure whether people feel
more confident, we could observe how often they speak in
community meetings
 QUANTITATIVE indicators can be analyzed in numerical
form who, what, when, where, how much, how many, how
often?
 This might include:
 How often things happen
 Number of people involved or affected
 Growth rates
 Uptake, for example, school enrolment, visits to clinic,
adoption of new seed varieties.
 QUALITATIVE: indicators measure things that cannot be
counted, like;
 Satisfaction, opinions
 Decision-making ability
 Changes in attitude
 Try to use a mixture of qualitative and quantitative indicators
so that we can be sure to capture the real progress and
impact of the project.
 Imagination is very important when setting indicators. It can
help to ask a group of stakeholders setting indicators to close
their eyes and imagine how the situation will be improved by
the need of the project.
 What do they hear, see, touch, feel and smell that will be
different when the main problem has been addressed?
 If we are aiming for holistic development, then our impact on
spiritual well-being should be as great as that on physical
well-being.
 Spiritual indicators are particularly difficult to set. Indirect
indicators might have to be used.
 Examples of basic indictors
 ECONOMIC:- yield per hectare, production per laborer, eggs per
day, production of handicraft items per month, average income, land
area per household, cattle per household, percentage of people with
bank accounts, percentage of people above the poverty line,
percentage of people without land, rate of migration.
 SOCIAL:- infant mortality rate, number of deaths, literacy rate,
average years in formal schooling, number of students entering
secondary education, difference between male and female wages,
percentage of women receiving training, percentage of people
attending meetings, representation of disadvantaged groups on
committees.
 ENVIRONMENTAL:- Fish harvested per year, length of fallow, forest
cleared each year, water availability in soil, erosion, percentage of
households practicing composting, average time to collect fuel wood
each day.
 SPIRITUAL:- crime rate, divorce rate, church membership,
attendance at church meetings.
Setting good indicators
 Indicators should be:-
 RELEVANT- is the indicator relevant to the objective it is measuring?
For example, if an objective is ‘to increase hand pump use’,
measuring the number of hand pumps produced would not be a good
indicator because it does not measure how many are actually being
used.
 SUFFICIENT- is more than one indicator needed?
 SPECIFIC- Quality, quantity, time
 MEASURABLE-can the indicator realistically be measured?
 SENSITIVE TO THE CHANGES that will be happening as a result of
the project or program. If the planned changes happen, will the
indicator still be appropriate and measurable?
 COST-EFFECTIVE- can the indicators be measured with reasonable
cost and effect? Is the cost of measuring the indicators proportionate
to the total project cost?
 AVAILABLE- can the indicator be measured at the planned time? For
example, consider seasonal climatic changes
Objectively Verifiable Indicators…
 When the contents of the objectives have been fully
incorporated, we must state how to measure them and set
the quantities required.
 A good indicator should also have the following attributes:
 Substantial i.e., reflects the essential content of an objective
in precise terms,
 Objective-oriented i.e., the means-ends relationships
between the levels on the PPM suffice in terms of quality and
time to achieve the next highest level;
 Plausible, i.e., the changes recorded can be directly ascribed
to the project;
 Independent, i.e., it differs in content to that on the level in the
PPM immediately below it, so that the degree to which the
objective has been achieved can be measured directly, and
quite independently of the inputs made.
Setting good indicators…
 QQT
 The term QQT is often used to ensure that indicators are
specific. QQT stands for QUANITITY – extent of the change by
how much, how many, QUALITY- the kind of change and TIME-
when the change should take place
 Example 1
 Step 1 BASIC INDICATOR: health strategic plans development
 Step 2 ADD QUANTITIY: 75% of health committees have
documented strategic plans
 Step 3 ADD QUALTIY: 75% of health committees have
documented strategic plans approved by primary stakeholders,
including community representative
 Step 4. ADD TIME: 75% of health committees have documented
strategic plans approved by primary stakeholder, including
community representatives, by the end of year 2
 Example 2
 Objective: improved access to regional markets
 Step 1 BASIC INDICATOR: Average journey time to the
nearest market is reduced
 Step 2 ADD QUANTITIY: Average journey time to the
nearest market is reduced by 30%
 Step 3. ADD QUALITIY: Average journey time to the nearest
market is reduced by 30% during the wet season
 Step 4. ADD TIME: Average journey time to the nearest
market is reduced by 30% during the wet season by year 3.
Exercise
 Select some examples of basic indicators that may be used in
an integrated rural development project which includes a
health clinic and a farmer training program
 Select QQT indicators that measure:
 Economic impact (production, output, income, ownership,
access to capital and credit, poverty, etc).
 social impact (health status, education, gender, leadership,
equity, participation, etc)
 environmental impact (sustainability, habitats, soil
condition, waste, fuel etc)
 Example 3
 Objective:
 Step 1 BASIC INDICATOR:
 Step 2 ADD QUANTITIY:
 Step 3. ADD QUALITIY:
 Step 4. ADD TIME:
 METHOD FOR SETTING INDICATORS
 Work horizontally across the log frame, brainstorming indicators that
will measure each objective. This could involve referring back to the
problem tree. The effects in the problem tree can be turned into
indicators.
 If there is a long list of possible indicators for one particular
objective, try to reduce the list so that only the essential ones are
included. We need few indicators to be able to measure the
achievement of the objective, but not so many that we will waste
time and money.
 Make sure the indicators are good (QQT) and there is a good
selection- quantities and qualitative, formative and summative.
 Remember that the log frame is a living document that needs to be
looked at and revised regularly. Some of the indicators might need
to be changed during the project if they are inadequate or too difficult
or expensive to measure.
Method for setting indicators
 Goal level indicators
 Since the project contributes towards the goal but cannot be
wholly responsible for achieving the goal, the indicators at
goal level may reach beyond the need of the project.
 They might not be measured by our organization, but be
included in government statistics some months after the
project has ended.
 Of course, one problem of using such an indicator is that it
will not tell us how much of the progress is due to our project
and how much of it is a result of projects by other
organizations.
 As much as possible, goal level indicators should measure
change during the lifetime of the project.
Method for setting indicators…
 Purpose level indicators
 Indicators can be difficult to identify at propose level. This is because
the proposed objective often defines a change in behavior, which
can be difficult to measure. Some creative thinking is needed for
setting indicators at this level.
 Output indicators
 Output indicators should be easier to measure than higher level
objectives, because we have more control over these objectives.
The output indicators can be transferred to terms of reference for the
member of staff or consultant that is responsible for delivering the
outputs.
 Activity indicators
 The indicators at activity level usually include a summary of the
inputs or budget. The clearest indication of whether activities have
happened successfully is if the outputs have been delivered.
However, for complex outputs it can be useful to include activity level
indictors that show progress towards completing the outputs.
Objectively Verifiable Indicators
 The objectively verifiable indicators define the contents of the
objectives. Either the objects or the indicator must also
contain:
 The time period
 The region
 The target group and
 The partner institution
 Indicators allow us to exactly measure how far the objectives
have been achieved at different periods in time. We must
also quantify facts as far as possible.
 To do this, several direct indicators are usually required, plus,
if necessary additional proxy indicators, substitute indicators,
etc.
 The proxy indicators are used if the direct ones will take time
to notice or are difficult to measure.
Evidence (column 3 of log frame)
 Evidence is called ‘means of Verification’ in some log frames.
It describes the sources of information we will use to
measure the indicator. For example, body temperature is an
indicator of health. A thermometer provides the evidence.
 For the log frame, consider:
 The type of data needed, such as a survey
 The source of the data – whether secondary (collected by
someone else) or primary (collected by our organization).
 Who will collect an document the data
 Frequency and dates of data collection. Form example, monthly,
quarterly, annually.
 When appropriate evidence for each indicator has been
identified, consider whether it is:
 AVAILABLE if we want to use secondary data, will we be able to gain
permission to access it? Will it be reliable?
 LOW-COST will the information be too expensive to collect
 Timely will we be able to collect the information when we need it?
Consider seasonal variations in climate. If we want to use secondary
data, will it have been collected at the right time? Sometimes
government statistics are not relapsed until some months after the
data was collected because it takes time for them to be analyzed.
 If the evidence is not available at low cost at the right time, the
indicator should be changed to one which can be measured more
effectively.
 User survey  Maintenance log
Examples of evidence  Participatory evaluation  Accounts
 Certificate  Official statistics
 Reports
Newspaper articles
 Minutes of
meetings
 Try to build on existing systems and sources of information before
establishing new ones. But make sure the information used can be
trusted. If primary data needs to be collected, make sure this is
added to the activity objectives and to the activity list and budget.
 Final check of log frame
 When the log frame has been filled in, recheck it to make sure it is
logical. Ensure that:
 Objectives are stated clearly and logically linked to the higher
objective
 The project has only one propose
 All key assumptions have been made and the project is likely to be a
success
 Indicators and evidence are reliable and accessible
 The indicators can measure the progress and impact of the objective
 Indicators for which we cannot identify suitable sources of
verification must be replaced by other, verifiable indicators. Some
others after consideration of costs and benefits, are too expensive
must be replaced by simpler, cheaper controls.
 The sources of verification should be allocated numbers
corresponding to those of the indicators.
 Sources of verification external to the project are reviewed with
respect to:
 How much information they contain on the region and on the
target groups?
 How reliable, up-to-date and accessible they are?
 Their composition and how they were obtained?
 When suitable sources of verification outside the project cannot be
identified, the information necessary to verify the indicators must be
collected processed and stored internally by the project itself.
 The collection, preparation and storage of information in the project
itself and the individual activities are to be incorporated as an activity
in the activities column and calculated in the specifications of inputs
and costs.
Risks and Assumptions
 Assumptions refer to the conditions that could affect
progress, success or long-term sustainability of the project.
 There may be external factors which can not be controlled
which we choose not to control.
 It may be possible to reduce the project’s vulnerability factors
which cannot be controlled.
 These could include climatic change, price changes and
government policies.
 The assumptions must be reviewed as to whether they are
appropriate for the quantities and dimensions to be analyzed
by the indicators, and they must be more exactly defined,
quantified and supplemented where necessary.
 Exactly define the assumptions for the feasibility of each
individual activity (basic preconditions).
 Those assumptions which are essential prerequisites for the
next level are made, for example with an exclamation mark
(!).
 All assumptions are re-examined as to their probability, when
it is questionable or improbable that they will occur, they are
marked, for example, with the question mark (?).
 Assumptions which are important for the project success (!)
but which are questionable or improbable (?) are killer
assumptions, which force us to abandon the project if they
cannot be eliminated by lower–risk concept.
Risks and Assumptions…
 Activities, results /outputs and objectives must be altered as
often as necessary until the “killer assumptions” disappear.
 The overall risk of the project comprises the risk for achieving
the objectives and potential unintended negative impacts. An
additional risk analysis may be necessary to assess the
overall risk involved.
 After analyzing the risk entitled in the assumptions and
making a quantitative analysis using the indicators, we
enquire again into the factors that can be managed by the
project management and the latter’s responsibility for the
results/outputs. The manageable factors are identified on the
basis of:
 Situation at the outset;
 The objectives and
 The risks.
Risks and Assumptions…
 The project management must be willing and able to
guarantee the results /outputs, so that the project purpose
can be achieved. It can only enter into a legal obligation to do
something that actually appears possible.
 The project management can be formed by one project
partner alone or jointly by the project partners. Management
responsibility must be stipulated in the government
agreement and in the project implementation agreement and
also in the employment contracts for project staff.
 The planning must delimit duties, powers and responsibility at
different project levels, in accordance with the actual
possibilities and necessities.
 Possible risks include: Assumptions
 We have checked that each objective should lead to the one above
using the if – then test. However, we can never be 100% sure that
each objective will lead to the next because there will always be a
risk that external factors will affect the link. Most projects fail, not
because of bad project design, but because of lack of attention to
these factors that are either outside the control of the project or
which are too difficult or costly to control. In the log frame we need to
show that we have thought about what these factors might be.
 To complete the assumptions column of the log frame. First consider
the risks linked to the project.
 Risk assessment- risk is potential for unwanted happenings. Every
activity involves risks. If they happen, some risks will affect the
activity more than others. Risk assessment helps to identify them
and consider the likelihood of them happening and their likely
impact.
 The risks can then be managed by changing the project plans to
ensure the risks are minimized.
 Climatic – rainfall
 Human – labour strikes
 Beneficiaries unwilling to try new techniques, project staff leaving the
organization.
 Economic – crop prices being unstable
 Political – government polices
 Projects by other agencies not remaining on schedule.
Identifying Important Assumptions
 We have to ensure that important assumptions are
expressed in the same way as the objectives i.e., as positive
conditions:
 The important assumptions are described in such operational
detail (with indicators of possible) that we can exactly see
whether these external conditions have occurred or not; and
 Only important assumptions are stated, which are logically
necessary, additional conditions.
 Assumptions which are important but improbable are “killer
assumptions” and cannot be planned if killer assumptions
exist, planning must be changed or the project may be
abandoned.
Risk decision tree
i m h i g r i sk
e
pa h
?
th
ct
Is
Include in
log frame yes
as an
assumption Do not include
Likely Will it happen? unlikely in log frame
Monitor the risk

and think of
ways to
Is
reduce it i
red t pos
pro sig sible
e
a n j ec t
nt
he to High risk project,
di No
Redesign
the nfl
fac exte enc
u Could be rejected
Yes tor rna e
the ? l
project
Risk decision
 Once we have considered the risks, we can turn them into
assumptions.
 Risks are negative statements about what might go wrong.
Assumptions turn risks into positive statements. They are the
conditions that need to be met if the project is to continue.
 For example, consider a risk in an agricultural extension
project. By rewording the sentence to make it positive rather
than negative, the risk can be changed into an assumption.
 RISK farmers might not be willing to try out new varieties of
rice.
 ASSUMPTION Framers are willing to try out new varieties of
rice.
Log Frames…
 Completing a log frame
 The key to completing a log frame is to fill in the hierarchy of
objectives by working down the summary column
 Then work upwards through the Assumptions column
 Then work across each row to identify the indicators and
Evidence for each objective.
 By completing the log frame this way, we avoid getting too
involved in the detail before the project structure has been
developed.
 The best way to construct a log frame is to use several large
sheets of paper and a pencil or post it notes. This means that
changes can be made to the log frame during the course of
discussions without making it look untidy.
Log Frames…
 SUMMARY OF OBJECTIVES
 Work down the summary column of the log frame, giving a brief
statement of the objectives at each level. To do this, refer to the
objectives tree developed earlier
 Hierarchy of Objectives
 Each layer of objectives in the branch circled on the objectives
tree relates to the levels in the hierarchy of objectives.
The MAIN PROBLEM Main

gives the project purpose problem
The CAUSES identify…
…the Outputs
… and Activities
Log Frames…
 When we have filled in the objectives for each level, we must
make sure the statements are logically linked to each other. To
do this, use the ‘if – then test:
 Look at the activities. If we carry out all of the activities, then will
they result in the outputs?
 Look at the outputs. If the outputs are produced, then will they
achieve the purpose
 If the propose is achieved, then will it contribute towards the
goal?
 For example:
 If we train members of the community to maintain and repair
hand pumps (activities then sources of safe water will be
improved (output)
 If source of safe water are improved (output) then access to safe
water will be improved (purpose).
Log Frames…
 If access to safe water is improved (purpose) then the incidence and impact
of diarrhea disease will decrease (goal).
 We might find we need to adjust the wording of the objectives or add new
ones. We might decide that some objectives are not relevant and so delete
them.
Exercise: Imagine being part of a football team and fill out the
following:
 GOAL To be the best football team in the country

 PURPOSE:
 OUTPUTS:
 ACTIVITIES:
 Exercise: Imagine being part of a football team. The
following objectives have been identified:
 GOAL To be the best football team in the country
 PURPOSE To win the next game
 OUTPUTS Successful attack, successful defence
 ACTIVITIES ball shoot the ball, tackle.

Log Frames…
 How to prepare Logical Framework
 The logical framework has four columns namely narrative summary,
objectively verifiable indicators, means of verification and important
assumptions.
 A project is transferred into the first vertical column of the planning
matrix. This is done as follows:
 Start at the top of the column and work downwards
 Decide on one overall goal and one project purpose or immediate
objective; and
 Where necessary, review the wording in the objective tree and make
it more appropriate
Log Frames…
 The results / outputs are expressed as objectives which the project
manager must achieve / outputs, noting to ensure clarity:
 We do no list too many detailed activities, but rather indicate the
basic structure and strategy of the project, and
 In contrast to the objectives, we express the activities as an action,
e.g., (activity) train counter-parts (objective) extension service in
operation.
 The column entitled summary of objectives and activities must
describe the operational means-ends relationships in the project
structure
 The activities are implemented in order to obtain the results /
outputs.
 The results / outputs are necessary and (together with the
assumptions) sufficient basic requirements to achieve the project
purpose; and
 The project purpose is a prerequisite to obtaining the overall goal.
Log Frames…
 METHOD OF RISK ASESSMENT
 Start with some large sheets of paper.
 STEP 1
 Identify the risks by:
 Looking at the various analyses that have been carried out, for
example, stakeholder, economic, environmental, social, problem
 Going back to the objectives tree and considering the constraint
 Looking at each objective in the log frame and brainstorming the
assumptions that have to be made in order for the higher
objective to be achieved. A useful series of questions to ask is
 If we do these activities, what can stop us from delivering
these outputs?
 If we are successful in delivering these outputs, what can
stop us from achieving this purpose?
 If the purpose is achieved, what would stop it from
contributing to the goal?
Log Frames…
 Step 2: Use an impact /Probability matrix to evaluate the
risks.
 List all the risks and number them.
 Then consider how likely it is that each one will happen
(probability) and what the impact of each risk happening might
be.
 Think of the impact on project success and also the impact on
the beneficiaries. Place the numbers in the matrix.
 For example, in a project to improve shields, the first risk
identified is that farmers might not adopt new varieties of
seed.
 The probability of this happening is considered to be medium
and the impact on the project if this risk happens if high.
 So, a ‘1’ is placed in the relevant box.
Log Frames…
Impact
low Medium High

Impact/probability
Low
Medium 1
Probability
matrix
High 2
1. Farmers might not adopt new varieties of seed

2. Rains may fail
Log Frames…
 STEP3
 Think about measures that will reduce or eliminate the risks. We may
want to pay less attention to the risks that are low probability and low
impact, although simple steps might reduce these.
 It is important to pay attention to the risks towards the bottom right
hand corner of the Impact Probability Matrix (high probability and high
impact) as these in particular threaten the success of the project. If
these risks cannot be reduced, it might be necessary to cancel the
project.
 For example, the risk that farmers will not adopt new varieties of seed
is quite important.
 A measure to reduce the risk could be to ensure farmers’ participation
in choosing the new varieties. If the rains fail, the project could fail.
Irrigation might need to be considered as a project objective.
Log Frames…
 Remember to add these risk reducing measures to the project
objectives. In terms of the log frame, this will involve adding
more activities and possibly outputs.
 Step 4: Include risks in the log frame
 Now turn to the log frame and write the key risks as
assumptions in column 4.
 These are the risks that could actually make the project fail if
they happen. Some risks might be considered so critical that
we decide not to go ahead with the project at all.
 The example below should help to decide which risks to
include in the log frame as assumptions.
Consider an agricultural extension project
· Providing an advise might be an activity. Training program designed
and delivered’ may be an output. These are the responsibility of the
project manager. If these services are not provided then the manager
can beheld accountable for the failure of the project. If they are
provided, he or she can be praised for the project’s success.
· The project purpose might be increased average rice yields of
farmers in the project area. The project manager might not be fully
responsible if this fails. For example, clients may not apply the
training they have received.
· There are steps that could be taken to reduce the risk, such as
ensuring the at farmers are involved in the project at an early stage in
order to increase ownership and identify training needs. But we will
still have less control over the achievement of the purpose than the
outputs and activities.
The If –And-Then Test
 For each objective in the log frame, consider what
assumptions need to be made in order for that objective to
lead to the objective at the net level. Test the logic using the
if-And-Then’ test:
Summary Indicators Evidence Assumptions
Goal
Purpose
Outputs THEN
Activities IF AND
The If –And-Then Test…
 For example:
 If we train members of the community to maintain and repair
hand pumps (activities) and an effective supply chain for
spare parts exists (assumption), then sources of safe water
will be improved (output)
 If sources of safe water are improved (output), and an
adequate quantity of water is available (assumption), then
access to safe water will be improved (purpose)
 If access to safe water is improved (purpose) and incidence
of diarrhea disease is due to unsafe water (assumption), then
the incidence and impact of diarrhoeal disease will decrease
(goal)
 As external conditions may change, it is vital that we carry
out further risk assessments throughout the course of the
project to ensure that we take account of all threats to its
success
Exercise: Complete the LF
NARRATIVE OBJECTIVELY MEANS OF IMPORTANT
SUMMARY VERIFIABLE VERIFICATION ASSUMPTIONS
INDICATORS
Goal: Wellbeing
enhanced in the
town
Purpose
Output
Inputs
Critical Conditions
 Some log frames may require completion of an additional box
labeled Critical Conditions or preconditions
 These refer to things that must happen before the project can start.
Ask questions like:
 Will we be able to find qualified staff at the salaries being offered?
 If resources are to be supplied by other agencies or government,
when will they be available?
 Will essential supplies or funding be available at the time we want
the project to start?
Log frame Summary Indicators Evidence Assumptions
Goal
Purpose
Outputs
Activities
Critical
conditions
Chapter Three
Aspects of Project
Preparation and Analysis
Feasibility Study
 A feasibility study is part of the process of project
identification, preparation and selection. This process
involves the appraising of projects or groups of projects and
then choosing to implement some of them. This process is
very important for projects that are implemented by
governments and big organizations.
 In developing countries, it is not uncommon to find a situation
where only a few projects are sufficiently prepared and
carefully selected. This happens because of several reasons.
Some of the reasons could be: (1) there aren’t enough skilled
people to perform this task; (2) there is some unwillingness to
spend money on this process. It is believed that this process
is wasteful if many projects are appraised but eventually
abandoned. With a lot of exercise taken carefully, especially
at the feasibility stage, this abandonment should seldom
happen.
Feasibility Study
 Proper feasibility studies of projects imply choice of
investment projects. Thus, proper choice of projects is crucial
to the long run economic development of a country. If a firm
implements projects, then proper choice is also crucial to the
long run survival of the firm.
 It is true that many projects are implemented without any
extensive feasibility studies.
 This happens because of several reasons, among them
being the use of non-numeric project selection models.
However, the application of these models to project selection
may be limited to projects, which do not involve huge
investment resources. For those projects which involve huge
resources especially those involving governments and other
institutions such as that of the World Bank and IMF, feasibility
studies must be usually carried out before a project is
selected for implementation.
Feasibility Study
 A feasibility study should provide all data necessary for an
investment decision.
 The commercial, technical, financial, economic and environmental
prerequisites for an investment project should therefore be defined
and critically examined on the basis of alternative solutions already
reviewed in the pre-feasibility study.
 The result of these efforts is then a project whose background
conditions and aims have been clearly defined in terms of its central
objective and possible marketing strategies, the possible market
shares that can be achieved, the corresponding production
capacities, the plant location, existing raw materials, appropriate
technology and mechanical equipment and if required an
environmental impact assessment.
 The financial part of the study covers the scope of the investment,
including the net working capital the production and marketing costs
sales revenues and the return on capital invested.
Feasibility Study
 Final estimates on investment and production costs and the
subsequent calculations of financial and economic profitability are
only meaningful if the scope of the project is defined unequivocally in
order not to omit any essential part and its related cost. The scope
should be defined in drawings and schedules that should then serve
as a supporting structure during further project work.
 Although feasibility studies are similar in content to pre-feasibility
studies, the industrial investment project must be worked out with
the greatest accuracy in an iterative optimization process, with
feedback and inter-linkages including the identification of all
commercial, technical and entrepreneurial risks. Should weak points
be revealed initially and the profitability of the project prove
inadequate then sensitive parameters such as the size of the
market, the production program or the mechanical equipment
selected should be examined more closely, and better alternatives
should be looked for, in order to improve the feasibility of the project.
Feasibility Study
 All of the assumptions made, data used and solutions selected in a
feasibility study should be described and justified in order to make
the project more comprehensible to the promoter or investor in his
evaluation of the study. If a project is not viable despite a review of
all alternatives, that fact should be stated and the reasons given. In
other words, even a feasibility study that does not lead to an
investment recommendation is of great value as it prevents the
misallocation of scarce capital.
 The term “feasibility study” is often misunderstood and deliberately
misused by suppliers of equipment or technology. Frequently an
outline of a project primarily oriented to the supply of equipment or
the choice of a particular technology is called feasibility study,
although it is rather a technical or support study not covering all
feasibility aspects as required for an unbiased project appraisal.
 Sometimes, production or sales estimates are based on conditions
observed in a developed country and bear little relation to those in
developing countries.
Feasibility Study
 As these studies are unrelated or ill-adapted to the local
business environment they can be misleading and result in the
misallocation of resources as has often occurred in developing
countries.
 A feasibility study must be related to available production factors
and local market and production conditions and this requires an
analysis that has to be translated into costs, income and net
gains.
 A feasibility study should be carried out only if the necessary
financing facilities, as determined by the studies, can be
identified with a fair degree of accuracy. There would be little
sense in a feasibility study without the reliable assurance that in
the event of positive study findings, funds could be made
available. For that reason, possible project financing must be
considered as early as the feasibility study stage, because
financing conditions have a direct effect on total costs and thus
on the financial feasibility of the project.
Preparation of Feasibility Report
 Actual Feasibility Studies
 A feasibility report of a project provides information which will be
required by the decision-makers for project appraisal. Project
appraisal usually builds on the project plan, but it may also involve
new information if data or assumptions in the feasibility study are
questionable. The appraisal done is meant to show whether or not
the project plan as contained in the feasibility study, is sound and it
is worth investing in.
 If it has to be useful for project appraisal, a feasibility report should
contain the following:
 Market Analysis
 Technical Analysis
 Organizational analysis
 Financial analysis
 Economic analysis
 Social analysis
 Environmental analysis
Market Analysis
 Commercial (Market) /Demand and Supply/ Aspect
 This analysis needs to ensure the existence of effective
demand at remunerative price. It also assesses possible
means in which the market will absorb the output without
affecting the output price and if price inevitably be affected,
we would have to assess its magnitude. Similar
arrangements need to be done on the input side too
(including procurement of equipment and intermediate input
supplies).
 Market analysis is basically concerned with two questions:
 What would be the aggregate demand of the proposed
product/service in future?
 What would be the market share of the project under study?
 To answer the above two questions, the project analyst
requires a wide variety of information and need to use
appropriate forecasting methods. .
Market Analysis
 The kinds of information required are:
 Consumption trends in the past and the present
consumption level
 Past and present supply positions
 Production possibilities and constraints
 Imports and exports

 Structure and competition
 Cost structure
 Elasticity of demand
 Consumer behavior, intentions, attitudes, preferences,
and requirements
 Distribution channels and marketing policies in use
 Administrative, technical, and legal constraints

Market Analysis
 All aspects related to demand and supply of inputs and
outputs must be examined.
 Forecasting
 A typical project will involve one or two outputs or more of a
whole series and definitely inputs. So, we need to project in
physical quantity and prices. Calculating the stream of costs
and benefits will involve predicting values for each of various
elements, for instance:
 Volume of output sold or selling price by the project and also
input prices,
 The amount of investment required, labor cost, maintenance
cost..
 Out of these elements, some require little trouble while others the
use of elaborated statistical techniques.
Market Analysis
 In demand forecasting, identify potential consumers or buyers,
indicate total current demand, identify the pattern of demand
temporally as well as geographically, know customers willingness to
pay, determine price, identify channels, explore prospects of
immediate and future sales, formulate strategy that intends to
convince potential customers about the proposed output.
 Basically there are two kinds of techniques in forecasting: the
qualitative and quantitative techniques.
 Qualitative method
 Jury of execution opinion technique: the pooling of view of a
group of execution on expected future sales and combining them
into a sale volume. But reliability is in question.
 Delphi technique: involves eliciting the opinions of a group of
experts, who don’t interact face to face, usually with the help of a
mail survey, into a forecast through and iterative process. In this
method, a questionnaire is sent to a group of experts and responses
received are summarized without disclosing the identity of the
experts.
Market Analysis
 Quantitative methods
A) Time series projection method
 Historical information can be used as inferences about the
future. The value of many economic variables changes with time
and hence time series can be used in forecasting likely values in
the future. The components of time series model could be:
 Secular trend- a tendency of the data to increase or decrease
over a long period of time and it is true of many economic data.
 Seasonal variations – periodic and regular movements in a time
series during a period of less than a year. As the name implies it
is caused by seasonal changes.
 Cyclic variations – the movement is more than a year, i.e., its
oscillatory movement with a period of more than one year, eg.
business cycle. This is less predictable than secular trend. There
can be different models for seasonal and cyclic variations, but
the most common one is moving average (MA).
Market Analysis
 Irregular fluctuations – that means fluctuations are random and
unpredictable, eg. floods and drought. There is no as such a
mathematical model to predict this fluctuation but recently
satellites are said to be used to indicate future happenings.
 Out of these components of time series model, the trend
(secular trend) is the most common one.
 Measurements of trend: trend involves extrapolating the
past trend onto the future. It can be measured by three
methods: namely, graphical, semi-average, and method of
least square.
 Graphical method or trend by inspection – plot the values
and connect the points with straight line.
 Method of semi-averages – divide the data into two equal
parts and from the data calculate the slope and intercept
Market Analysis
If the model is represented by, say, Yc = a + bx, then,
( S 2  S 1)
The slope = b 
N2
S1
The intercept = a 
N
2
Where: S1 = Sum of Y values for the first period
S2 = Sum of Y values for the 2nd period

a = Intercept
b = Slope
N = Number of years
Market Analysis
 Method of least square – this is the most popular one. Different
types of curves can be fitted using least square method:
 Straight line curve – the most commonly employed relationship
is the linear relationship. A straight line describes the linear trend,
explained by the following equation:
 Ty = a + bx,
 Where: Ty denotes the underlying trend of variable y

x = the point of time (each increase consecutively)
a = intercept
b = change in Ty per unit of time
 Logarithmic straight line – the following function shows the
relationship between the time “t” and Y.
Log Yt = a + bt
► Yt = aebt Exponential curve
Market Analysis
 Moving average method: smoothes out fluctuations when
the data set show irregular variations.
 It is produced by averaging the values of a consecutive set of
data like 3, 4, 5, … and it is centered against mid-point of the
averaging period.
 How do we choose a trend line?
 When a time series data are found to be increasing or
decreasing by equal absolute amount we fit a straight line
trend.
 When a series increasing or decreasing by constant
percentage we use logarithmic or exponential curve.
 Exponential or logarithmic curve is used to forecast
population or production in early stage of development
Market Analysis
B) Causal method
 These techniques go beyond time series analysis in that they
attempt to analyze why variables are changing over time.
 Causal model forecasts are based on variations in those factors
(the causal variables) that cause the variable in question to
change.
 These methods seek to develop forecasts on the basis of cause-
effect relationship specified in an explicit quantitative manner.
 Several important methods under this category are: chain ratio
method, consumption level method, leading indicator method,
end use method, and economic metric method.
 For example the world price determined or defined as: P t = f(Xt –
Mt).
 The interest here is to find value of Xt and Mt, where: Xt = export
at time “t” and Mt = import at time “t”.
Technical Feasibility
 This aspect may include the works of engineers, soil scientists
and agronomists in case of, say, agricultural projects.
 The technical analysis is concerned with the projects inputs
(supplies) and outputs of real goods and services and the
technology of production and processing.
 It is analysis of the technical and engineering aspects of a
project to be done continuously when a project is formulated.
 Technical analysis seeks to determine whether the prerequisites
for the successful commissioning of the project have been
considered and reasonably good choices have been made with
respect to location, size, process, etc.
 It is from this aspect analysis that all physical quantity of inputs and
outputs will be determined for the estimation of costs and benefits.
 Poor technical analysis will result in under- or over-
estimation of quantities related to inputs required by and
outputs of the project. Further analysis based on these
estimates would eventually lead to spurious cost and benefit
estimates. Care must also be taken in assessing alternative
designs and techniques.
 The project’s expected life time must also be determined
carefully for it has greater implication on its overall analysis
and preparation.
 All these require creative, committed and competent
specialists from different fields. It also requires coordination
among these specialists, as every technical aspect is
interrelated and interacting.
 In general the technical analysis is primarily concerned with
 Work schedule
 Location and site
 Project charts and layouts
 Structure and civil works
 Machines and equipment
 Plant capacity
 Manufacturing process and technology
 Material inputs and utilities
 Product mix
 Is the proposed technology or solution practical?
 Do we currently possess the necessary technology?
 Do we possess the necessary technical expertise, and is the
schedule reasonable?
 Is relevant technology mature enough to be easily applied to our
problem?
 What kinds of technology will we need?
 Some organizations like to use state-of-the-art technology
 …but most prefer to use mature and proven technology.
 A mature technology has a larger customer base for obtaining
advice concerning problems and improvements.
 Is the required technology available in the information systems shop
(in house)?
 If the technology is available:
 …does it have the capacity to handle the solution?
 If the technology is not available:
 …can it be acquired?
 Project appraisal is an exercise dealing with working out the
value, quality and condition of the project
 Ex-ante: carried out at early stage
 Formulation stage: in order to recommend a project strategy to
the sanctioning authorities
Main Features of Technical Feasibility:-
 Time:- different processes take different time to complete
 Relationship:- the inputs being processed bear a definite relation
to each other and with also the resulting outputs, factor-factor
and factor-output relationships, respectively
 Economies and diseconomies of scale:- former:- when output
increases with an increased scale of a proces, saving of inputs
occurs. The latter refers to a situation when scale is increased
beyond a point. E.g Irrigation wells.
296
Technical Feasibility...
 Choice of processes:-input usage: a) same inputs or b) different
inputs
 Technical efficiency:- producing „X“ outputs using less of inputs
Inputs Project Variants Input Prices

A1 A2 A3 A4 (A) (B)
1 5 4 4 3 2 2
2 2 3 2 1 4 -
3 3 2 2 1 3 3
4 0 0 0 2 6 6
Output 1000 1000 1000 1000
Which project to choose? Why?
297
Exploring Operational Feasibility
 The “PIECES” framework
 Useful for identifying operational problems to be solved, and their
urgency
 Performance: - Does current system provide adequate
throughput and response time?
 Information: - Does current system provide end users and
managers with timely, pertinent, accurate and usefully
formatted information?
 Economy:- Does current system provide cost-effective
information services to the business? Could there be a
reduction in costs and/or an increase in benefits?
 Control: - Does current system offer effective controls to
protect against fraud and to guarantee accuracy and security
of data and information?
 Efficiency: - Does current system make maximum use of
available resources, including people, time, flow of forms,...?
 Services: - Does current system provide reliable service? Is it
flexible and expandable?
Checking for Operational Feasibility
 How do end-users and managers feel about…
 …the problem you identified?
 …the alternative solutions you are exploring?
 You must evaluate:
 Not just whether a system can work…
 … but also whether a system will work.
 A workable solution might fail because of end user or management
resistance:
 Does management support the project?
 How do the end users feel about their role in the new system?
 Which users or managers may resist (or not use) the system?
 People tend to resist change.
 Can this problem be overcome? If so, how?
 How will the working environment of the end users change?
 Can or will end users and management adapt to the change?
 Can the bottom line be quantified yet?
 Very early in the project, economic feasibility analysis is just a
judgement of whether possible benefits of solving the problem are
worthwhile.
 As soon as specific requirements and solutions have been identified,
the costs and benefits of each alternative can be assessed
 Cost-benefit analysis
 Purpose - answer questions such as:
 Is the project justified (because benefits outweigh costs)?
 Can the project be done, within given cost constraints?
 What is the minimal cost to attain a certain system?
 What is the preferred alternative, among candidate solutions?
 Examples of things to consider:
 Hardware/software selection
 How to convince management to develop the new system
 Selection among alternative financing arrangements
(rent/lease/purchase)
 Difficulties
 discovering and assessing benefits and costs…
 …they can both be intangible, hidden and/or hard to estimate
 ranking multi-criteria alternatives
Financial Feasibility
 Financial analysis seeks to ascertain whether the proposed project
will be financially viable in the sense of being able to meet the
burden of servicing debt and whether the proposed project will
satisfy the return expectations of those who provide the equity
capital.
 Here, the project analyst is concerned with the financial effects of
the proposed project on each of its various participants (firms,
farmers/workers, government etc.).
 By examining the financial implications of the project for these
parties, the analysts need to identify the projects financial efficiency,
incentive impact to the participants in the project, creditworthiness
and liquidity (say, could the firm have enough working capital?).
 The financial analysis establishes the magnitude of costs of
investment, production and overheads and magnitude of benefits.
 This analysis will be the basis for evaluating the project profitability.
 Project profitability depends on a comparison of costs versus
revenues using realistic market prices of materials, labor and
outputs.
 The aspects, which have to be looked into while conducting financial
appraisal, are:
 Investment outlay and costs of the project
 Means of financing; source of finance, credit terms, interest
rates, etc
 Projected profitability
 Projected financial position
 Cash flows of the project
 Break-even point
 Investment worthiness judged in terms of various criteria of merit
 Level of financial risk
 Financial analysis must generate future financial statements such as
income statement, balance sheet and uses-and-source-of-fund
statement. After these statements are produced, analysts can
undertake different financial ratio analysis so as to ascertain financial
feasibility. The financial analysis must clearly show fund flows in
each period in the project life.
 Objectives of Financial Analysis
 Assessment of financial impact
 The most important objective of financial analysis is to assess the
financial effects the project will have on participants (farmer, firms,
government, etc). This assessment is based on the comparison of
each participant’s current and future financial status with the project
against the projection of his future financial performance as the
project is implemented.
 Judgment of efficient resource use
 For management especially, overall return is important because
managers must work within the market price framework they face.
Investment analysis & financial ratio analysis provide the tool for this
review.
 Assessment of Incentives
 The financial analysis is of critical importance in assessing the
incentives for different participants of the project.
 Will participants have an incremental income large enough to
compensate them for the additional effort and risk they will incur?
 Will private sector firms earn a sufficient return on their equity
investment & borrowed resources to justify making the investment
the project requires? For semi-public enterprises, will the return be
sufficient for the enterprises to maintain a self-financing capability
and to meet the financial objectives set out by the society?
 Provision of sound financial plan
 The financial plan provides a basis for determining the amount and
timing of investment, debt repayment capacity, and also helps to
coordinate financial contributions.
 Assessment of financial management competence especially for
large projects, financial analysis will enable the analyst to judge the
complexity of the financial management & the capability of
managers so that he can judge what changes in organization and
management may be necessary.
 For project management purposes, there are three fundamental
financial statements that can be used to determine the financial
status of a project
1. The trading and profit and loss account: - indicates the relative
efficiency of the project operations represented in terms of
income over expenditure in a given period of time
2. The cash flow: - indicates the physical flow of money through
the project over a given period of time, i.e, month-by-month,
yearly basis. It indicates the liquidity of the project (its ability to
meet cash requirements)
3. The balance sheet: - indicates the net worth and nature of the
project in financial terms at a specified point of time. Indicators
are: value of assets. The balance sheet indicates how these
assets are funded (like from shares, loans, retained profits from
previous periods of operation)
 An analysis of the profitability of a project is undertaken from the
determination of the profit and loss account. It has three main
purposes:
 To derive indicators of relative efficiency
 To determine the net profit to be incorporated in the balance
sheet
 To determine the tax liability of the project
Economic Analysis
 The economic aspect of project preparation is primarily
concerned with the determination of the likelihood of the
proposed project, and hence the committing of scares
resources, by justifying the significance of the project from
the whole economy point of view (the society as a whole).
 In such evaluation, the focus is on the social costs and
benefits of a project, which may often be different from its
monetary or financial costs, and benefits.
 The financial analysis views the project from the participants
(or owners) point of view, while the economic analysis form
the society’s point of view.
 Decision makers here are concerned about the investment of
scarce capital and other resources that will best further
national objectives. This is true whether the resources
committed are being invested by government directly or by
individuals within the economy.
Economic Analysis
 While financial analysis uses projected market prices to value
inputs and outputs, economic analysis uses ‘economic prices’
or ‘shadow prices’ or ‘efficiency prices’ to better approximate
the opportunity costs of an input – the amount the economy
must give up if the resource is transferred from its present
use to the project.
 Similarly, to value project’s output, economic analysis uses
the marginal value of a given output to approximate the real
value – the value that consumers place on that commodity.
 Thus economic analysis require adjustment of market prices,
which may not reflect the real value of resources and outputs,
into economic prices.
 It also require determination of economic prices of those
goods that might not have market prices but that involve
commitment of real resources.
Economic Analysis
 Purpose of Economic Analysis
 Economic analysis is an assessment of a project’s costs and
benefits from the national point of view and is therefore
concerned with the impact of a proposed project on the national
economy.
 It can be distinguished from financial analysis in that attention is
not confined to the costs and benefits affecting a single group,
the focus of economic analysis is on the net return to society.
 In economic analysis the most important question is whether or
not the project under study is beneficial to the national economy.
 Economic analysis is, therefore, conducted to identify costs and
benefits where there is a significant divergence between market
prices and economic costs or values, and its application is
important in the selection of economically viable projects for
Public Investment Program (PIPs) or Public Expenditure
Program (PEP).
Economic Analysis
 Economic analysis can also be useful in the case of private-sector
projects since it will assist government agencies to make decisions
if they have to give loan guarantees or extend other forms of
assistance or if a private sector project has significant implications
for wider public interests.
 The aims of economic analysis in the context of project preparation
are:
 To ensure that public investment funds are used only for economically viable
projects.
 To ensure that a convincing economic case can be made for PIP or PEP
projects to benefit from external funding.
 Economic analysis is less likely to be needed when:
 The project is small (unless it is a pilot project likely to be replicated),
 The project is financially viable and although to producing primary for the
local market, is receiving no significant protection and involves no significant
negative externalities and no significant use of under valued local resources,
 The project is financially viable and producing mainly for export with no
significant negative externalities and no significant use of under valued local
resources, and
 The project is in a sector where valuation of the benefits is not practical and
where there are no issues of cost effectiveness in determining the project
design.
Economic Analysis
 Stages of economic Analysis
 The starting point for economic analysis is a statement on a year by
year basis of costs and benefits at constant market prices.
 The second stage involves the identification of linkages and
externalities.
 The third stage involves the adjustment of prices of goods and
services taking into account their relative scarcity or estimation of
economic or ‘shadow’ prices.
 Economic analysis of projects involves comparing economic costs
with economic benefits to determine which among alternative project
proposals have• acceptable returns.
 The costs and benefits of a proposed project must, therefore, be
identified. Furthermore, once costs and benefits are known, they
must be priced, and their economic values determined.
 In economic analysis, anything that reduces national income (or a
wider definition of public welfare) is a cost and anything that
increases national income/welfare is a benefit.
Economic Analysis
 Once financial prices for costs and benefits have been determined
and entered in the project accounts, the formulators must estimate
the economic value of a proposed project to the nation as a whole.
 Financial prices are, therefore, the starting point for economic
analysis; they are adjusted as needed to reflect the value to the
society as a whole of both project inputs and outputs.
 The principle of opportunity cost underlies all estimation of values in
economic efficiency analysis. This principle states that the economic
value of a resource is determined by its next best alternative use.
 The idea that the value of a project is determined by the difference
between the assumed situations ‘with’ and ‘without’ project is an
application of the opportunity cost principle. An example of the use
of the opportunity cost principle in economic analysis is provided by
the case of opportunity
 The opportunity cost of land can be investigated by asking what the
alternative use of the land might be. Urban land can be used for
houses, offices, shops, factories, and the like. cost of land.
Social Analysis
 The process of development is inherently social, dealing as it does
with the improvement of social conditions and working through social
structures to achieve these objectives.
 It is, therefore, crucial to integrate comprehensive social assessment
into the project formulation process.
 The precise role of social assessment can be defined as ensuring
that people, their capacities, values and needs are put at the centre
of the development process.
 Project planners must make careful consideration of social factors
when formulating projects.
 Experience has shown that ignorance of these factors can lead to
project failure.
 Project formulators who have designed projects by applying expert
knowledge without stakeholder consultation have often failed to
achieve positive results.
Social Analysis
 If social assessment is primarily concerned with ensuring that
projects, and consequently the development process, are ‘people-
centered’ then the following points must be taken into account in any
project formulation exercises. These are:
 Identifying of stakeholders and target groups.
 Identify their problems
 Participation issues.
 Social impact assessment (SIA)
 Assessing of mitigation measures, strategies and costs of SIA.
 Once the various stakeholders have been identified it is then
necessary to consider their interests. These interests should be
entered in the second column of the stakeholder table. When
identifying stakeholder interests it is important to keep the following
points in mind:
 Relate the stakeholders’ concerns to the project objectives.
 Identify direct or indirect benefits which they are likely to receive from
the project.
 Consider the costs they are liable to incur directly or indirectly as a
result of the project.
Social Analysis
 The aim of participation is to produce a situation where stakeholders
are willing to contribute to the successful implementation of the
intended project and its future sustainability.
 Participatory approaches, which create an awareness amongst
stakeholders of their own situation, of the socio-economic
environment they live within, and of measures they can take to begin
changing their environment, should be considered during project
formulation.
 When dealing with participation as an element of project formulation
it is important to think in terms of both quality and quantity that
should be related to project objectives.
 This is because the level of participation necessarily varies from
project to project and, while participation is important in all projects,
some projects may even have participation as an objective in its own
right.
 A useful place to begin when analyzing the level of participation
expected and actually present in project formulation is with the
construction of a participation matrix.
Social Analysis
 Social impact assessment (SIA) is a term used to classify the
process of assessing how the benefits (and Costs) of a project are
distributed amongst various stakeholders over time. SIA is often
used in evaluating the ‘winners’ and ‘losers’ of proposed policy
reforms but its techniques can also be applied to project analysis.
SIA is essentially concerned with three distinct areas:
 Impact of the project on its stakeholders.
 Impact of the stakeholders in terms of achieving the project
objectives.
 People’s response to the opportunities created by the achievement
of the project objectives.
 SIA is inextricably linked with stakeholder analysis; indeed
stakeholder identification is the first of five distinct stages which
together comprise Social Impact Assessment:
 Stage 1, Scoping - This involves stakeholder identification with
environmental scoping, if scoping of social impact, determines no
significant negative effects then there will be no need to carry out
further SIA.
Social Analysis
 Stage 2, Baseline and impact identification- This involves a
consultative process of information-gathering regarding community
baseline data like that undertaken in PRA and a consultative process
in terms of identifying the potential social impacts of the project. This
process is liable to utilize a variety of techniques such as:
 Quantitative surveys
 PRA
 Qualitative questionnaires
 Community discussions
 Ethnographic field research
 Stage 3, Development of mitigation measures- Once the potential
impacts have been identified the ‘next stage is to formulate
measures to minimize those negative impacts whilst maximizing the
positive impacts.
 Stage 4, Production of draft SIA- Once the impacts have been
identified and mitigation measures formulated the next stage is to
produce a draft of the social impact assessment document which
contains this information
Social Analysis
 Stage 5, Production of final SIA and social impact
management plan- The final document will consist of a social
impact assessment report and a management plan
containing details of the mitigation measures and strategies
to be undertaken together with their associated costs.
 The time required to undertake SIA can vary greatly
dependent on the scale of research and size of sample
areas. Due to overlapping data requirements and the need to
minimize resource duplication, it is recommended that SIA be
carried out simultaneously with stakeholder analysis and
institutional Aspect.
 Assessment of mitigation measures, strategies and
costs
 The success of this stage of the social assessment process
is largely dependent on the quality of stakeholder analysis
and social impact assessment carried out previously.
Social Analysis
 The assessment of mitigation measures, strategies and costs
will form the social impact management plan produced along
with the SIA report.
 The analytical work carried out in previous stages of social
assessment (stakeholder analysis, participation and gender
analysis etc.) is likely to have identified potential options to
limit the negative impact on stakeholders.
 These options now need to be studied in more detail in order
to develop a comprehensive strategy to mitigate negative
impacts.
 Stakeholder consultation is essential in order to suggest both
feasible and desirable mitigation measures.
 Both costs and benefits of mitigation strategies should be
calculated.
Environmental Analysis
 Environmental analysis is a field of growing importance in project
preparation.
 Underestimation of the environment has resulted in negative
outcomes such as poor human health, social disruption, reduced
productivity and, ultimately, the undermining of development. When
considering environmental aspects into project formulation exercises
there are a number of issues that should be taken into
considerations, these include:
 A clear understanding of the meaning of Sustainability
 Assessment of the potential environmental impact of the project.
 To suggest ways in which that impact could be reduced at a
reasonable cost.
 To formulate mitigation strategies and a plan of action.
 Environmental sustainability of a development project
 The World Commission on Environment and Development (WCED)
defined sustainable development as “development that meets the
needs of the present without compromising the ability of future
generations to meet their own needs”.
 This definition leads to the idea of maintaining environmental capital.
We should hand on to future generation an environmental capital
stock at least as valuable as that which we inherited.
 This proposition raises the problem of defining the economic value
of a capital stock. To help resolve the problem and also to provide
guidance for the formulators a distinction needs to be clear among
the following:
 Man made capital, which is potentially expandable.
 Critical natural capital, which is priceless.
 Other natural capital, which may be nonrenewable and renewable.
 The implications of the above classifications of capital stock are that
the project formulators must seek to:
 Maintain, if possible increase, the value of man made capital.
 Avoid damage to critical natural capital at all costs.
 Limit exploitation of renewable natural capital to sustainable
level.
 Internalize the cost of depleting non-renewable resources
through some form of compensation measures.
 Stages of environmental assessment
1. Environmental screening
 Not all projects will require a full-scale environmental study;
nonetheless, it is important to be aware of the potential
environmental effects of a project. The first stage in the identification
and assessment of environmental impacts is environmental
screening. The purpose of this screening process is to assess the
type and complexity of environmental analysis techniques, which are
likely to be necessary.
 Just as with general project screening the process aims to assess
the project against simple criteria, to determine whether more
detailed analysis are needed.
 Criteria used in environmental screening may include:
 Location- projects that are being implemented in environmentally
sensitive areas are liable to need further assessment.
 Type of project- projects such as mines and dams are liable to cause a
great deal more damage than social projects.
 Size- larger projects are more likely to require further, more detailed
assessment
 Complexity- a project with a number of disparate components is
liable to have a wider range of environmental impacts, which need
careful consideration.
 Data used in the screening process may take the form of general
estimations or information already gathered from any similar
projects. There are two possible results of environmental screening:
 The project can continue as planned with no further environmental
impact assessment.
 There is a need to prepare a more detailed preliminary assessment.
2. Preliminary assessment
 The preliminary assessment involves conducting a process of
research and utilizing expert advice in order to achieve three
objectives:
 To identify the key impacts of the project on the environment
 To predict and describe the impacts identified above
 To assess the potential importance of these impacts to decision
makers.
 The information gathered during this preliminary assessment will
assist the formulators in deciding whether a project should be
cleared, rejected on environmental grounds or submitted to
Environmental Impact Assessment (EIA).
 There are a number of useful checklists produced by different
organizations, including the Ethiopian Environment Authority
(EPA) that can help determine the likely level of assessment
required. The formulators are, therefore, advised to refer to the
appropriate guidelines or concerned authority.
3. The meaning of environmental impact assessment
 Environmental Impact Assessment (EIA) is concerned with the
identification, prediction and evaluation of the impacts of
proposed project alternatives and measures aimed at eliminating
or minimizing damaging impacts and optimizing beneficial
impacts. It is now widely accepted that those projects which
incorporate EIA when necessary are more effective and often
less costly.
 Not all projects require environmental impact assessment to
the same degree and intensity.
 Thus the classification of projects to determine the level of
assessment is very useful for project formulation. Many
donors/lenders and countries, including Ethiopia have
developed four categories of EIA procedures. These are,
named as category A, B, C and D.
 Category “A” projects are those projects and components that
have diverse and significant environmental impacts. These types
of projects require full environmental impact assessment. Dams
and reservoirs, mineral development, resettlement and urban
development are typical examples of such projects.
 Category “B” projects are those projects and components that
have specific environmental impacts. As the impact is specific
limited environmental analysis is appropriate. Typical examples
of projects that fall under this category are rural water supply and
sanitation, renewable energy and small scale projects.
 Category “C” projects are those projects that normally not
result in significant environmental impact. These projects do not
require environmental assessment. Technical assistance,
consultancy, training and workshops are good examples.
 Category “D” projects are environmental projects. These are
projects with a major environmental focus whose objective can
be waste disposal, desalination or wildlife protection etc.
Environmental projects do not require EIA.
 In identifying significant environmental impact assessment,
project formulators must consider the following criteria:
 The length of time and geographical coverage over which the
effects will be felt.
 The urgency which refers to how quickly a natural system might
deteriorate and how long it takes to stabilize.
 The degree of irreversible damage to the environment, natural
resources and life supporting systems.
 When conducting the process of EIA there are clearly defined
stages or procedures which should be taken into consideration.
These are:
 Identifying of the various potential impacts of the project on the
environment.
 Predicting of the extent of the environmental changes.
 Assessing of whether or not the identified and predicted changes
are of any environmental significance.
 Planning of mitigation measures or alternatives that could reduce
the project’s environmental impacts.
 EIA will lead to an eventual decision to accept, reject or modify a
project.
 If the project is seen to have a potentially serious impact on the
environment then it is necessary to prepare an environmental
management plan (EMP) with the requirement of financial
expenditure.
 Assessment of mitigation measures, strategies and costs
 Where potentially negative environmental impacts have been
identified as a result of assessments outlined above, it is
necessary to consider ways in which these impacts can be
overcome. This involves suggesting various measures and
strategies to avoid, reduce or overcome these impacts. These
various measures and strategies can be defined as forms of
mitigation. A general overview of the various types of measures,
include to:
 Avoid negative impacts- redesign the project to avoid those
areas with the potential to cause significant environmental
impact. The most extreme example of this strategy is to abandon
the project altogether because the potential impacts are too
serious. This is an extreme example, other avoidance strategies
may include: changing the project’s location; establishing buffer
zones around sensitive ecosystems; avoiding transport routes
with the potential to disrupt local populations and related
activities; and deciding to exclude a certain project component
because of its potential impact.
 Reduce negative impacts- this involves introducing mitigation
measures to reduce the impact of existing activities. Reduction
activities could include: treatment plants to reduce pollution;
landscaping and using local materials to reduce the visual impact of
new structures; scheduling project activities during the dry season to
reduce
 Compensate for negative impacts- in some instances it will not be
possible to avoid or reduce environmental impacts entirely. If this is
the case then it will be necessary to include compensation for
affected populations. This compensation could be financial or in the
form of a compensatory project which aims to produce benefits for
affected people.
 It is essential that mitigation measures be planned in a coherent and
integrated manner to ensure that they work effectively in
combination and do not simply transfer the negative impact to
another area. In projects where serious environmental impacts have
been identified it will be necessary to collate these mitigation
strategies in the form of an environmental management plan (EMP).
 Environmental valuation techniques
 Valuation of environmental effects includes the measurement of
environmental costs and benefits. There are various methods of
estimating environmental costs and benefits. These methods can
be categorized as:
 Objective Valuation (OV) methods that are based on physical
relationships describing cause and effect to value the physical
effect.
 Subjective Valuation (SV) methods are based on subjective
assessment derived from real or hypothetical market behavior.
 Valuation techniques can also be divided between those that
attempt to:
 Value both costs and benefits that can be included in an overall
cost and benefit calculation.
 Concentrate on the cost side and might be used in either in cost
effectiveness analysis or in some other form of analysis.
 The various approaches to the valuation of environmental effects are
described below:
 Those that attempt to based on “OV” include:
 Effect on production or changes in productivity approach involves the
estimation of the effect of an environmental change on production in
the affected/proposed project area. It is mainly applicable in projects
affecting natural resources such as forests, fish and soil.
Determining the physical effects of a project on the environment and
estimating the values of the effects are a straightforward approach to
estimate the costs of environmental mitigation.
 Lose of Earnings Approach includes the valuation of human life and
cost of illness approaches. This applies particularly to air and water
pollution. The methodology involves calculating the loss of earnings
through sicknesses or premature deaths.
 Replacement cost and compensation approach, which take into
account environmental damage by compensating or
replacing/restoring the damaged asset. These techniques are
applicable where the cost of restoration/compensation is less than
the value of the resources destroyed.
 The SVa methods include:
 Hedonic methods attempt to value a particular environmental state
based on surrogate markets. These markets use ‘property value
approach’ (e.g. housing) and ‘wage differential approach’ (e.g.
labor). In property value approach, environmental impacts are
derived from changes in values. The wage differential is used to
estimate the costs associated with the risk of ill health or death at
work. These methods are applicable where market efficiencies are
strong to justify the assumptions, which will be unlikely for
developing countries.
 Contingent valuation techniques which are used to establish
‘willingness to pay’ for environmental improvement or ‘willingness to
accept’ environmental damage.
 It is not possible to provide exhaustive lists/methods of valuation
techniques. It is up to the formulators to select those techniques
applicable to a project under consideration.
 Whatever strategy is chosen, it will be necessary to consider the
associated costs and who has the responsibility to provide funds to
cover these costs.
 Environment management plan (EMP)
 The Environmental Management Plan (EMP) sets out the various
mitigation measures and related monitoring and institutional
arrangements to be carried out to reduce the environmental impact of a
project. An EMP is not required for all projects, but if serious potential
impacts were identified during EIA. Relating this to the project
categorization for EIA mentioned above an EMP should be prepared for:
 All Category ‘A’ projects.
 Some Category ‘B’ projects.
 A project’s environmental management plan should consist of the
following components:
 Mitigation: potential mitigation strategies are identified from the
categories described in EIA as mentioned above.
 Monitoring: the EMP must set out arrangements for monitoring of
potential impacts and mitigation measures throughout the
implementation and operational phases of the project cycle.
 Institutional Arrangements: this may relate to the establishment of
environmental units with the specific task of implementing the EMP.
 Implementation Schedule and Costs.
 The EMP must provide:
 A project implementation schedule for all aspects of
mitigation, monitoring and institutional arrangements.
 A detailed breakdown of the costs related to the
implementation of mitigation, monitoring and
institutional arrangements.
 These costs should be integrated into total project costs
tables.
 The environmental management plan should be integrated
into the overall implementation plan, budget and project
analysis.
 It should not be seen as a separate, external component, but
rather as an integral part of the project as a whole.
Measures of Project Worth
 When costs and benefits have been identified, quantified and priced
(valued), the analyst is trying to determine which one, among various
projects, to accept and which to reject.
 There are two methods for measuring the worthiness of projects:
undiscounted & discounted methods.
 The arithmetic of these discounted methods, and the way we
interpret the measures and their limitations, is exactly the same
whether we are using them for financial analysis or for economic
analysis.
 Before embarking on the methods, it is important to note two critical
points. First, there is no one best technique for estimating project
worth; each has its own strength & weakness.
 Second, these financial and economic measures of investment worth
are only tools of decision-making, i.e., they are necessary conditions
& are not sufficient condition for final decision.
 There are many other non- quantitative and non-economic criteria for
making final decision of whether to accept or reject a project.
 Investment Criteria
Investment
Criteria
Average return on investment
Discounting Non-discounting
Criteria Criteria
Intern
al (Payback
Benefi
Rate Period)
t Cost
of Decision by
Ratio
Retur inspection
Net n ( Accounting
rate of Return)
Present
Value
 Net Present Value
 The Net Present Value (NPV) of a project is the sum of the project
values of all the cash flows-positive as well as negative-that are
expected to occur over the life of the project.
 The general formula for NPV is:
n
ct ( FV )
NPV   I
t 1 (1  r )
t
 Ct = cash flow at the end of year t

 FV = future value
 n= life of the project
 r = discount rate
Year Cash flow
0 Birr (1,000,000)
1 200,000
2 200,000
3 300,000
4 300,000
5 350,000
If the cost of capital (discount rate) is 10%, then NPV is

calculated as follows
200,000 200,000 300,000
NPV  1
 2
 3

(1.10) (1.10) (1.10)
300,000 350,000
4
 5
 1,000,000  5,273
(1.10) (1.10)
NPV/I = Profitability Index

 The NPV represents the net benefit over and above the
compensation for time and risk. Hence, the decision rule associated
with the net present value criterion is: accept the project if the NPV
is positive and reject it if NPV is negative.
 Properties of NPV:
 NPVs are additive:- The NPV of a package of projects is simply the
sum of the net present values of individual projects included in the
package.
 Intermediate Cash Flows are Invested at Cost of Capital:- The NPV
rule assumes that the intermediate cash flows of a project-that is,
cash flows that that occur between the initiation and the termination
of the project-are reinvested at a rate of return equal to the cost of
capital
 NPV calculation permits time-varying discount rates:- when the
discount rate changes over time, we use a different formula like the
one shown below:
Interest rate 14% 15% 16% 18% 20%
Investment -12000
Cash flow 4,000 5,000 7,000 6,000 5,000
PVC1  4,000 / 1.14  3509
PVC 2  5,000 /(1.14  1.15)  3814
PVC3  7,000 /(1.14  1.15  1.16)  4603
PVC4  6,000 /(1.14  1.15  1.16  1.18)  3344
PVC5  5,000 /(1.14  1.15  1.16  1.18  1.20)  2322
NPV of Project =3509+3814+4603+3344+2322-12000 = 5592

Exercise
 Find the NPV of the following projects and choose the best project
Projects Initial Cash Flows

Investment
Year 1 Year 2
(Outlay)
A 10,000 - 10,000
B 10,000 10,000 1,100
C 10,000 3762 7762
D 10,000 5762 5762
Cost of capital (discount rate) is 10%
 Use the same discount rate given above and find the NPV of a project with a life of
five years and an initial investment outlay of Birr 100,000 and a cash flow of 50,000
each year across the project life span? we call this instance annuity & for computing
NPV we can use this formula :1/r(1-[1/(1+r)]n) where n=no of years=5
Interest rate 10% y1 Year 2 y3 y4 y5

Investment 100000
Cash flow 50,000 50,000 50,000 50,000 50,000
CF / DF
PVB BCR 
(1) BCR   I
I
PVB  I
(2) NBCR   BCR  1
I
PVB = present value of benefits, I = initial investment
100,000 25,000 40,000 40,000 50,000

 2
 
Benefits Year 1 25000 (1.12) (1.12) (1.12) (1.12) 4
3
BCR   1.145
Year 2 40000 100,000
Year 3 40000
Year 4 50000
When BCR > 1 or NBCR > 0 accept
When BCR < 1 or NBCR < 0 reject the project
 Internal Rate of Return (IRR):- emerges from the cost-benefit data
of the project
 It is the discount rate that reduces the NPV of a project to zero
IRR = Discount Rate, which makes the NPV zero
NPV
NPV
IRR
Discount Rate
 Internal rate of return (IRR)
 The internal rate of return is defined as the rate of discount, which
brings about equality between the present value of future net
benefits & initial investment. It is the value of r in the following
equation. n
Ct
I   1  r 
t 1
t
 I – investment cost
 Ct – Net benefit for year t
 r - IRR
 n - Life of the project
 Illustration: For project A in the above table can be formulated as
follows:
Year 0 1 2 3 4
Cash flow (100,000) 30,000 30,000 40,000 45,000
IRR is the value of r which satisfies the following equation:
30,000 30,000 40,000 45,000

100,000    
1  r 1 1  r 2 1  r 3 1  r 4
 The calculation of r involves a process of trial and error. We try different
values r till we find that the right-hand side of the above equation is equal to
100,000. Let us try to use 15%. This makes the right-hand side to be:
30,000 30,000 40,000 45,000
100,000      100,802
1.15 1.15 1.15
2 3
1 .154
Since the value is slightly higher than our target value, which is 100,000,
we increase the value to 16%.
30,000 30,000 40,000 45,000
100,000      98,641
1.16  1.16 2 1.16 3 1 .16 4
 Since this value is now less than 100,000, we conclude that the
value of r lies between 15 and 16%. For most of the purposes, this
indication suffices.
 If a more refined estimate of r is needed, we use the following
procedure:
1. Determine the NPV of the two closest rates of return
(NPV/15%) = 802
(NPV/16%) = 1,359
2. Find the sum of the absolute values of the NPVs obtained in Step 1
802+1,359 = 2,161
3. Calculate the ratio of the NPV of the smaller discount rate, identified
in Step 1, to the sum obtained in Step 2
802/2,161 = 0.37
4. Add the number obtained in Step 3 to the smallest discount rate
15+0.37 = 15.37
 NPVL x ( H  L ) 
IRR  L    xH  L
 NPVL  NPVH 
Lower discounting rate + (NPV at lower rate/difference b/n NPVs) x difference in
rates)
Exercise: Find the IRR for a project with initial investment (outlay) of
120,000 and a cash flow given in the table . Use the formula given in here
Year Cash 20% NPV @ 20% 24% NPV @24%

flow (discount rate (discount rate x
x cash flow) cash flow)
1 60,000 0.833
2 60,000 0.694
3 60,000 0.579
NPV
IRR = 23.365%
 Payback Period
 The payback period is the length of time from the beginning
of the project until the sum of net incremental benefits of the
project equal to total capital investment. It is the length of
time that the project requires to recover the investment cost.
 The method is very simple. Moreover, it is a good measure
when the project has problem of liquidity.
 The pay-back period is also a common, rough means of
choosing among projects in business enterprise, especially
when the choice entails high degree of risk. Since risk
generally increases with futurity, the criterion seems to favor
projects that are prima facie less risky. This method has two
important weaknesses: First, it fails to consider the time &
amount of net benefits after the payback period. Second, it
does not adequately take into account the time value of
money even in the payable periods.
 Payback Analysis
 how long will it take (usually, in years) to pay back the
project, and accrued costs:It indicates the number of years
the project will take to repay its investment cost
 It is the length of time between the starting time of the project and the
time when the initial investment is recovered in the form of yearly
benefits
Alternative Year Investment cost Net incremental Cumulative net
projects benefits incremental benefits
I 1 20000 -
2 2000 31000
3 8000
4 12000
5 9000
II 1 20000 -
2 2000 34000
3 12000
4 8000
5 12000
III 1 20000 -
2 1000 37000
3 5000
4 6000
5 8000
6 10000
7 5000
8 2000
 Project I & II have a payback period of 4 year.
 But project III has a payback period of 5 years.
 Thus, based on this criterion, project I & II have equal higher
rank than project III.
 Therefore, the method fails to consider the time & amount of
net incremental benefit after the payback period- project III.
 In addition, the method results equal rank for both project I
and II.
 Yet we know by inspection that we would choose project II
over project I because more of the returns to project II are
realized earlier.
 This method is a measure of cash recovery, not profitability.
 Exercise 1: Find the PBP
Year Initial Investment Cash Inflows Cumulative
(Rs) (Rs) Cash Inflows
(Rs)
(1) (2) (3)
(4)
0 10,000 - -
1 - 1,500 1,500
2 - 3,000 4,500
3 - 9,000 13,000
4 - 27,000 40,500
The PBP is-----------------------------

 Accounting Rate of Return (ARR)
 ARR differs from the payback period in using accounting profits rather than
cash flows
 It is calculated by taking the average annual profits expected from a project
as a percentage of the capital invested
ARR = Average annual profit x100/outlay,

Cash Flows A B C
Outlay 120,000 120,000 120,000

After deducting depreciation
Year 1 30,000 20,000 10,000

Year 2 30,000 20,000 70,000
Year 3 30,000 20,000 80,000
Average Annual Profit 30,000 20,000 53,333
ARR of A = 30,000 x100/120,000 = 25%,

ARR of B = 20,000 x 100/120,000 = 16.7%,
ARR of C = 53,333 x 100/120,000 = 44.44%
 Average Return on Investment
 It is a measure of aggregate benefits that the investment will
produce
 The desired ARI will reflect the bare minimum that will make
investors commit funds for the project
 Steps to compute ARI:
1. Find the total cash inflows over the project life
2. Subtract the initial investment from the total cash inflows. This is
the total net income over the project life
3. Find the average annual income by dividing total net income by
the project life in years
4. ARI is the ratio of the average annual income to the initial
investment
 ARI considers all the cash flows generated from a project during its
life
 Exercise 2: Compute ARI from the following data
Year Initial Cash 1. Initial Investment: (2)

Investment Inflows 2. Total Net income: (3)-(2) = X
0 2,300 - 3. Average Annual Income: X/(1) =Y
4. ARI: Y/(2)x100 =
1 - 331
(1)Initial investment =2300, (2)total net
2 - 430 income =2394-2300=94,
(3),AAI94/5=18.8(year)
3 - 553
(4),ARI18.8/2300= 0.008174, x100=
4 - 544 0.8174%(ARI)
5 - 536
Total 2,300 2,394
(1) (2) (3)
THE END
THANK YOU!

Project Design and Analysis

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Project Design and Analysis

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Project Design,

Planning: the process of preparing a blue print of actions to

attain stated objectives within a time frame.

 “The plans of the diligent lead to profit as surely

 it enables us to formulate what we intend to

There are many barriers to planning. These include:

PROJECT CYCLE MANAGEMENT

 Use of the Logical Framework Approach to ensure a consistent

Need: Normative:- a situation defined by an expert

 If any one of these are not undertaken properly, the progress

Who? External experts Stakeholders, including

What? Predetermined indicators, to Indicators identified by

How? Questionnaire surveys, by outside Simple, qualitative or

Why? To make project and staff To empower stakeholders to

 Potential or actual conflicts

 Social relationships (social capital).

 Structure, organization, size, and leadership are important

+/- possible positive and negative impact on interest

Women Better health, Walk less far to + 1

Children Better health, walk less far to + 1

MoH Achievement of targets + 4

Low Influence High

Low Interest High

Often, so-called participatory projects do not actively involve

Being manipulated; Informing

Decided by others Decided by ourselves

inform consult partnership control

During the project cycle we might find that stakeholders, who we

inform consult partnership control

Identification Health NGOs Cross section of

Reviewing Donor Women,

Bank Flooded area

Proposed pumping station

 Once the map has been drawn, encourage discussion by asking

Lower slope Middle slope Mountain

Problems  Land shortage  Erosion

Opportunities  Paid labor on estates  Erosion control

Poor tactics poor skills

High rates of infection

Poor nutritional status

Poor availability of high protein foods

Once complete, the problem tree represents a comprehensive picture of

 To ensure a more complete diagnosis, include as many

But why? But why?

Poor yields Local factory immigration

Extinction of some Loss of tradition and

Declining sea turtle populations

Destruction of turtle Increasing consumption

 Only one problem per card?

 Are any information gaps marked?

 To begin building the problem tree, the group selects one

Core problem/trunk: poor yields

Poor soil No HYV seeds

Sea turtle communities cultural traditions

Local population of sea turtles increased

Turtle nested Sustainable of

Improved law Protection and Conservation Local

enforcement sustainable awareness in management

Sea turtle communities cultural traditions

Turtle nested Sustainable of

Improved law Protection and Conservation Local

enforcement sustainable awareness in management

dd for farm More wells Wells Hand