By Abigail Pugal Somera

DM 211 Project Development & Management 2nd Sem 2013-2014 Prof. Josefina B. Bitonio, DPA

To be able to understand the phases of

a Project Life we first have to

understand the different

interpretations of a Project Life Cycle

as interpreted by different global

organizations that deal with

governments.

• ADB Project Cycle

Country Partnership Strategy / Regional

Cooperation Strategy

Preparation

Approval Implementation

Completion /

Evaluation

• World Bank Project Cycle

Country Assistance

Strategy (1)

Identification (2)

Preparation, Appraisal and

Board Approval (3)

Implementation and Supervision

(4)

Implementation and Completion

(5)

Evaluation (6)

Cycle Order ADB World Bank

1 Country Partnership

Strategy / Regional

Cooperation Strategy

Country Assistance

Strategy

2 Preparation Identification

3 Approval Preparation, Appraisal

and Board Approval

4 Implementation Implementation and

Supervision

5 Completion / Evaluation Implementation and

Completion

6 Evaluation

I. Pre – Investment

II. Investment

III. Operations

IV. Evaluation

Support Studies:

•Opportunity Study

•Pre-feasibility Study

•Feasibility Study

•Appraisal and Decision

Negotiation and Contracting

Engineering Design

•Construction and Training

•Start-up

• Objective/s: • Find Promising Business Opportunities

• Screen According to Criteria

• Classify for Further Study or Later Consideration

• Characteristics:

• Preliminary Information from Knowledgeable Individuals and

Promotion Agencies

Develop Selection Criteria

Screen Ideas vs. Criteria

Acceptable?

Reject Rework Later

Reconsider

Further Study

Scan Sources of Ideas and Lists

Profile Readily Available Data

YES

NO

• Investment Opportunities

• Demand

• Linkages

• Problems

• Resources

• Development

• Trade

• Technology

• Government Policy

• External Constraints

• Sources of Ideas

• National, Regional Development Plans

• Sector Studies

• Local Resource Studies

• Other Countries’ Experience

• Product Classification Lists

• Size and Growth of Market

• Local Resources

• Plant Size

• Appropriate Technology

• Size of Investment

• Estimated Financial Indicators

• Requirements and Constraints

• Varies according to Investigator

• Investor

•Lender

• Risk of All Concerned

• Set-up Screening System to Measure Long-Term

Potential

• Concentrate on Best Prospects

• Quick Negative Decision Better than Delay

• Assure Commitment of Potential Sponsor to

Implementation

Micro

• Business Concept

• Investors

• Market

• Resources

• Entrepreneur

• Criteria Satisfaction

Macro

• Business Climate

• Business Cycle

• Economic Trend

Allocation of Investment Resources

SU

PPO

RT S

TU

DIE

S

PROJECT IDENTIFICATION

OPPORTUNITY STUDY

PRE-FEASIBILITY STUDY

FEASIBILITY STUDY

APPRA

ISA

L

ITER

ATI

ON

S

IMPLEMENTATION

IDENTICAL SCOPE AT ALL LEVELS,

INCREASING ACCURACY AND

PRECISION

• Related to preparation of investment studies

C • Collecting

O • Organizing

P • Processing

A • Analyzing

• Executive Summary

• Project Background and Basic Idea

• Market Analysis and Marketing Concept

• Raw Materials and Supplies

• Location, Site and Environment

• Engineering and Technology

• Organization and Overhead Costs

• Human Resources

• Implementation, Planning and Budgeting

• Financial Analysis and Investment Appraisal

Objectives:

• Refinement of Business Idea

• Preliminary Evaluation of Alternative Approaches

• Preliminary Assessment of Strengths and Weaknesses of

Concept

Characteristics:

Sketchy, Based more on rough aggregate estimates than on

detailed analysis

Objectives:

• Preliminary Project Assessment

• Identify Project Alternatives

• Identify Critical Aspects that Require Special Support Studies

Characteristics:

Intermediate Level of Detail Based Primarily on Secondary Data

Objectives:

Provide Commercial, Technical, Financial and Economic Information Needed for Investment Decision-Making

Characteristics:

• Clear Project Concepts and Criteria

• Comprehensive Project Design

• Reliable Information, Often Primary Data

• Quantified Prediction or Performance

• Detailed Analysis with High Confidence Level

• Consistent and Defensible Conclusion

Objectives:

Provide Detailed Technical Analysis of Critical Design Features

Characteristics:

• Limited Scope

• Performed by Technical Experts

• Answer Key Questions

• Degree of Rigor Commensurate with Stage of Project

Development

• Markets

• Inputs

• Location

• Technology

• Equipment

Comparing Project Characteristics with Criteria

• All Sectors of Economy

• Revenue and Non-revenue Projects

• All Types of Projects

• New Investment

• Modernization

• Expansion

• Privatization

• Technology Acquisition

• Equipment Replacement

• Public and Private Investment

• Commitment of Scarce Resources

• Expectation of Future Benefits

• Inherent Uncertainties

PARTICIPANT INVESTOR FINANCIER REGULATOR GUARANTOR SUPPLIER

Commercial 1 2 2 1 2

Market 1 2 2 1 2

Technology 1 2 2 2 2

Finance

•Return 1 2 2 2 2

•Liquidity 2 1 3 1 1

•Debt

Service

2 1 3 1 2

Economy 3 3 1 3 3

1 VERY IMPORTANT

2 SOMEWHAT IMPORTANT

3 NOT SO IMPORTANT

• Is it compatible with other Investment Activities?

• Is the Project potentially bankable?

• Does the project make the best use of the Sponsor’s Resources?

• Do I have the capacity to energize the project and to retain its momentum in the face of obstacles to growth?

Local Partner

(on the ability of Foreign

Partner to contribute more

equity)

• “He can afford it.”

• “The exchange rate is

wrong.”

• “He wants our market.”

Foreign Partner

(on the reason to offer lower price for participation)

• “Political and Economic Risk”

• “Low Purchasing Power in the Marketplace”

• “Uncertain Future Earnings”

• “Workers’ Demands”

• “Book Value is Irrelevant”

MICRO

Project Level

COMMERCIAL

PROFITABILITY

MACRO

National Level

NATIONAL

PROFITABILITY

• Does the Project Make Sense for the Country?

• Consistent with Development Goals?

• Positive Impact on Macro-economic Indicators?

• Satisfy Economic Rate of Return Criterion?

• Purpose

• Project Background

• Analysis of

•Commercial / Market

• Technology

• Environmental Impacts

• Institutional / Managerial

• Financial

• Economic and Social

• Conclusion

• Is it a Sound Business Concept?

• Is there a Market for Product

/ Service?

• Is the Marketing Strategy Viable?

• Are the Sales Projections Realistic?

• Is the Distribution Plan Viable?

• Is the production at a competitive price?

• Is the process technology accessible?

• Are the operating conditions sustainable?

• Will we be able to provide the quality demanded by the

market?

• Are the inputs to the planning reliable?

• Are there adequate technical personnel?

• Do process emissions and

effluents meet or exceed

regulated standards?

• Are products environmentally

acceptable?

• Do impacts indicate future

regulatory actions?

• Are the following Competent?

• Entrepreneur

• Implementation Management

• Operations Management

• Is the organization capable of executing

necessary functions?

• Are the financial resources adequate to

planning?

• Will there be adequate returns to the investor?

• Are the financial criteria of other participants

satisfied?

• Are the financial risks and risk sharing

acceptable?

• Is the financial structure acceptable?

• Wrong Timing

• Non-optimal Financing

• Over-estimated Market Potential

• Under-estimated Capital Cost

• Under-estimated Competition

• Planned Capacity Inconsistent with Market

• Unidentified Sources of Skilled Personnel

• Inadequate Infrastructure

• Project Design Alternatives

• Ineffective Planning

The process of identification, analysis and either acceptance or

mitigation of uncertainty in investment decision-making.

Essentially, risk management occurs anytime an investor or fund

manager analyzes and attempts to quantify the potential for

losses in an investment and then takes the appropriate action

(or inaction) given their investment objectives and risk tolerance.

Inadequate risk management can result in severe consequences

for companies as well as individuals. For example, the recession

that began in 2008 was largely caused by the loose credit risk

management of financial firms.

Any project organization is subject to risks. One which finds itself

in a state of perpetual crisis, is failing to manage risks properly.

Failure to manage risks is characterized by inability to decide

what to do, when to do it, and whether enough has been done.

Risk Management is a facet of Quality, using basic techniques of

analysis and measurement to ensure that risks are properly

identified, classified, and managed.

• Identify Uncertainties

Explore the entire project plans and look for areas of uncertainty.

• Analyze Risks

Specify how those areas of uncertainty can impact the performance of the

project, either in duration, cost or meeting the users' requirements.

• Prioritize Risks

Establish which of those Risks should be eliminated completely, because of

potential extreme impact, which should have regular management attention, and which are sufficiently minor to avoid detailed management attention.

• Mitigate Risks

Take whatever actions are possible in advance to reduce the effect of Risk.

It is better to spend money on mitigation than to include contingency in the plan.

• Plan for Emergencies

For all those Risks which are deemed to be significant, have an emergency

plan in place before it happens.

• Measure and Control

Track the effects of the risks identified and manage them to a successful

conclusion.

• UNIDO Methodology for the Identification, Preparation and

Evaluation of Investment Projects, Costa Rica, Sept 23-27, 2002

• http://www.investopedia.com/terms/r/riskmanagement.asp

• http://www.netcomuk.co.uk/~rtusler/project/principl.html