Good Morning

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Welcome to the Training on Project
Management

Date: Megabit 20/2010

Melese Zenawi Leadership Academy
Addis Ababa 2
• Introduction
• Setting Norms
• Time management
• Reporters
• Energizing team
• Expectations

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• Name ....
• Educational background ...
• Work experience ...
• What I like most....
• What I hate most ...
• What do you expect from this training?

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 Facilitator
Temesgen Dagne (PhD candidate, MBA, MCom,
BSc, PGDHRM, PGDIM, PGDIBO, DIM, CPM,
AFP, CML)
Lecturer, Consultant and Trainer
Associate Consultant at Ethiopian Management
Institute
Email: [email protected]
Cell phone number: 0911103995
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“ Everything begins with project and
ends with another project….”

… now let us start our project…..with

the introduction ….

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• How should we govern
our training?
• What are the Individual
duties and
responsibilities?

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 • Time manager (s)
1. Xxxx
2. Xxxx

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• Day 2: xxxx

• Day 3: xxxx

• Day 4: xxxx

• Day 5: xxx

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• Team members
1. xxx
2. xxxx

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Session 1: Overview of Development Project Concepts
Session 2: Participation in project planning and
management
Session 3: Project Identification
Session 4: Project Preparation/formulation
Session 5: Project Proposal writing
Session 6:Project Appraisal
Session 7:Project organization and implementation
Session 8:Project Monitoring, Evaluation and close out

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 Mode of delivery
Brainstorming
Lecture
Individual Reflection
Group discussions
 Group presentation

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• The general objective of the training is to
enhance the capacity of trainees and enable
them to use the techniques and tools in
planning and managing development
projects.

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By the end of the training participants will be able to:
– describe the conceptual framework on project and project
cycle
– illustrate methods used in project idea generation
– Explain project identification and preparation
– formulate a project proposal
– understand the concept, importance of stakeholders and
community participation in development interventions and
utilize the participation tools
– explain approaches and techniques that have been effective
in planning and managing project implementation
– acquire basic knowledge on project monitoring, evaluation
and reporting
– Play an active role in project preparation,
implementation, monitoring and evaluation of
projects
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 “Our current problems cannot be solved with
the same level of thinking which created
them.”

Albert Einstein

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 Quote

If you can’t fly, then run,

If you can’t run, then walk,
If you can’t walk, then crawl,
But whatever you do,
You have to keep moving forward.

Martin Luther King Jr.

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Overview of Development
project concepts

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 1.1. Introduction
• The basic principle of development project
planning is to maximize the benefits of
individuals and society through efficient
allocation of scarce resources.
• Resources can be utilized in the form of:
– private investment and
– public investment by the government to provide
economic and social services to the society at large.
• The scarce resources are mostly committed
through projects, which require systematic
preparation and appraisal to ensure efficient use
of resources.

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 Introduction…..

• Projects have rightly been called the “cutting

edge” of development.
• They are powerful means to achieve blocks of
development structure.
• Projects aim mainly, at increasing the
production of goods and provision of services
which are fundamental components of people’s
welfare….advance social well-being.

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 Introduction …..

• The current development agenda of

Ethiopia is poverty eradication … and
reach the level of middle income
countries.

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 Economic development vision of Ethiopia is:
• “ building an economy which has a modern and
productive agricultural sector with enhanced
technology and an industrial sector that plays a
leading role in the economy, sustaining economic
development and securing social justice and
increasing per capita income of the citizens so as to
reach the level of those middle – income countries.”

• How can we achieve this?

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 By Designing appropriate Development Plan
and strategy

“ Plans act as a road map of complicated process to

manage projects”

• is a consciously directed activity with predetermined

goals and predetermined means to carry them out.
• Development planning involves decisions or choice
about alternative ways of using available resources
with aim of achieving particular goals at some time in
the future.

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 Cont’d…..
• Policies and strategies of the government are
geared towards this end…
• Previous and current Plans of the country
1. Sustainable Development and Poverty
Reduction Program (SDPRP) - (2002/03 –
2004/05)
2. Plan for Accelerated and Sustained
Development to End Poverty (PASDEP) -
(2005/06 – 2009/10)
3. Growth and Transformation Plan I (GTP- I) -
(2010/11-2014/15)
4. GTP II – 2015/16-2019/20
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 Development Plans….

• the GTP gives special emphasis to

agricultural and rural development,
industry, infrastructure, social and human
development, good governance and
democratization.

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 GTP…
• The overall objective of the GTP is to sustain broad
based, fast, and equitable economic growth so as to
eradicate poverty in due course.
The major objectives are:
• real GDP growth rate of 11%
• attain MDGs
• Expand and ensure the qualities of education and
health services and achieve MDGs in the social sector
• Establish suitable conditions for sustainable nation
building through the creation of a stable democratic
and developmental state; and
• Ensure the sustainability of growth

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 GTP …..

• To fulfill the GTP, the Ethiopian government

is implementing mega projects in different
strategic economic sectors.

• What are these sectors?

……..................................................................
........................
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 Introduction….

• Hydroelectric projects
• the sugar development projects
• Cement projects
• Rail way projects
• Road projects
• Housing development projects
• Higher education projects
• Irrigation projects etc .. …

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 Your reflection!
• What is your organization’s role in the
development effort exerted by the
government?

• What are the vision, mission, major

goals and objectives of your
organization?

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 Vision
• Your vision:

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 Mission
• Your Mission:

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 Key values
• Your Values:

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 Goals and Objectives /

• Major Goals and Objectives

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 1.2. Basic Concepts Related to
Development Project Planning

• Your understanding First!

• What is development?

• How can we achieve development?

• What is the difference between growth and

development?
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 I. Development
• is the process of positive change in the entire social

system of a given society. It is a transformation of

society, a movement from traditional way of

thinking, a movement from traditional way of

dealing with health and education, and a movement

from traditional methods of production to more

modern ways.
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 Development cont…
• In 1950s & 60s development was conceived in terms
of growth targets such as: GNP and GDP
• But the concept of development involves something
more than economic growth.

• Growth in GDP is not an end in itself. It is a means to

improve living standards and better society with less
poverty, better health and improved educational level.
• Increased GDP per capita should be accompanied by
reduction in poverty.

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 Development Cont’d…
• During the 1970s development came to be redefined in -
terms of multidimensional concept such as:
• Reduction/elimination of poverty,
• Reduction of inequality, and
• Reduction/elimination of unemployment,
• Thus, the wider meaning of development is conceived as a
process involving major upward changes in social and
economic structure as well as meeting the following three
main objectives.
– Life sustenance (food, shelter, cloth… )
– Self-esteem (getting jobs, better education, health…)
– Freedom (expanded social and economic choices)

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 Development Cont’d…..

• Development should be Sustainable which can

be defined as development that ‘meets the
needs of the present generation without
compromising the ability of future generations
to meet their needs”.

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 II. Development Policy

• is a statement of intention or aspirations of a government to

improve the living standards of its people.

• It is a comprehensive statement, which guides the direction of

general development objectives or goals to be achieved at

various levels of intervention.

• For Example, reduction of poverty, illiteracy and disease is

one of the policy directions of the government of Ethiopia.

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 III. Development Strategy
• is a general method of achieving specific objectives.

• It describes the essential resources and their

amounts, which are to be committed to achieving
those objectives.
• It also explains how resources will be organized and
the guiding principles that will apply for the
management of and use of those resources.

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 Example of strategy

• Development strategies could be of various types such as

import substitution, export promotion ...
• strategies for poverty reduction may be:

– Enhancement of agricultural production.

– Increase social service expenditure.

– Expansion of employment opportunities.

– Direct income transfer.

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 IV. Development Plan
• is defined as a consciously directed activity with
predetermined goals and predetermined means to carry them
out.
• Development planning involves decisions or choice about
alternative ways of using available resources with aim of
achieving particular goals at some time in the future.
• Example of Development Plans: Plan for Accelerated and
Sustained Development to End Poverty (PASDEP) I and II,
GTP I (2010/11 – 2014/15) and GTP II (2015/16-2019/20)
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 V. Development Program

• is a frame of development activities with more or less

general development objectives and derived from an
economic development plan.
• Synonymously used with development plan

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 VI. Development Project

• Projects are planned, formulated and implemented

to realize development policy objectives and …..
is called policy instruments and they are:
– Powerful and efficient means to achieve a
development objective,
– Mechanisms with which income distribution is
improved,
– Crucial building blocks of development structure to
create productive assets,
– Mechanisms to solve immediate problems,

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 Your Reflection!!
• What Is a Project?
• What is the difference between
project and program?
• Why project?
• Think about any project you know in Addis,
What were some of the problems you
observed while it is going on? List the major
one’s?
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 What Is a Project?

“A project is a temporary
endeavor undertaken to
create a unique product or
service.”
service
Source: PMI

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 What is project?
• A project is a unique set of
• A project is an endeavor in
coordinated activities, with
which human, material, and defined starting and
financial resources are finishing points, undertaken
organized in a novel way, to by an individual or
undertake a unique scope of organization to meet
work, of given specification, specific objectives within a
within constrains of cost and defined schedule, cost, and
time, following a standard life performance parameters.
cycle, so as to achieve
beneficial change defined by
objectives.

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 Characteristics of projects
1. A project has a unique Purpose

2. A project is a one-time or temporary activity

3. A projects is unique activity and non- routine

4. A project has a definite beginning and end.

5. Projects have time, cost and quality constraints.

6. A project has a life cycle

7. A projects have a primary customer or sponsor.

8. A project involves uncertainty .

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 Examples of projects …..

• Construction of dam for irrigation

• Constructing a building or facility
• Developing a new product or service
• Effecting a change in structure, staffing, or style of an
organization.
• Designing a new transportation vehicle
• Developing or acquiring a new or modified information
system
• Running a campaign for political office
• Implementing a new business procedure or process.
• Implementing different development community projects
(health, education, water and sanitation, .)

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Types of projects
1. experimental,
2. pilot project,
3. demonstration project and
4. production project.
or
1. New project
2. Expansion project
3. Up dating project

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 Agricultural projects…..

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 Road project

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 Electric power projects

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 Water project

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 Approaches for the Implementation of
Development Projects
• Strategies for the implementation of development objectives
generally follow either:
• a sectoral approach (example agriculture, industry,
health, etc.) or
• an area/special based approach (example: region,
woreda or kebele, etc.)
• or both.
• the ultimate meeting point between plan and people is in the
project.
• Therefore, the project gives life and is the visual and
concrete representation of policy, strategy, plan and
program.
• It is for this reason that projects are considered as the
tangible benefits for the target groups.
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 Activity:

• What is the difference between the

project and program?

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 Programs Vs Projects
Project Program
• has specific in objective/  has got general objective;
purpose;
• has specific location(i.e.,  may not have specific
area/geographical unit; location;
• has a specific target group  may not have specific target
or beneficiaries group or beneficiaries;
• has clearly determined and  may not have cleared and
allocated fund with detail detailed cost breakdown of
cost breakdown; the allocated fund;
• has specific life time  may not have specific time
of ending;
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 Project Cycle Management
(PCM)
• Identify and discuss the life cycle of a
project?

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 Project Cycle Management Cont ….
• Projects of all type move from conception to
reality …. Involving many stages
• The main features of this process are:
• information and data gathering and analysis,
and
• making decision on the basis of the results of
the analysis,
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 Project Cycle Management Cont….
• The project cycle concept aims to emphasis two main
points:
– project development should pass through a series
of consecutive steps to help ensure that projects
are well planned, properly appraised, adequately
resourced and efficiently implemented; and that
– lessons learned during implementation should be
feed back into the planning process to improve the
design and implementation of future initiatives;

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 Stages of Project cycle (UNDO Model)

Phases Stages
I. Pre-investment 1. Identification
2. Preparation
3. Appraisal/Selection
II. Investment 4. Implementation
III. Operation 5. Operation
6. Ex-post Evaluation

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 Phases of the Project Cycle (World Bank)

1. Identification

2. Formulation/preparation/feasibility study

3. Appraisal

4. Implementation

5. Monitoring and Evaluation

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 Project Management

–What it is?
–Why project management?

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 Definition

“Project management is the application of

knowledge, skills, tools, and techniques to
project activities in order to meet or exceed
stakeholder needs and expectations.”
expectations

Source: Project Management Institute

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 Cont’d…

• Project management typically consists of

balancing different factors, which limits the
projects success… constraints

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 Constraints of PM

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 Knowledge area/Category
• Scope Management
• Schedule Management
• Cost Management
• Quality Management
• Resource management
• Communications management
• Risk management
• Procurement management
• Stakeholder management
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Project Mgt. Framework

Source: Schwalbe, 2015:12

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 • Whose responsibility is it?

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Project Manager

“The person who is responsible for the project

and will be held accountable for its success or
failure.”

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 Role of the Project Manager
• Providing direction, leadership, and support to project team
members.
• Monitors progress of implementation

• Manages resources efficiently

• Motivates staff

• Ensures communication (internal and external)

• Providing teams with advice and input on tasks of the project

• Resolving conflicts affecting the project’s resources, schedules,

etc.
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 Session 2

Participation in Project Planning

and Management

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 Discussion Question …..
Form a group and answer the following questions and
present to plenary.

1. Who are stakeholders?

2. Why participation of stakeholders/community is
required?
3. In which stage of the project cycle
community/stakeholders’ participation is important?
4. What should be the degree of
Community/stakeholder Participation in each stage of
the PCM?

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 Definition
• A stakeholder is someone who has an interest in the
project.
• Any person, group of people or organization who has
a vested interest in the project now or in the future

• Anybody who is affected by or can affect the project

(… individual, community, group, organization etc...)

• Includes a much wider set of actors than the

immediate beneficiaries of the project.

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 Types of stakeholders
• Primary Stakeholders: are the direct-targeted
participants and institutions in the development
program/project.
• Secondary Stakeholders: are the intermediary
participants.
• Internal
• External Stakeholders: are individuals and groups
not formally and directly involved but who may
impact or be impacted by the project.

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 Stakeholder analysis
• is a process of systematically gathering and
analyzing qualitative information to determine
whose interests should be taken into account
when developing and/or implementing a
policy or program.

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 Stakeholder analysis Matrix
Stakeholders Interest Potential Project Relative
s Impact Priorities
(+, -, ?) (1-5)
Primary
-----------
-----------
Secondary
-----------
-----------
External
-----------
-----------

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 Identifying stakeholders
• Questions that are helpful to identify relevant
stakeholders:
– Who are likely to be affected by the project?
– Who is responsible for what is intended to be done?
– Who is likely to mobilize for or against what is
intended?
– Who can make what is intended more effective
through their participation or less effective by their
non-participation or outright opposition?
– Who can contribute financial and technical
resources?
– Whose behavior has to change for the effort to
succeed?
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 Examples of common stakeholders group
• Project managers
• project user groups/community
• affected groups/community (if any)
• community based organizations /CBOs/
• project financers and implementers
• concerned local, national and international governmental
organizations and NGOs
• religious and traditional leaders
• informal social net-works which may mobilize or
contribute resources to the project and serve as channels
of communication about the project
• political parties
• the private sector and professional bodies, which may
mobilize or contribute resources to the project; and other
groups who may have an interest on the project.
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 Community Participation
(CP)

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• Community:
– refers to a group of people living in
geographically defined areas, or to a group
that interacts because of a common social,
economic, or political interest

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 What is Community Participation?

• Participation is a process through which

stakeholders influence and share control over
development initiatives and the decisions and
resources which affect them. (World Bank,
1994)
• … involvement in decision-making process, in
implementing programs, their sharing in the
benefits of development programs and their
involvement in efforts evaluate such programs

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 Participation in development comprises:

– the involvement of stakeholders in any or all

stages of a project cycle,
– promotion of the role of community and local
agencies,
– facilitation methodologies and techniques, and
– Decentralized decision makings

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 Need for CP
• To get acceptance
• To make projects sustainable
• To mobilize resources
• To identify needs
• To increase commitment
• To raise awareness

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 CP cont’d ….
• Participation is an effective means to mobilize local
resources and skills and energies of the community
• It enable prior identification of community needs
and helps to customize development activities to
meet these needs
• It enables to promote commitment on part of the
people in its implementation and assures
sustainability
• It rises awareness among the community the
causes of their problems and potential means they
have at disposal to tackle the problems. It
therefore, reduces their dependency on external
resources and skills

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 Cont’d …
Procedures to be followed in need identification
1. Approach the community carefully
2. Clearly discuss together with the community
3. Use different techniques of participatory methods
such as:
 Interview (semi structured/structured)
 Group discussion
 Secondary data from NGOs, community records
 Direct observation
 Key informants discussion

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 Ways/levels of participation
• To be informed
• To be consulted
• To work as partnership
• To be delegated
• To be controlled

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 Level of participation
1. Informing: telling people about your project.
This might be one of the first things you do
and you should view it as preparation for
more active involvement.
2. Consulting: giving people choices about what
happens in your project and a chance to shape
it.

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 Level of communication …..

3. Deciding together: creating opportunities for

people to make decisions about and influence
the direction of your project.
4. Acting together: creating opportunities for
people to develop and deliver your project,
taking a role in heritage conservation and/or
learning activities.
5. Control (Supporting others to take the lead):
empowering people to have ownership of the
project, make final decisions and deliver activities
with some independence.

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 Participation Matrix
Infor Consult Partnership Delegate Control
Stage m

Identification

Planning
Implementation

M&E

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 Major Factors Which Influence Participation
• Nature of problem being addressed i.e. severity of
the problem and felt needs addressed or to be
addressed enhance or limit participation
• Quality of leadership i.e. existence of committed
and understanding leadership
• Attitude of development workers i.e. respect for
peoples ideas, culture and felt needs.
• Timing of intervention i.e. in rural areas during
critical farming seasons you will not get the local
people particularly the farmers.

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 Some Suggestions for Effective Participation
• Establish rapport/cooperation with the concerned body and
community concerned.
• Use of team approach and co-operation with other agencies
• Go for interdisciplinary or multidisciplinary approach. Development
is multifaceted.
• Promote capacity building.
• Go for low-cost, replicable and sustainable programs/projects.
• Go for smaller and appropriate technology.
• Start where there are no impositions on people.
• Use local resources.
• Ensure local contributions to project (Use influential leaders, ensure
that women's concerns are addressed through participation)

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 Examples:
• A water project ….
• Latrine around awash constructed in
response to diarrhea
• Tendaho sugar project...canal
construction..the community cuts the
technology during the night
• Wolkaite sugar project
• Leather manufacturing plant around Sulultta
• Any other?
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Project Identification

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 Activities in this session
• You will identify the project ideas and develop:
1. Problem tree
2. Objective tree
3. Alternative tree
4. Logical framework

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• After completing this session participants will be able
to:
• Distinguish the sources of project ideas

• Differentiate methods of project identification

• Understand project ranking and selection criteria

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Project identification refers to finding project ideas which
can contribute towards achieving specified development
objectives.

In this stage, national development plans and strategies

are translated in to specific investment projects based on
felt human needs.
• Project identification is the first and the most crucial
of the stages in the project cycle.
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• It is a process of identifying the problems which
need to be addressed and analyzing the ways in which
they can be solved. This would include:
 Analysis of existing situation

 Problems/needs identification
– Problem analysis

– Prioritization of issues

– Decision on whether a project is appropriate

– Definition of the project idea

– Consultation with stakeholders

– Establishment of overall objective

 As it is explained in the definition of a project,
problems are the basis for project
formulation/development.
 Problems are deviations from expected results. It could
be an opportunity or a crisis
 We can use problem tree to identify problems, which
shows the cause a cause and effect relationships
There are four key phases of project
identification. These are:
•Actual project identification
•Description of project idea
•Screening
•Prioritization
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 Discussion Questions

1. Who identifies projects?

2. What are the sources of project ideas?

3. Identify different project ideas related to your

organization?

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 Who identifies projects ideas?
• Development Projects might be identified by different
stakeholders including:
Government sector ministries,

Regional and local governments administration,

Private sector companies (local or foreign),

State owned enterprises and organizations,

Development banks,

Bilateral and multilateral agencies,

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 Project ideas conceived by:

– Individuals

– Groups of individuals (community)

– Local leaders

– NGOs

– Policy makers

– Planners

– International development agencies

– Government pronouncements

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 Sources of Project Ideas

• We can distinguish two levels from where project

ideas are born at: the micro-level and the macro-level.

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1. At Micro-level project ideas emanate from:

• unsatisfied demand or needs,

• existence of unused or underutilized natural or human
resources and the perception of opportunities for their efficient
use,
• The need to remove shortages in essential materials, services
or facilities that constrain development efforts,
• The initiatives of private or public enterprises in response to
incentives provided by the government,
• The necessity to complement or expand investments
previously undertaken,
• The desire of local groups or organizations to enhance their
economic status and improve their welfare,

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2. Macro-level: Project ideas emerge from:
• National, sectoral, or regional plans and strategies
• Constraints in the development process
• A government’s decision to correct social and regional
inequalities or to satisfy basic needs of its people
• Unusual events such as droughts, flood, earthquakes,
hostilities, etc.
• A government’s decision to create local project
implementing capacity in such areas as construction, etc.
• Project ideas could also originate from foreign firms.
• Workshops and development experiences of other countries
• Multilateral agencies or bilateral development organizations

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 The Basis of Project Identification
• The basis for project ideas is a need or demand for the output of the project
and availability of resources

Demand based projects vs resource based projects.

• When projects are not undertaken for commercial profit/objective, the project
may be considered as a need based project. Can you give an example?

• Need or demand for project’s output may be reflected in terms of:

– Local consumers’ need or demand for the product or service,

– Export opportunities,

– Demand for intermediate inputs for other sector/activities,

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 Basis of project identification …..

• One way is to explore four types of need in a

community:

• Felt need
• Expressed need
• Normative need
• Comparative need

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 .

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 Approaches of
Project
Identification

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 Approaches/methods….

There are two major

approaches to project
identification
(a)Top-down approach
(b)Bottom-up approach

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 1. Top-Down Approach

• Projects are identified based on demands from

beyond the community.
• This may include directives from:
– international conventions (such as Kyoto
Protocol/climate change)
– international institutions or NGOs that have
determined particular priorities and thus projects
– national policy makers identifying projects that
pertain to party manifestos and/or national plans.
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 2. Bottom-Up Approach

• In this approach the community/ beneficiaries are

encouraged to identify and plan the projects
themselves with or without outsiders.

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Wherever initial project ideas come from we
must ensure that:

 They are consistent with Government’s

policy, plan and strategy
 They are consistent with the strategy and
policy of the donor(s) from whom we hope
to attract funds
 They are agreed as priorities by the direct
beneficiaries of the assistance

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 Methods of
Project
Identification

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 Methods of Project Identification
• The methods for project identification include:

1. Analysis of Major Development Problem

2. Analysis of National Development Objectives
3. Economic Analysis
–  Statistical analysis of trade reports
– Study of comparative advantage
–  Analysis of linkage
4. Socio-spatial Approach to Project Identification
– Participatory Approach
–  Area Based Functional Analysis

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 PROBLEM
ANALYSIS

What is it and why do we use it?

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150
151
 What problem analysis is?
• Process/techniques which begins with
identifying a core problem.
• A problem- is an obstacle, impediment,
difficulty or challenge, gap or any situation
that needs solution.
• Problems Analysis visually shows the causes and
effects of existing problems in the project area, in
the form of a Problem Tree. It clarifies the
relationships among the identified problems.
 Why problem analysis?
 Helps determine real as opposed to apparent
development needs
 Helps to bond program participants together
(identify issues, roles of deferent partners in
resolving the issues, timescale and resources
needed to achieve a given solution/objective).
 Builds better understanding of underlying causes of
development issues
 Builds stakeholder consensus
 Identifies potential constraints

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Identifying a problem is half of the
solution
 Generally PA
Purpose

-to identify major problems and their main causal

relationships.

Output

-a graphical arrangement of problems

differentiated according to ‘causes’ and
‘effects’
 When and how it should be used?
o Problem analysis can be undertaken at any stage of the
project cycle, but most useful at the stage of
IDENTIFICATION and DESIGN
o The three main techniques used for PA are:
 Problem tree analysis workshop with key
stakeholders
 Focus group interviews with key stakeholders
 Participatory Rural Appraisal (PRA)

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 DEVELOPING A PROBLEM TREE

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 Developing a problem tree….

• Creating a problem tree helps to separate the

core problem from its cause and effects.
• The first step in creating a problem tree is to
agree on the nature of the core problem.
• Once this core problem has been identified its
relationship to causes and effects can be
represented in a diagram.

• It is followed by objective tree.

1
 Steps in developing a problem tree
Step 1. Identify a problem situation
Step 2. Check with stakeholders /planning group
to see if they consider it as a problem
Step 3. Identify immediate effects
Step 4. Identify immediate causes
Step 5. Establish a cause and effect relationship
between the various problems and build a
problem tree.

1
Generally undertaking problem Tree involves

1. Identify a “core” or central problem

2. List all the problems related to or
stemming from the core problem
3. Determine which related problems are
causes and which are effects of the core
problem
4. Arrange the problems in a cause-effect
heirarchy around the core problem

161
 FORMAT OF A PROBLEM TREE

Secondary Secondary Secondary

Effects Effects Effects

Primary Primary Primary

Effects Effects Effects

FOCAL
PROBLEM

Primary Primary Primary

Cause Cause Cause

Secondary/ Secondary/ Secondary/

Root Cause Root Cause Root Cause
1
 Developing the objective tree

1
 Developing the objective tree
Step 1. Reformulating all elements in the problem
tree into positive desirable conditions.
Step 2. Review the resulting Means-End
relationship to assure validity and
completeness of the objective tree.
Check if all the statement in the objective
tree makes sense.
Step 3. If necessary, revise the statements
Step 4. Delete the objective statement of the
problem if it appears unrealistic or
unnecessary
1
 Example

1
 Reduction in
patients reporting Decrease in 25%Increased
increase in
Objectives
Effects Angina
syms of angina Heart
prevalence of Dependency on
people living
services & family
heart attacks
attack independent
memberslives

Aim
Core Rising
Reduce
Problem CHD
CHD

Mass media
Increase awareness of
Diet
campaign to Smoking
dangers of smoking via
Causes
Activities promote healthy
campaign
eating

Cookery
Fast Fresh food
Availability of Habit
Nicotine
PeerPeer
education
Classes
Foods delivery in poor Replacement
1
fresh produce
areas Forming
Therapy Pressure
programmes
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.
• is a process in which specific project strategies
are selected from among the objectives and
means raised in Objectives Analysis, based upon
selection criteria.
By Desta M ECSU 169
• The aim of alternative strategy analysis is
division of the objectives tree into more
consistent smaller sub-units that may, compose
the core for a project.
• Each of the sub-units of the objective tree can
represent an alternative strategy for the future
project.
• The project objectives set the framework for the
strategy of the project.
Criteria for selecting the alternative:
• RELEVANCE: the strategy corresponds to the needs
of the stakeholders.
• EFFECTIVENESS: the lower level objectives of the
strategy will contribute to achievement of the project
purpose.
• EFFICIENCY: cost-effectiveness of the strategy in
transforming the means into results.
• CONSISTENT with development policies
• SUSTAINABILITY of the project
• ASSUMPTIONS and RISKS
By Desta M ECSU 171
 Incidence of
Diagram of Alternatives Malnutrition reduced

Improved Food
situation

Rice production Food production

in low lands Lower
on hills increased immigration
increased
rates

Soil fertility on
Sufficient irrigation Regular supply of hill slopes
water reaches the inputs for rice increased
fields production
Less ethnic
clashes in
neighboring
districts
Canals Dikes are
cleared upgraded Soil erosion on hill
slopes reduced

Maintenance
irrigation facilities
improved
By Desta M ECSU 172
 Project Concept Note/ Profile Preparation
• Once a project idea has been conceived, the next stage is to
describe the idea so that it can be prioritized and move on
to the next stage in the process.
• This may involve the preparation of a project identification
report or project concept or profile.
• Depending on the type of project it should include the
following components:-
– Justification and purpose
– Beneficiaries and stakeholders
– Resources and institutions
– Polices and plans
– Impacts
– Support
– Risks & Assumptions

1
 Prioritization and Ranking
• The limited resources available enforce that
effective project identification and selection
at various levels will be essential.
• To decide which projects to support it will be
necessary to set priority. This calls for the
ranking of projects using a set of criteria
(which varies from organization to
organization)
• Potential criteria for ranking projects are
given below:
1
 Criteria for ranking projects
1. Extent
– Number of people affected by the project
– Geographic area affected by the project
2. Economic and financial benefit
– Potential economic benefits to the country or
region, community etc

1
 criteria for ranking projects……

3. Environmental
Conservation of natural resources and more
sustainable land use
Protection of natural resources such as forests
4. Social
Poverty alleviation
Assistance to disadvantaged groups

1
 Criteria for ranking projects……

5. Policy
– Is the project in line with national and regional
policies?
6. Resources
Availability of human and other resources to
implement projects
Likely availability of funding from
government, NGO and /or donors

1
 criteria for ranking projects……

7. Success or failure (Risk..)

– What are the chances of project successfully
meeting its objectives?
– What degree of risk are associated with the
project that may affect its implementation?
8. Support
– Government and community support and
demand for project

1
 Project Rating Index
• When a firm evaluates a large number of
project ideas regularly, it may be helpful to
streamline the process of preliminary
screening by employing a project rating index.

1
 Steps in determining the project rating index

• Identify factors relevant for project rating

• Assign weights to these factors
• Rate the project proposal on various factors, using
the suitable rating scale.(Typically a 5-point or 7-
point scale is used)
• For each factor multiply the factor rating with the
factor weight to get the factor score
• Add all the factor scores to get the overall project
rating index.

1
 Rating
VG G A P VP Factor
Factor
5 4 3 2 1
Factors Weight Score
Input availability 0.25  0.75
Technical know-how 0.10  0.40
Reasonableness of cost 0.05  0.20
Adequacy of market 0.15  0.75
Complementary relationship with 0.05 0.20

other products
Stability 0.10  0.40
Dependence on firm's strength 0.20  1.00
Consistency with governmental 0.10 0.30

priorities
Rating Index 4.00
181
 Group Assignment
• Conduct SWOT analysis
• Conduct stakeholder Analysis
• Identify project ideas/problems of your
own and select one and develop a
problem tree, objective tree and
alternative objective tree.

1
 Session 5

Logical Framework Analysis

(LFA) and its application

1
 Learning Objectives
By the end of this session participants will be
able to:
– Distinguish the vertical logic and the horizontal
logic in the project matrix;
– Use the log frame matrix as a tool for planning,
monitoring and evaluation of any project.

1
 Introduction
• Developed in the 1970s by USAID
• LFA has recently gained popularity in the design, monitoring
and evaluation of project and used by GOs, NGOs and
international organizations
• It links, in a logical way, the objectives of a project, project
activities, assumptions about the project environment, to the
results of the project
• It is an overview of the objectives, the means of achieving
these, and the main assumptions behind a project,
• Can all be presented on a one or two pages statement –a very
effective project summary
• The process is participatory

1
 What is LFA?

• LFA is a systematic planning procedure for

complete project cycle management
• It is a problem solving approach which takes
into account the views of all stakeholders
• It sets criteria for project success and lists the
major assumptions

1
 Where to begin?

• Start by developing a Problem Tree and

objective tree.
• Try to identify what is the real problem the
project is to tackle
• And then, decide whether the original
problem is still going to be the main focus (or
goal) of the project.

1
 Two stages LFA
Analysis phase Planning Phase
1. Stakeholder analysis - identifying & 1. Developing Logical
characterizing potential major Framework matrix – defining
stakeholders; assessing their capacity project structure, testing its
2. Problem analysis - “Problem Tree”. It internal logic & risks,
consists of identifying key problems, formulating measurable
constraints & opportunities; determining indicators of success
cause & effect relationships 2. Activity scheduling –
3. Objective analysis – or “Solutions Tree”. determining the sequence and
It consists in dependency of activities;
developing solutions from the identified estimating their duration, and
problems; identifying means to end assigning responsibility
relationships. 3. Resource scheduling – or
4. Strategy analysis – identifying different “Budgeting”. from the activity
strategies to achieve solutions; selecting schedule, developing input
most appropriate strategy. schedules and a budget

1
 Important Terms in LFA
 Goal is the broader objective to which a project
contributes such as poverty reduction, income
increase, natural resource protection etc…
 The overall objective provides a link to the policy or
sector programme context.
 Purpose is the primary objective in terms of the
sustainable benefits for the target group or aim of the
project

190
 Important Terms in LFA cont….

 Outputs: are tangible products or services that

a project delivers to a target population to
achieve the project purpose

Results are largely under the project

management’s control.

191
 Important Terms in LFA cont….
 Inputs : Tasks undertaken in order to get the
project results
 Financial, human , material and information
resources available to implement the project

 Sector is the largest system of which a project

a part

192
 Components of LFA
• Has 4 columns and usually 4 or 5 rows,
depending on the number of levels of
objectives used to explain the means-ends
relationship of the activity.
• The LFA matrix has both a vertical logic and a
horizontal logic

1
 Cont’d….
i) The vertical logic (reading up and down columns 1
and 4 of the matrix) clarifies the causal relationships
between the different levels of objectives (column
1), and specifies the important assumptions and
uncertainties beyond the activity manager’s control
(column 4).
ii) The horizontal logic (reading across the rows of the
matrix) defines how the Goal, Purpose, Outputs)
will be measured (column 2) and the means by
which the measurement will be verified (column 3).
• The following figure shows the overall structure of
the full logical framework

1
Diagonal Logic

195
 LOGICAL FRAMEWORK MATRIX
Narrative Verifiable Means of Important
Summary Indicators Verification Assumptions
(OVI) (MOV)

GOAL

PURPOSE/out
come

OUTPUTS

ACTIVITIES Inputs

1
 Typical logical framework format
Objectively Means of Assumptions
Narrative summary verifiable indicators verification
1. Goal – the overall Measures (direct or Sources of Goal Sustainability
aim to which the project indirect) to show the information Important events,
is expected to contribute project’s and conditions or decisions
contribution to the methods used beyond the project’s
goal to control necessary for
show maintaining the progress
fulfillment of towards the goal
goal
2. Purpose /Outcomes – …to show what …. used to Purpose to goal
Description of the progress is being show progress …. necessary if achieving
impact/effect the project made towards against the objectives is going to
is expected to achieve reaching the objectives contribute towards the
as a result of its objectives overall goal
outputs.
3. Outputs – the ..to show if project …..used to Output to purpose
description of the outputs are being show delivery … necessary if producing
results the project is to delivered of outputs the outputs is going to help
achieve in its life time achieve the objectives
4. Activities – the things Inputs  Monitoring .. Activity to output
which have to be done Goods, facilities used to show … necessary if completing
by the project to and/or services that activities activities will produce the
produce the outputs needed to carry out have been
1 required outputs
the stated activities. completed
 1. Objectives (Ends): Goal, Purpose & Outputs

• Goal, purpose and outputs are all objectives of

the project, but at different levels.

1
Objectives Definition Example

Goal The broader development Improved community health

impact to which the on a sustainable basis
project contributes
Purpose The development A clean, reliable and
outcome or effect sustainable supply of water
expected at the end of the adequate for community needs
project
Outputs The direct measurable 1.1. Plan for water supply
results of the project 1.2. Suitable header tank
(largely under 1.3. Operational pump
management’s control)
Activities The tasks carried out to Conduct site survey; identify
implement the project & local labour sources; build
deliver the outputs header tank; construct pump.
1
 Cause-effect relationship among objectives at
several levels

Goal

Purpose

Outputs

under full control of

Activities
project management

Inputs beyond control of project

management
1
 2. Activities: The Means to the Ends

• To achieve the expected outputs of a project,

it requires the implementation of different
activities or actions by the project.
• These are the means to achieve the project’s
objectives, its “ends”.
• Activities – outputs - purpose achieved -
Contribution to overall goal

1
 Risks, Assumptions and Preconditions

• They are not under the direct influence of the

project.
• A risk is an external factor that may negatively
influence the realization of objective(s).
• Assumption is the underlying hypothesis on
which the cause-effect relationship is based.
• Important events, conditions or decisions
outside the control of the project

1
 ASSUMPTIONS (cont’d….)

• Assumptions are:
– Important events, conditions or decisions outside the
control of the project which must prevail the goal.
– Important events, conditions or decisions outside
control of the project management necessary for the
achievement of the purpose.
– Important events, conditions or decisions outside
control of the project management necessary for the
production of outputs.
– Important events, conditions, decisions outside control
of the project management necessary for the start of
the project.
1
 Example: Assumptions and Risks
 Assumptions tend to be positive
– e.g. “a supportive piece of legislation is passed”
 Risks tend to be negative
– e.g. “increased pressure on a water resources as a
consequence of a resettlement program”

 Assumptions are generally identified

during project design
 Risks often appear during project
implementation

1
 The horizontal logic

1
 Objectively Verifiable Indicators (OVI)
• Different indicators can be identified for the different
levels of objectives: goal, purpose and outputs.
• Indicators must be valid, reliable, precise, cost-
effective and stated independently from other levels.
• Indicators should make clear how the target group
will benefit from the realization of outputs

1
 OVI….
• Indicators should be specific in terms of:
– Quality (what?)
– Quantity (how much?)
– Time (when, how long?)
– Target Group (who?)
– Place (where?)

1
Means of verification (MOV)
• Means of verification give an exact
description of where to find the data to
verify the indicator.
• Before settling on each MOV, the planning
team needs to ask the following questions:
– What information?
– Where can we get it or who will provide it?
– How reliable are the sources?
– Is special data gathering required?
– Is it within our means (in terms of cost, time and
know-how) to get it?
 Hypothetical Example

1
 Example…
1. Goal:
• Contribute to improved Eye Health
2. Purpose
• Contribute to increased utilization of Eye Health services
and knowledge
3. Outputs
1. Increased Access to Eye Health Services
2. Provision of cost-effective, comprehensive and high quality
EH services
3. Increased community awareness and support for EH.
4. Enhanced planning and management capacity in MOH.
5. Development of comprehensive eye health policies and
standards of practice.
6. Increased capacity to carry out research on EH, and to
collect, analyze and utilize data.

1
 Cont’d….
4. Activities
1. Training
2. Procurement of Consumables and equipments
3. renovate clinics/hospitals
4. Organizing seminars for HRD
5. Production of communication materials
6. Organizing data collection activities and surveys.
7. Development of MIS

1
 LFA
• Example 1
• Example 2

1
 Group Activity
• Develop Logframe for the identified
project.

1
 Day 3
Session 6
Project Proposal Writing

1
 Project proposal writing

• What is project proposal?

• Why we need to write project proposal?
• What are the components of a proposal?

1
 What is a Proposal?
• A proposal is a request for financial assistance to
implement a project.
• Funding is sought, in whole or in part, from;
– government funding agencies,
– charitable foundations,
– businesses,
– individuals, and
– other sources.
• Proposal writing is a skill and requires considerable
knowledge
1
 Writing a Grant Proposal is like Playing a Game

• You have to play by the Rules

– Get the (most recent) guidelines
– Read the guidelines
– Follow the guidelines

1
 A grant proposal is a selling document
written to:
• Influence decision-makers
• Convince them to commit dollars/birr in support of
a specific project

• A winning proposal addresses an important

question with an innovative idea, well expressed,
with a clear indication of methods for pursuing the
idea, evaluating the findings, and making them
known to all who need to know

221
 What do you think are the
components of a wining project
proposal?

1
 COMPONENTS OF A PROJECT PROPOSAL

• There is a variations in terminology and

specific requirements form donor to
donor. But the underlying questions and
concepts will be the same.

1
 Cont’d….
1. Cover letter
2. Proposal Title
3. Executive Summary
4. Organization Information/Introduction
5. Background/ Project context
6. Problem/need Statement
7. Beneficiaries
8. Project Goals and Objectives
9. Project Outputs
1
 Cont’d ….

10. Activities
11. Inputs
12. Organization and Administration
13. Monitoring and Evaluation
14. Phase Out Strategy and Sustainability
15. Project Budget

1
 1. Cover Letter
•  The cover letter is important because it is the
piece of information about your project
proposal read by donors or funders. It should:
– quickly gain the reader attention,
– show why the particular agency can be interested in
your proposal,
– convey the importance and urgency of your project,
– keep the letter short and to the point,
– make it look good

1
 2. Proposal Title
•  make the title short and do not forget to
keep the interest of your reader’s mind.
• As much as possible, make it persuasive,
positive and one that capture your donor’s
attention.

1
 3.  Executive Summery

• Clear and concise summary the entire

proposal
• help the donor understand and visualize the
project.
• 1-3 pages

1
 4. Organizational Information /Introduction/ 

• Describe the organization that seeks funding.

• Briefly summarize the organization’s history, mission,
clients, track record of achievement and current
programs undertaken

• Include also some background information about the

location, how the organization is managed and does
work, and other details that build the creditability of
the organization should be included in this part of the
project proposal, i.e. evaluation of your program,
letters of support and referring agents.

1
 5. Background/Context

• Here give some background information on

geographic and climatic information, political
and administrative scenario and socio-
economic status, etc.

1
 6. Problem Analysis
• The problem/Need statement or situation description
is a key step in grant proposal writing.
• It is where you convince the funder that the issue you
want to tackle is important and shows that your
organization is an expert on the issue.
• In developing problem/Need statement:
– State the problem/Need using facts and figures
– Use statistics that are clear and support your argument
– If possible use research and comparative statistics
– Don't assume that the funder knows much about your
subject area
– Describe why this need/situation is important
– Describe your issue in as local context as possible

1
 7. Beneficiaries
• The beneficiaries and the satisfaction of their
needs is the major motivating element to
bear in mind when preparing a project
proposal.
• The needs of beneficiaries must be
compatible with the project’s objective.
• Note that terms like “target group”, “target
population”, and “target audience” are often
used instead of beneficiaries in various
project proposal documents.
1
 8. Development Objective /General
Objective /Goal

• used to describe a desired end, a

solution to national or regional
development.
• In project proposal writing, a
distinction is made between
development objective and
immediate objective.

1
 Specific/ immediate Objectives
• are short term:
•S – Specific
• M – Measurable outcomes
• A – Achievable, attainable
• R – Realistic
• T – Time-bound, achievable
in a specified time period

1
 9. Project Outputs
• Outputs are the results of project activities
(services made available, infrastructure built,
financial products, human resources trained,
etc.) intended to achieve the immediate
objective.
• Outputs are tangible and visible.

1
 10. Project Activities

• Activities are the action taken to produce the

output.
• Activities take place over time and are
coordinated to be complete by the date
required in the description of the output.

1
 11. Inputs

• are the financial, material equipment,

logistics) and human resources (project team,
partner organization) necessary for carrying
out the activities.
• Identifying local resource is important for a
project to be “sustainable”, capable of
carrying on after the completion date

1
 12. Organization and Administration

•  The project’s internal organization as well as

its relations to partner organizations has to be
expressed in hierarchical and operational
terms.

• M&E procedure should be described here

1
 13. Monitoring and Evaluation

• A proposal must include a plan for M&E and

method to be followed
• This is extremely important for funders
• Include the following information: -
– Who should monitor and evaluate?
– What to monitor and evaluate?
– How to monitor and evaluate? And
– Resource requirements

1
 14. Phase-out Strategy & Sustainability
• Institutions or communities who will take over
the project have to be identified and indicated
from the outset during the formulation stage.
• Furthermore, if you continue this project in the
future, how will it be supported? This is a
difficult question to answer effectively since
most funders don't want to support the same
set of project forever. What the funder really
wants to see is that you have a long-term vision
and funding plan for the project. This is
important not only for the funder but for the
success of the project or organization.
1
 15. Project Budget
• Budgets are cost projections.
• Attach a one or two-page budget showing:
• Expenses:
– Personnel Expenses
– Direct Project Expenses
– Administrative or overhead expenses
• Income:
– Earned income
– Contribution income (cash and in kind)
1
 Some Characteristics of Well-written,
Fundable Proposals

• Innovation
• Relevance
• Demonstrated Competence/expertise of
PI
• Feasibility Study
• Time Schedule
• Enthusiasm
• Simple Straightforward Language
• Complete Literature Search

242
Top 10 Reasons for an Unsuccessful Proposal

1. Project doesn’t address agency priorities

2. Guidelines not followed
3. Not a compelling idea
4. Ideas not clearly presented
5. Methodology appears to be flawed
6. Overuse of jargon
7. Overly ambitious
8. Narrative and budget don’t correspond
9. Sloppy presentation
10.The work has already been done

243
 If your proposal is rejected. . .
• Don’t give up!
• Get reviews
• Talk to agency contact
• Re-evaluate, revise and
resubmit
• Look for other potential
funders

244
 Group Activities:
Form a small group:
• Prepare a project proposal and a
complete project design matrix
using a Logical Framework
Approach for the project that you
have already identified.
• Present the proposal to the
plenary.
1
 Day 3
Session 7
Project Formulation

1
 Learning Objective:
At the end of this session participants will be able to:
• Distinguish technical, institutional and
commercial feasibility analysis.
• Identify principles and techniques of technical,
institutional, financial and economic feasibility
analysis.

1
 Introduction
• This session is concerned with the methodologies
used in the selection and appraisal of investment
decisions in private and public sector
• Private investment projects aims to maximize
stockholder’s wealth /profit
• Public sector projects + projects (funded by donors):
should have wider society or economic wide
objective

1
 Feasibility Study: The schematic diagram shown below gives

you good looking of your feasibility study .

Generation of ideas

Initial Screening

Is the idea promising?

Yes No
Plan Feasibility Analysis
Terminate

Conduct Market Conduct Technical

Analysis Analysis

Conduct Financial Analysis

Conduct Economic
Analysis
Conduct Ecological
Analysis

Is the project worthwhile?

Yes No

Prepare funding proposal

Terminate
Fig: Hierarchy of feasibility Study

1
 • Why feasibility study?

1
 Reasons to do feasibility study
• A feasibility study:
– Give focus to the project and outline alternatives
– Narrow project alternatives
– Surface new opportunities through investigation
– Identify reasons not to proceed
– Enhance the probability of success by addressing and
mitigating factors early on that could affect the project
– Provide quality information for making decision
– Help to increase investment in the company
– Provide documentation that the project was thoroughly
investigated
– Help in securing funding from lending institutions and
other monetary sources.

1
 1. Pre-feasibility / preliminary
screening
• Some kind of preliminary study is required to
select ideas which are promising.
• In doing so looking the following aspects is
helpful.

1
 Pre-feasibility study ……

1. Compatibility with promoter

2. Consistency with government
priorities
3. Availability of inputs
4. Adequacy of the market
5. Reasonableness of cost
6. Acceptability of risk level

1
 2. Feasibility study
• Follows viable identification and pre-feasibility
studies
• provide all data necessary for an investment
decision.
• is an analysis of the viability of an idea.
• focuses on helping answer the essential question of
“should we proceed with the proposed project
idea?”

1
 Feasibility studies….

• It is multidisciplinary activity involving

engineers, economists, and specialists in areas
such as agronomy, soils, geology, hydrology,
manufacturing processing etc
• feasibility studies are not always free from
vested interests

1
 Group Discussion

• What are the factors that affect the feasibility

of a project? (what aspect of a project should
be checked/assessed….)

1
 Types of Feasibility studies
• There are seven important aspects of project
feasibility study. These are:-
1. Market and demand analysis
2. Technical feasibility
3. Institutional feasibility
4. Social feasibility
5. Financial (commercial profitability) analysis
6. Economic (national profitability) analysis
7. Environment Impact Analysis

1
 1. Market/demand Analysis
• In most cases, the first step in project
analysis is to estimate the potential size of
the market
• It addresses two broad issues:
1. What is the likely aggregate demand for
the product/service?
2. What share of the market will the project
enjoy?

1
 Demand analysis….

The key steps in demand and market analysis

are:

a) Situational analysis
b) Collection of secondary data
c) Characterization of the market
(description)
d) Demand forecasting (time series /causal
techniques)

1
 Steps in DD and Market Analysis

Collection of
Demand
secondary
Information
Forecasting

Situational
Analysis and Characterization
Specification of of the market
Objectives

Conduct of
Marketing
Market
Survey
Planning

1
 Major Dimensions of the Demand & Market Analysis
• It should cover the following aspects:
1. General characteristics of the economy:
– Economic potential
– Production structure
– Foreign trade
– Economic policy
•  

2. Product
– Characteristic features
– Substitutes and complementary goods  

3. Demand
– Sales and orders
– Buyer's characteristics
– Demand determining factors
– Purchasing power
•  

1
 DD analysis….

4. Supply
– Supply potential
– Local production
– Imports and exports
– Competitor's position
•  

5. Marketing environment (marketing strategy, marketing

mix)
– Price levels and tendencies
– Distribution channels
– Physical distribution network
– Promotion
•  

6. Legal and political environment

1
 Projections of Sales Revenue (Sales Forecasts)
• Sales are the quantity of a product that is actually purchased at
specific price and under specific marketing strategy in a particular
market at a given point in time. 
• The projection of sales revenues is essentially an extension of
marketing research (initial demand analysis) on the basis of which a
project is developed also in terms of specific sales volumes during
different periods after the project goes into production. 
• Estimating sales revenue is an iterative process that should also
take into account the optional plant capacity, appropriate
technology, a technically feasible production program and
alternative marketing strategies.
• The final determination of sales revenues may, therefore, only be
possible once technology and plant capacity are more clearly
known.

1
 Sales forecast….

1
 Production program
• After projecting of sales during different
stages of production, a feasibility study should
define the detailed production program.
• A production program should define the levels
of output to be achieved during specified
periods

1
 2. Technical analysis
• The following are some of the general
technical aspects that a project manger
must be aware of:
1. Technology package
 Has the package been well
researched and field tested?
 What are the costs and benefits of
alternative package?
 Is the machinery or equipment
appropriate to the current situation

1
 Cont’d ….
2. Location
 What is the optimum area to be covered by the
project in terms of resources management?
 What are the minimum catchment area?
 What is the scale of operations?
 Are there significant economies of scale?
 At what point do diseconomies set in?

Question:
What are the factors affecting commercial project
location decision?

1
 Cont’d …

3. Land use
 Does the physical layout of the facilities
pay adequate attention to land use
planning considerations?

1
 Cont’d….
6. Plant Capacity
• Plant capacity refers to a volume or number of
units that can be manufactured during a given
period. Several factors have a bearing on the
capacity decision.
– Technological requirement
– Input constraints
– Investment costs
– Market conditions
– Resource of the firm
– Governmental policy

1
 3. Environmental Impact Analysis
• Is very important
• “Environmental Impact Assessment – EIA is a systematic
process that examines the environmental consequences
of development actions, in advance.”
Example:
 If a dam is to be constructed what are the
environmental effects on upstream and
downstream of the dam? How bad effects be
mitigated?
 If insecticides, pesticides, etc are to be used in
large quantities in irrigation projects, what will be
the effects on fishing, farming?
 What is the effect of use of pills on health of
women?

1
 EIA….
• EIA serves many purposes:
1. For The decision--‐maker It Informs The Setting
Of Environmental Terms And Conditions For
approving proposals.
2. For The Developer It Provides information That
Can Improve The Design Of The Proposal And
Ensure That Resources Are used appropriately
and efficiently.
3. For the residents it ensures that possible
negative impacts Are Considered And that
appropriate Measures for mitigating them are
identified.

1
 Example
• A leather factory constructed around Sululta is
one of the projects that have a environmental
problems.

1
 4. Institutional feasibility Analysis
• Some of the relevant factor that needs to be
considered when institutional feasibility study is
conducted are:
– Sound internal organizational structure of the project?
– Competent management and supervisory personnel
– Adequate technical and skilled manpower
– Provision of any necessary training
– Effective channel of communication
– Good relationship with contributing agencies/donors

1
 Session 7

Project Appraisal & Funding

decision

1
 What is project Appraisal?
• The process of assessing and questioning proposals
before resources are committed.
• offers significant benefits to partners and to local
communities because:

– It justifies spending money on a project

– Is a tool for decision making
– Lays a foundation for delivery

1
 What can Project Appraisal Deliver?

Project appraisal helps a project to:

– be consistent and objective in choosing projects

– make sure its program benefits all sections of the
community,
– Provide documentation to meet financial and
audit requirements and to explain decisions to
local people.

1
 Who?
• Internal staff
• External experts/consultants

1
 Project Appraisal can be
Financial Appraisal

Economic Appraisal
• Financial analysis answers the question “is the
project financially profitable to a given
individual, group or business? In financial
analysis costs and benefits are valued at market
prices
• Economic analysis answers the question- “is the
project profitable to the society or to a target
population as a whole? what is its impact ( in
terms of job creation and linkages with the other
sectors) on the whole economy? In economic
analysis costs and benefits are valued at shadow
prices
289
 Financial appraisal
• The investment Costs of a Project
Initial investment Costs of a project
• Land and site Development
• Buildings and Civil Works
• Plant and Machinery
• Technical know-how and engineering fees
• Miscellaneous Fixed Assets
• Capital issue expenses
• Pre-operative Expenses
• Provision for contingencies
Other costs
•  

• Sunk costs
• Depreciation

290
 Operation Costs of a project
Direct and indirect costs:
• Direct costs are directly attributable to the
production
• Indirect costs are incurred to facilitate the
production process but are not the direct
inputs of production.
Variable costs and fixed costs:
• Variable costs are costs that vary with the
volume of the product
• Fixed costs are costs that do not vary with
the volume of the product.
291
Cost of production comprises of three
main factors:
• Cost of materials,
• Labor cost and
• Factory overhead

Cost of production = Material cost + labor

cost + factory overhead cost.
Total CostOf Pr oduction
CostOf Pr oduction perUnit
Total No.of Units

292
 Working Capital Estimates
Working capital is the financial requirement
needed to finance the current asset of the
balance sheet.
• raw materials, supplies and components
temporarily held in stock until usage,
• Work-in-process,
• finished goods until the time of selling,
• accounts receivable until payment made by the
customer, etc
• Net Working Capital = Current Assets –
Current Liabilities
293
 Means of Finance
• Government
• International organizations
• Partially international organizations and
partially government
• Entreprenuers (individually or in group)
• Individuals and govt.

294
• The major sources of capital of projects
that are aiming at making a commercial
profit are the following:
• Share Capital
• Bonds
• Term Loans
• Trade Credit
• Accrued Liabilities
• Incentive Sources
• Miscellaneous Sources

295
Cretiria to select the most suitable sources

• Cost
• Risk
• Control
• Flexibility
• Rules and Regulations of the govt.
and financial institutions

296
 Estimates of sales and production
Year 1 2 3 4
Installed capacity (Qty)
Estimated output as % of plant
capacity (Qty)
No of working days
Estimated annual production (Qty)
Value of sales (SP * Qty)

After estimating the quantity of

production, the cost of
production has to be estimated. 297
 Profitability Projection
• After the estimates of sales revenue
and the cost of production are made,
the next step is to prepare the
profitability projection.
projection
• This is done by preparing a projected
income statement and cash flow
statement .

298
 Income Statement Vs Cash Flows
Income statement
• Estimating sales revenue and costs over years of
the project operation helps to prepare projected
balance sheet and income statement and to decide
on the profitability of the project.
• Major purposes of preparing income statements:
• to determine indicators of relative efficiency;
• to determine the net profit to be incorporated
in the balance sheet;
• to determine the tax liability of the project;
• To provide financial information to concerned
stakeholders.

299
 Projected Income statement
Sales in Units a
Sales Revenue (Unit price x a ) b
Operating Costs (Unit cost x a ) c
Gross profit (b – c) d
Overhead costs e
Depreciation f
Operating Income (EBIT) (d- (e + f)) g
Interest on loan h
Earning Before Tax (EBT) ( g – h) i
Taxes (20%) (20 % of i ) j
Earning After Tax (EAT) ( i – j) k
300
 Exercise 1:
• The life of a project = 4 years.
• Initial investment cost = 100 million.
• Depreciation : 2 million/year.
• Annual interest rate on loan = 8,6,4,2 million for year 1,
2,3 and 4 respectively
• Unit sales: 1milion (1st year), 2 million (2,3,&4)
• Selling price per unit = Birr 60
• Operation cost per unit = Birr 32
• The overhead fixed cost = 4 million/year
• Tax rate is 20% of the net profit

Required: Prepare the forecasted income statement

of the project for five years.

301
Year 1st 2nd 3rd 4th
Sales in Units 1 2 2 2
Sales Revenue (Birr 60 * Units) 60 120 120 120
Operating Costs (Birr 32 * Units) 32 64 64 64
Gross profit 28 56 56 56
Overhead costs 4 4 4 4
Depreciation 2 2 2 2
Operating Income (EBIT) 22 50 50 50
Interest 8 6 4 2
Earning Before Tax (EBT) 14 44 46 48
Taxes (20%) 2.8 8.8 9.2 9.6
Earning After Tax (EAT) 11.2 35.2 36.8 38.4
Cumulative EAT 11.2 46.4 83.2 121.6
The above table shows that the project has a nominal
cumulative
of Birr 121.6 million net profits by the end of the fourth
year. 302
 Cash Flows
It is a process of review of costs and benefits,
measured in terms of cash outflows and cash
inflows.
• The cash inflow of a project includes:
• the project revenues,
• government grants,
• resale/scrap values of assets,
• tax receipts and other cash inflows as a result of accepting a
project.
• The cash outflow of a project includes:
• initial investments in acquiring the assets,
• project costs (labour, materials, etc.),
• working capital investments,
• tax payments and any other cash outflows as a result of
accepting the project.
303
Purpose of cash flow statement

• To identify shortage of finance, so

that the manager plans to borrow
• To identify overage of finance, so that
the manager plans to lend or invest
the money

304
 Exercise 2:
• Based on the information given in exercise 1 and
• Capital = 50 million
• Loan = 50 million
• Working capital 1st year = 20 million and 2nd year
= 10 million
• Salvage value is expected to be 8 million
• Initial investment cost =100 million

Required: Prepare cash flow statement

305
Projected Cash Flow Statements
Year 0 1st 2nd 3rd 4th
Cash in flow
Capital 50
Loans 50
Salvage Value 8
Sales Revenue 0 60 120 120 120
Annual cash inflow (a ) 100 60 120 120 128
Cash outflow
Investment 100
Working Capital 0 20 10 -30
operating costs 0 32 64 64 64
Overhead costs 0 4 4 4 4
Loan Interest 0 8 6 4 2
Tax 0 2.8 8.8 9.2 9.6
Annual Cash Outflow (b) 100 66.8 104.8 81.2 49.6
Annual Cash Flow Balance (a-b) 0 (6.8) 15.2 38.8 78.4

306
 Project Appraisal methods

The most common methods analysing

the financial feasibility of a project
are:
• Return on investment
• Payback period
• Net present value
• Internal Rate of Return
• Benefit cost ratio
• Discounted pay back period 307
• Non discounted methods
• Return on investment
• Payback period
• Discounted methods
• Net present value method
• Benefit cost ratio
• Internal Rate of Return
• Discounted Payback Period
308
• Discounting is a technique or a process by which
one can reduce future benefits and costs to their
present worth or present value.
• This is the method used to revalue future cost
and benefit flows from project into present day
values so that they are comparable and can be
added together.
• As compounding asks “what is the future
worth of a known present amount”? discounting
asks “what is the present worth of a known
future amount”?
309
• The factor used to discount future costs
and benefits is called the discount rate (r)
and is usually expressed as a percentage.
• The discount rate is usually determined by
the central authorities (national Bank).

310
 Return on Investment (ROI)
• Rate of return is the ratio of average
annual profits, to the capital invested. It
is the measure of profitability which
relates income to investment.
• The formula for computing the ROI is:

ROI = Average annual net income X 100%

Total Investment

• Decision criterion: the higher the ROI, the better

the project is.
311
 Exercise
Income statement
Year 1st 2nd 3rd 4th
Earnings After Tax (EAT) 11.2 35.2 36.8 38.4
Cumulative EAT 11.2 46.4 83.2 121.6

Initial investment is 100 million

ROI = Average annual net income X 100%

Total Investment

Average yearly income = 121.6 million = 30.4 million/year.

4
ROI = 30.4 million X 100% = 30.4 %
100 million
Therefore, the return on investment is 30.4 % per year.

312
Advantage of ROI
• it is very simple to calculate and use

Disadvantages of ROI
• It does not consider the time value of money,
• It uses the accounting profit as a measure of
return of the project,

313
 Exercise 2
• Project life = 6 years
• Initial investment = 160 million
• Total net profit for six years = 240 million

Calculate the ROI?

Which project is better as compared to the
previous exercise?

314
 Payback Period
The payback period is the length of time
required to recover the initial investment.
• According to the payback criterion, the
shorter the payback period, the more
desirable the project is
• If the net cash inflow is uniform each year,
then,
IntialInvestment
Payback Period 
AnnualUniformCashInflow

315
 Exercise
• A project whose investment outlay is
100 million is expected to have a
uniform annual net cash inflow of 25
million for five years
IntialInvestment
Payback Period 
AnnualUniformCashInflow

100million
PaybackPeriod  4Yrs.
25million

316
• If the cash flows of a project are not uniform, the
payback period is calculated by accumulating a
series of cash flows until the amount reaches the
initial investment.
• Example,
Year 0 1 2 3 4 5
Cash flow -30000 5,000 12,000 12,000 6,000 8,000

The payback period = 3 years + 1000 * 12 = 3 yrs and 2 months

6000

317
Advantages of payback period
• It is simple to apply
• It is helpful in weeding out risky
projects.
• It helps to assess the firm’s ability to
meet its financial obligations
Disadvantages of payback period
• It ignores the time value of money.
• It overlooks cash flows beyond the payback
period.
• It may divert attention from profitability
318
 Exercise
Year Project I Project II
1 4,000 10,000
2 8,000 10,000
3 15,000 10,000
4 12,000 10,000
5 7,000 10,000
Initial investment 30,000 30,000

Which project can be selected based on

Payback period ?

319
 Net Present Value (NPV)
NPV is the difference between the present values of
the yearly net cash inflows and the initial
investment outlay
It is calculated using the following equation
CF1 CF2 CFn
NPV    ...   I0
1 k (1  k ) 2
(1  k ) n

 n CFt 
  (1  k ) t
NPV   
  I0
 t 1 

• CFt = cash flow of the t th period, k is the discount

 
rate, t is the number of periods between 1 and n.
320
The formula shows that we follow three steps to
find the NPV of the project:
• We multiply the cash flow of each year by the
discount factor of the same year to convert to its
present value
• We add the products to get the total value of the
project.
• We subtract the initial investment made at year
zero from the total present value to get the NPV

Decision : accept or reject and Ranking

If the NPV is positive, accept the project.
If the NPV is negative, reject the project.
If the NPV is zero, be indifferent
The higher the NPV, the better the project is

321
Example:
The initial investment of the project is 60,000 Ethiopian Birr.
Find the NPV of the project if the discount rate is 10%.

Year (t) Cash flow Discount factor Present Value

1
(in Birr) (1  k) t
(In Birr)

0 -60,000 1 -60,000
1 6,000 0.909 5454
2 20,000 0.826 16520
3 30,000 0.751 22530
4 40,000 0.683 27320
4,000 0.621 2484
Total NPV 14308

Decision: accept the project because the

result is positive
322
For uniform cash flows:
 1  (1  k )  n 
NPV CF 
 
  I0
 k 
• Where CF is the uniform cash flow starting from year one,
k is cost of capital (discount rate), n is the number of
periods.
• Take our previous example of the 100million initial
investment. Find the NPV of the project if it has an annual
uniform net cash inflow of Birr 26million for five years
and if the cost of capital is 10%.

 1  (1  0.1) 5 
NPV 26   100  1.44
 0.1 
Decision: reject the project
323
Advantages of NPV
• The time value of money is taken into account
• The cash flows from the beginning to the end of the
project are considered
• It focuses on the profitability of the project
• It is useful for the comparison of mutually exclusive
projects
• Since the NPV is expressed in Dollar or Birr, the managers
can understand it more easily than percentages.
 

Disadvantages of NPV
•  The NPV method can be employed in selecting from
mutually exclusive projects only when the projects are of
the same size.
• The NPV method assumes that funds are reinvested at
the cost of capital
• The cost of capital is assumed to remain constant
throughout the life of the project.

324
 Exercise
Year Project “A” Project “B”
1 40,000 25,000
2 30,000 25,000
3 25,000 25,000
4 20,000 25,000
5 10,000 25,000
Initial investment 80,000 80,000
Discount rate 10% 10%

• Calculate the NPV and which project is preferable and why?

• Calculate the payback period and make a decision? Is the decision
similar with NPV result?

325
 Benefit Cost Ratio (BCR)
Benefit – cost ratio is also referred to as profitability index. It is
an extension of the NPV approach to compare the
profitability of investment alternatives before arriving at
investment decision.

There are two ways of defining the benefit cost ratio:

a) PV to initial investment
BCR = PV
I
Where PV is present value of benefits and I is initial investment.
b) NPV to initial investment
NPV
NBCR = BCR – 1 or I

326
 Decision rules:
• When BCR > 1 or NBCR > 0, accept the
project
• When BCR < 1 or NBCR < 0, reject the
project
• When BCR = 1 or NBCR = 0, be indifferent
• if we compare two or more projects, the
higher the BCR/NBCR, the better the
project is

327
• Example: Consider a project with initial investment of Birr
50,000 and the following Cash inflows. Discounting rate is
12%
Year 1 2 3 4
A) BCR Cash inflow 12500 10000 30000 25000
PV
BCR 
I
12500 10000 30000 25000
(    )  50000
(1.12) (1.12) 2 (1.12) 3 (1.12) 4

11160  8000  21428  15924

50000
56512
 1.13
50000

b) NBCR = 1.13 –1 = 0.13

Decision: ???
328
 Advantages of BCR
• BCR indicates a relative and not absolute
measure of profits i.e. the benefit per dollar
(Birr) of investment.

Disadvantages of BCR
• This method cannot be employed when a
package of smaller projects is to be
considered in relation to a large project.

329
 Exercises
Year Project “A” Project “B”
1 30,000 25,000
2 40,000 40,000
3 45,000 40,000
4 50,000 50,000
Initial investment 110,000 100,000
Cost of capital 12% 12%

Find BCR and NBCR of the two projects ?

Decision ?

330
 Internal Rate of Return
• IRR is the discount rate that makes the
present value of cash inflows equal to the
present value of cash outflows.

• Previously, we find the IRR of a project by

trying different discount rates until we
discover the discount rate that makes the NPV
zero. However, today it is easier to find IRR of
a project using Excel Application.
331
 It is the value of k in the following equation
 n CFt 
Investment    
 t 1 (1  k ) t

CFt = cash flow at the end of year
K = internal rate of return
T = life of the project

Decision Rule for IRR is

 Accept :if IRR is greater than the cost of capital
 Reject: if the IRR is less than the cost of capital
 indifferent: if the IRR is equal to the cost of capital
 If we are comparing two or more projects, the
higher the IRR, the better the project is.
332
 Example:
• Find the IRR of a project with 20 million initial
investments, the cost of capital of 12 % and
with the following table of cash flows.

Year 1 2 3 4
Cash flow 6000 6000 8000 9000

333
Try to compute the NPV with 12% discount rate.

 6000 6000 8000 9000 

  2
 3
   20000  5357  4800  5714  5732  20000  1603
4 
 1.12 (1.12) (1.12) (1.12) 
Since the NPV is still positive, (1603), try again
with a higher discount rate: 15%

 6000 6000 8000 9000 

  2
 3
 4
  20000
 1. 15 (1 .15) (1 .15) (1 .15) 

(5217 + 4545 + 5263 + 5142) –20000 = 167

334
Still the NPV is positive. Try again with a higher
discount rate i.e. 16%.
 6000 6000 8000 9000 
  2
 3
 4
  20000
 1. 16 (1 .16) (1 .16) (1 .16) 

(5172 + 4444 +5095 + 4945) = 19656

= 19656 – 20000 = -344
• Thus, it can be concluded that the IRR is between
15% and 16%

335
However, the exact percentage can be computed
using interpolation techniques as:
• Present value at 15% = 20167
• Present value at 16% = 19656
Difference = 511
The difference between the target present value 20000,
and the PV of 20167 (discounted at 15%) is 167.
Therefore, we get the percentage difference of:
• Adding this number to 15%, we get the IRR
approximately 15.33%.

336
Advantages of IRR
• It gives due consideration for the time value of money
• It recognizes the total cash flows during the project life
• It conveys the direct message about the yield on the
project.
 
Disadvantages of IRR
• It involves tedious work through trial and error and
interpolation
• The IRR does not reflect the scale, or dollar size
• It assumes that all proceeds are reinvested at the
particular IRR, whereas the NPV approach assumes
reinvestment at the cost of capital.

337
 Exercise
Year Cash flow

1 30,000

2 30,000

3 40,000

4 45,000

Initial investment 100,000

Discount rate 12%

Find IRR based on trial and error method ?

338
 Discounted Payback Period
To overcome the limitations of the payback
period, the discounted payback period
method has been suggested

The decision is similar with payback

period. The difference is multiplying each
cash flow by discount factor.

339
Exercise

Year Cash Flow

1 5000
2 6000
3 8000
4 7000
5 6000
Initial investment 10,000
Discount rate 10%
Calculate the payback period of the project ?

340
 Exercise
Project Year Cash In flow PV of $1 at PV of cash Cumulative cash
10% inflow savings

0 -10000 1.000 -10000 -10000

1 5000 0.909 4545 -5455

2 6000 0.826 4956 -499

3 8000 0.751 6008 5509

4 7000 0.683 4781 10290
5 6000 0.621 3726 14016

 499 
Payback Pd = 2 Yrs +  
 6008 

= 2 Yrs + .083 Yr = 2.083 Yrs or 2 yrs and one month

341
 Economic Appraisal
• Is a methodology developed for evaluating
investment projects from the point of view of
the society as a whole.

• Economic analysis is basically concerned with:

how to identify effects of the project on the
society ; qualification of the effects of the
proposed projects; and pricing of costs and
benefits to reflect their values to society
342
Rationale for Economic Appraisal

• Market imperfection
• Externalities
• Taxes and subsidies
• Concern for savings
• Concern for redistribution
• Merit wants

343
• Net private benefits and net social benefits
are usually different due to the existence
of market imperfections, externalities ,
income redistribution, etc.

• In such circumstances, social cost analysis

must depend on shadow prices (instead of
market prices) to measure the net benefit
to the society.

344
 Financial Vs Economic analysis
Financial Economic
• Financial analysis aims at appraising • economic evaluation deals with the
the financial and commercial feasibility economic contribution and impact of a
of a project from the view point of an project at the macro or national or
entrepreneurs, investor or financier. society level
• financial appraisal covers only private • economic analysis takes into account
costs and benefits social costs and benefits.
• Taxes are treated as costs and • Taxes and subsidies are treated as
subsidies as a return. transfer payments.
• Interest paid to external suppliers of • Interest on capital is never separated
money may be deducted to obtain the and deducted from gross return
stream of benefit available to the because it is part of the total return to
owner of the project. the capital available to the society as a
whole.
• For private enterprises, the overriding
objective is financial viability (i.e. • In economic analysis, however, market
making profit) based on market price. prices may be adjusted to reflect social
benefits. These adjusted prices are
called shadow or accounting prices.
345
• Therefore, market prices are often distorted
by:
• Taxes
• Monopolistic/Oligopolistic measures
• Subsidies
• Rent, Interest
• Quotas
• Regulatory measures
• Protection, etc
• And must be adjusted to reflect social value of
the project i.e., shadow price

346
• Shadow price measures the value of commodity from
point of view of the society or the economy of a nation.
• Shadow prices is the price used for analysing the cost
and benefit of a project when the market price is felt to
be a poor estimate of the economic value of a project.
• After estimating the shadow prices, we measure the
viability of the project through the normal process of
calculating NPV, IRR or CBR.
• We used conversion factor to change the market price
in to shadow price.

347
• Conversion Factor: is a number, usually less
than 1, used to multiply the domestic market
prices of goods/services and to get the
equivalent border prices so as to correct the
distortions in domestic prices of the same
goods/services.
• Conversion Factor is a ratio of shadow
price (SP) to market price (MP).

SP
CF SPMP * CF
MP

348
 SHADOW PRICES:
• To obtain shadow price, we have to make three
types of adjustments to the market prices. These
are
• Economic Transfers
• Traded and non-traded goods
• Factors of production
» Labour [skilled and unskilled]
» Foreign Exchange
» Domestic Capital
» Land

349
• In economic analysis we consider the benefits of
the project to the society such as:
• Employment creation
• Foreign Exchange generation or saving
• Contribution to different sectors: such as
health, education, etc.
• Multiplier effect (on other economic variables
in the economy)
• Linkages (both forward and backward linkages)
• Economies and diseconomies of scale
• Externalities, etc.

350
• After considering all these
variables, financially viable
projects may turn out to be
unviable economically

351
 How to do economic analysis?
The starting point for economic appraisal of
the project will be a set of resources flow
valued at market price of particular year.
Then we have to break costs and benefits in to
different components. In this we:
• Eliminate all transfer payments from
the net cash flow statements (transfer
payments include taxes, subsidies,
social security,
security etc.)

352
• Distinguish foreign exchange cost and
revenues from domestic cost and
revenue and then apply appropriate
shadow prices of foreign exchange to get
real value

• Distinguish between tradable goods and

non-tradable goods and then apply
appropriate shadow prices for both types
of goods

353
• Desegregate labour input in to say
skilled and unskilled and apply relevant
shadow wage rate to different
categories of labour inputs (b/c the
shadow wage rate for unskilled is
completely different from that of the
skilled labour)
• Apply relevant shadow price for land
• Carry out the PV calculations of the
adjusted resource flows using the social
rate of discount (r) to calculate economic
NPV, CBR and IRR.
354
• Consider the economic impact of the
project on the following:
–Savings in the society - if the project
contributes to saving then put a positive premium
and add it to the benefits; if not increase the cost
side.
–Investment - if the project contributes to
reinvestment, then put a positive premium and
include in the benefit side.

355
– Interpersonal Income distribution - if
the project contributes to income
distribution, then put a positive premium
and include in the benefit side.

– Regional Income distribution - if the

project is generating income to distressed
regions, put a positive premium and add to
the benefit. If it is adding income to the well
off to do region, then discount a premium
and add it to the costs.
356
– Aggregate Foreign Exchanges Costs & Benefits:
if the project brings in foreign exchange, put a
positive premium (Benefit). But if it depletes the
foreign exchange reserve, put a negative premium.
– Impact of the project on Government revenue and
Expenditures: If projects lead to government
expenditure, discount that.
– Impact of the project on employment: if the
project creates employment opportunity, put a
positive premium and add to the benefit side.

357
 Additional issues in Economic Analysis:
• Sunk Cost- These costs should not be included to the cost of the
project because in economics we are interested on incremental (marginal)
costs.
• Consumer Surplus - is the difference between what consumers
are prepared to pay & what actually they pay. This surplus should be
included in the benefit side. At times it can be negative & should be
included in the costs.
• Externalities - are costs & benefits that the project causes to other
people or organizations. This should be included in the economic analysis.
• Contingency - includes only what is actually used. Contingency
that is not used is excluded in the analysis.
• Inflation- to deal with inflation we use constant prices (while
current market prices are used in Financial analysis).
358
Procedures for the application of shadow prices:
• Identify items requiring adjustment
• Substitute shadow prices for market value of all
those items
• Do your analysis, i.e. the resulting cash flow in its
adjusted form is now discounted using the shadow
price of capital (r)
• and then NPV, IRR,BCR, etc will be calculated.
• Based on the result you can make decision whether
the project is economically feasible or not

359
 Exercise
The following cash flow is based on market price.
Year 0 1st 2nd 3rd 4th
Annual sales unit 0 2 4 5 5
Investment -110
Working Capital 0 -10 -20 30
Sales revenue (@ birr 30/unit) 0 60 120 150 150
operating costs (@ birr 16/unit) 0 -32 -64 -80 -80
Overhead costs 0 -8 -8 -8 -8
Loan principal 0 -2 -4 -6 -8
Depreciation 0 -2 -2 -2 -2
Loan Interest 0 -0.34 -1.6 -2 -3
Tax 0 -1.2 -2 -3 -4
Annual Cash Flow Balance -110 4.46 18.4 49 75

Assume discount rate is 10%

Required: adjust the cash flow
Conversion factor to calculate shadow price based on CF and do economic
Items Conversion factor (CF) analysis and check whether the
Investment costs 0.909
project is viable in terms of NPV,
Sales price 0.667
Operating price 0.5 CBR and IRR?
Overhead cost 0.25
Working capital 0.2 1st year and 0.8 2nd year
Discount rate 0.834 360
 Risk /Sensitivity Analysis

• The techniques of project analysis have

been considered so far as if the basic
data which they have used are known
with certainty. However, both
technical and economic information is
used in the form of forecasts and is
subject to considerable uncertainty.
361
• It is possible that an investment
goes ahead on the bases of
favourable appraisal of the project.
But subsequently ex-post
evaluation may indicate that the
appraisal was faulty and the
project should not take place.

362
• There are a number of areas which might account for
the faulty prediction of economic performance,
i.e., sources of error may be in any of the following:
• Problems in Prediction of technical performance:
• Underestimation of the project life time
• The quality & quantity of raw materials,
• Supply of imported inputs and spare parts
• Wrong assumptions of the physical quality and
quantity of your product
• Wrong rate of production expansion (production
capacity)
• Problem with the quality of the management skills.

363
• Prediction of the market situation:
• Wrong estimation on cost of investment
• " " about the volume of demand
• " " of cost of inputs
• " " of operating costs
• " " the value of output

364
• Estimation of shadow prices
• Prediction of macroeconomic conditions
• For example, availability may not be as
predicted
• Inflation rate may rise above expected
• Interest rate, example, deposit rate decrease
from 6% to 3%
• Changes in laws and regulations
• Weather may also affect particularly
agricultural projects

365
There are several ways of incorporating
uncertainty:
• Adding an item called "Contingency" (in %)
• Adding "a risk premium" to the discount
rate, i.e. use a higher discounting rate
(NPV decreases)
• Shorten the "life of the project"
• Use “Sensitivity Analysis".

366
 Sensitivity Analysis
• Measures of project worth are first calculated using the best
estimate of inputs and outputs and the discount rate. The
project decision will be based on these best estimates.
• However, how sensitive is a project in financial
prices and economic values?
• There might be:
an increase in construction costs,
an extension of the implementation period,
a fall in prices, etc.

367
367
• It is analytical tool to test systematically what
happens to the earning capacity of the
project if events differ from the estimates
made about them in planning.

• The key variables to which sensitivity analysis

could be applied include: skill and technology
requirements, Price of inputs, Price of output,
Operating Costs, Sales volume and Initial cost
outlay.
368
368
 Risk management
It includes, either alternatively or in
combination, one or more of the following
conditions:
• the transfer of the risk;
• the exclusion of the risk;
• the reduction of the risk;
• the acceptance of the risk or an amount
of the risk.

369
• The selection of one or more of the previous
conditions largely depends on the specific
project situation (that is, the project
organization's internal and external context as
well as the organization's real possibility to
confront both of these contexts) and must be
based on a cost-benefit analysis that is as
quantitative as possible in reference to the
short, medium and long-term period.

370
 Session 8
Project Organization and Implementation

371
 Reflection Questions
1. How do you describe program/project organization
and implementation?
2. What major challenges you have observed during the
implementation stage of the projects you have
mentioned?
3. What were the major reasons for the problems you
have mentioned?
4. What measures were taken to solve the problems?

372
 Introduction
• Implementation is a project stage which covers the actual
development or construction of the project up to the
point at which it becomes fully operational.
• It includes monitoring of all aspects of the work or
activity as it proceeds.
• It is a stage where the earlier preparations, designs, plans
and analyses are tested in the harsh light of reality.
• The project’s objectives are realized only when it is
successfully implemented.
• Actual project implementation begins when we started
committing our scarce resources to a particular
investment.

373
 Introduction… cont’d
• Project analysts generally divide the implementation
phase into three different periods.
1. The Investment Period: When the major investments are
undertaken.
2. The Development Period: When the project’s
production/benefits build up.
3. The life/full operation of the project: When full
development is reached.

374
 Project Organization
 A mismatch between project design and objectives
on the one hand and the implementation capacity
of an agency or institution assigned on the other
has often been the most important reason for poor
performance of projects.
 Routine and repetitive jobs are often carried out within the
regular line organization; hence they do not need to be
organized as projects. However, development objectives
cannot always be achieved within regular organizational
structures.

375
376
 Functional structure
• Is a structure where authority rests with the
functional heads; the structure is sectioned by
departmental groups based on division of work.
• Staff members are divided to groups (e.g. financial,
planning, public relations, engineering, legal etc)
according to their specialized knowledge.
• Some of these groups can be further subdivided into
smaller functional groups.

377
378
 • The main advantage of this organizational structure
is that each functional group has complete control
over its segment of the project, enforcing in this
way the application of standards across projects.

379
 • The disadvantages of the functional organization are
that of speed, flexibility and communication when
attempting cross functional projects. Since in a
functional organization the work is divided between
the departments, any query or request must be
passed among department heads for approval,
causing in this way delays.
• In addition, the responsibility of managing the
project is shared among the functional managers
(head of the departments) and this may cause lack
of ultimate responsibility for project management.

380
 Projectized Organization
• Projectized organization is an organizational
structure that focuses on projects.
• Projectized organizations derive their name from
the fact that they are built to do project work.
• The project organization structure supports the
completion of project activities and provides an
adequate level of oversight, review and
contribution from necessary parties.

381
 • Project managers are given both the authority, and
the responsibility, to manage virtually all aspects of
the project. They have the same authority as
functional managers, and project team members are
the project managers’ subordinates.

382
383
 • The main advantages of the projectized organization
are speed and flexibility. Since the experts are
concentrated within the team and fully committed to
the project, it is easier to react to changing
requirements and complete the project on time.
Responsibility for the success of the project is
clearly identified and lies on the Project Manager.

384
 • The main disadvantage of the projectized structure is
the high resource costs, since the organization often
has to hire extra staff with certain expertise in order
to implement different projects simultaneously.
• In addition this type of structure burdens the
administrative overhead since there may be periods
where not all project teams are occupied.

385
 Matrix Organizations
• Matrix organization is a blend of functional and
project organizations.
• It is an attempt to combine functional and project
structures in order to take advantage of the strengths
of both structures.
• In matrix organization, project team members report
to both a functional manager and a project manager.

386
 • The most common form is that team members have
connected to project managers by dotted lines and
connected to their functional managers by solid
lines.
• Since team members report to multiple managers, a
clear communications plan is essential.

387
388
 • The main advantage of the matrix organization is
that it retains the benefits of both functional and
projectized structures.
• It also facilitates the effective resource allocation to
different projects.
• For these reasons, the matrix structure is considered
as the most effective structure for implementing and
managing projects and therefore is widely used.

389
 • The main disadvantage of the matrix structure is the
potential for conflict between the Project Manager
and the functional manager regarding the resource
assignment, since the functional manager has to
staff multiple projects with the same experts.

390
 What is Team?
• “A team is a group of people working together
towards a common goal.” (Clark, 1994)
• A team is a small number of people with
complementary skills who are committed to a
common purpose, performance, goals, and
approach for which they hold mutually
accountable.
• Teams have become an essential part of the way
business is being done.
• Synergy is the property where the whole is greater
than the sum of its parts.
391
 Teamwork in projects
• Projects are managed by people working together
as a team.
In a team,
• People depend on each other;
• May or may not work in the same physical
location,
• Combine to achieve something together

392
 Team Building
• The process of working with a team to clarify its task
and how team members can work together to achieve
it.
• A strategy that can help groups to develop into a real
team is “team building”

393
 Key actions in Team Building
• Setting and maintaining the teams objectives and
standards
• Involving the team as a whole in the achievement
of objectives
• Maintaining the unity of the team
• Communicating efficiently with the team
• Consulting the team – members before taking any
decisions

394
 Nature of project team

• The project team is usually a new, temporary group

with out previous experience of working together.
• Complex projects require complex teams with a set of
work rules and norms.
• High degree of learning and interdependency requires
well functioning and cohesive teams.

395
 Team building processes
• Initial project team assembly
– introductions
– goal explained
– rough network proposed
• Some issues debated
– who else should be on the team?
– without concern for budget restrictions, what
would each member contribute?

396
 • The group would construct an idealized network
(one they would implement if they could do what
they wanted)
• This would be done with the participation of team
members, giving them an opportunity to know each
other’s views.
• Involvement of people right from the goal setting
stage nurtures commitment & continuity.

397
 • Iterate towards a realistic plan negotiations with
each other and the project team
• Here the practical constraints and limitations
would be brought up by the members from their
own areas of expertise and experience
• This is the participative process
• Continue the process of negotiation until a feasible
solution is found (operationally viable and within
the budget)
• This network becomes the initial project plan with
which project execution begins.

398
 Aspects of Team Development
• When people from different departments are
assembled for a project they form a temporary social
system and as it is new there is no system of customs
that indicate proper behavior while working on that
project.
• Each person brings him/her own set of customs,
beliefs and perceptions to the project.

399
 Operating culture
• Group “mind”
• Common set of objectives and motives
• Explicit Vs implicit contract
• Heterogeneous group has no communality of
motives
• The initial project plan is the explicit contract for
the team. Working towards building that network
helps to develop the implicit contracts which are
necessary for a smooth working team.

400
 Group attributes
• Members perceive themselves as in a group and
they know who is in the group and who is not.
• There is at least one objective that all the members
agree upon, although each individual member may
have a multitude of other objectives.
• There is a need for interaction because of the
interdependencies of the people in the group as they
work towards the agreed upon objective.

401
 Group performance
• Studies indicate that heterogonous groups tend to
be more productive than homogenous groups.
• A team is a heterogeneous group with
complementary rather than competing skills in the
members.
• It is a temporary alliance created for a specific
purpose or objective.

402
 Key factors to successful performance of a
team – S.C.O.R.E
• Strategy
• Clear Roles and Responsibility
• Open Communication
• Rapid Response
• Effective Leadership

403
 Strategy:
 Shared purpose
 Clearly articulated values and ground rules
 Understanding of risks and opportunities facing the
team
 Clear categorization of the overall responsibilities of
the team

404
 Clear Roles and Responsibilities:
 Clear definition of roles and responsibilities
 Responsibility shared by all members
 Specific objectives to measure individual results

405
 • Open communication:
 Respect for individual differences
 Open communication environment among team
members
• Rapid response:
 Rapid response to the team’s problems
 Effective management to change in the internal
and external environment

406
 • Effective Leadership:
 Team leader who is able to help members achieve
the objective and build the team
 Team leader who can draw out and free up the
skills of all team members, develop individuals

407
“Coming together is a beginning
Keeping together is progress; and
Working together is success” Henry Ford

408
 Stages in Team Building

Forming

Storming
Norming

Performing

Adjourning
409
 Stages in team building ...
• Forming: Provide clear direction to establish the
team’s purpose, setting goals, etc.,
• Storming: Provide strong, hands-on leadership to
keep people talking and task-focused
• Norming: Codes of behavior becomes established
and an identifiable group culture emerges. People
begin to enjoy each other’s company and
appreciate each other’s contributions.

410
 • Performing: Teams that reach this stage achieve
results easily and enjoyably. People work together
well and can improve systems, solve problems and
provide excellent customer service.
• Adjourning: Temporary project team reaches this
stage; celebrate their team’s achievements.

411
4
1
2
 Characteristics of an Effective Team
• Interdependence
• Team leaders have good people’s skills
• Common vision
• Willingness for contribution
• Relaxed climate for communication
• Readiness to take risk
• Clear objectives
• Clear definition of members’ roles
• Open communication and information flow
• Motivation
• Trust, acceptance and support among members

4
1
3
 Characteristics of an Effective Team…
• Defined roles
• No personal attack
• Creating new idea
• Ability to influence
• Shared leadership

4
1
4
 Team Problems
• Drop in productivity or quality
• Plops formation: Litter interaction with new
members
• Pinches: frustrations when expectations are not met.
• The Abilene Paradox: lack of consensus.
• Clique formation
• Groupthink: members feel invulnerable to error

4
1
5
 Causes for Team Problems
• The goal is not specific enough
• Absence of clearly defined roles
• Absence of a charter or Poor team charter
• Poor team leadership
• Unclear working agreements
• Mismanaged conflict
• Lack of resources
• Failure to integrate the work of the team with the
organization

4
1
6
 Leadership roles in team work

• Project Management is more of the mgt of the

team than the management of the tasks.
• The team goes through various stages in its
development and maturity

417
 Leadership style
• Style 1 :Structuring:
• Organize and direct the work of others
• make each person accountable
• demonstrate
• Style 2 : Coaching:
• tutoring
• Joint effort
• Role model

418
 • Style 3 : Encouraging
• greater responsibility with doer
• recognize and praise good work
• Style 4 : Delegating
• assign task responsibilities and let others carry
it out
• motivate by giving control and respect

419
420
What do you learn from this?

421
 Project Implementation planning
Tools

422
 • Activity Schedule
• Milestones
• Gantt chart
• Work breakdown Structure
• Network Techniques
– The Critical Path Method (CPM) or Critical Path
Scheduling(CPS)
– Program Evaluation and Review
Techniques/PERT/
– Project Time- Cost Analysis
• Resource plan
• Cost Plan
423
 Roadmap to Project Success
Statement Work Responsibility Network Gantt Res ource B ud get
of Work Breakdown Matrix Plan
Form Purpos e Structure
Project Project Background R

A
A

Team Project Delivera bles

S
S
R
TIME

P LA N
E BOOK
OT M
E

N
Perform

ET
T
EC Task s

IN G
P RO J

S
C onduct
Close-Out
LEADERSHIP
Meeting
COMMUNICATION

RTS
LES

Track
CL

T
Pro gres s

EN
PO
SO
OS

S RE
N

-O LE

M
E
E

A RN
U T
ED
PL
S hare IM Update Re s olve Manage
E valuate
L es s ons S uc ces s Plan Is sues C hange
Learned

424
 Activity Scheduling
• A schedule is a list of things usually to do with
times when should be done.
• Activities Schedule is the backbone of every
project and is essential for a successful outcome.
• It gives all personnel involved in the project
common understanding of what is required, how
this will be achieved, when it will be achieved and
who will be responsible for the successful outcome
of each activity.

425
 Activity Scheduling Involves:

• Application of Work Breakdown Structure in

order to subdivide the major project deliverables
into smaller, more manageable component based
on the project scope.
• Identification of the activities needed in order to
produce the project deliverables and if necessary
breaking down the activities into more
manageable tasks which can then be assigned to
individuals

426
 • Determination of activities’ sequence (i.e. in what
order should related activities be undertaken?) and
dependencies (i.e. is the activity dependent on the
start up or completion of any other activity?)-
Network
• Estimation of activities/ tasks duration
• Scheduling of activities by defining the start up and
completion dates of each activity/task.

427
 A. Milestones
• In this technique we simply use a tabular format to
show the project activities in the first column, the
starting and finishing times in the subsequent
columns.
• Example:
Work Item Start Finish
A. Clear Site March 28 April 2
B. Level Site April 2 April 10
C. Excavate Foundation April 10 April 16

428
 B. Work Breakdown Structure (WBS)
• It represents a systematic and logical breakdown of
the project into its component parts.
• It is constructed by dividing the project in to its
major parts, with each of these being further
divided in to sub parts.
• This is continued till a breakdown is done in terms
of manageable units of work for which
responsibility can be defined.
 

429
Thus, the work breakdown structure helps in:
• Effective planning by dividing the work in
to manageable elements which can be
planned, budgeted and controlled.
• Assignment of responsibility for work
elements to project personnel and outside
agencies.
• Development of control and information
system.

430
 Ways of doing WBS
• Hardware orientation (identification of basic work
packages)
• Agency orientation (based on assignment of
responsibility to different agencies)
• Functional oriented (e.g. deign, procurement,
construction and commissioning)

431
 Illustrative WBS for Construction Projects

Foundation Exterior Interior Finish

Heating/air Electrical Paint Fixtures

Frame & conditioning
Layout Form install Roof
windows

Pour & Finish

insulate Dry wall
Floor Clean up
Install siding Painting covering
Doors & trim

432
 C. Gantt Chart
• A Gantt chart is a graphical representation of the
duration of tasks against the progression of time.
• A Gantt chart is a useful tool for planning,
scheduling and monitoring projects.
The advantages of the bar chart are:
• It is simple to understand
• It can be used to show progress
• It can be used for human resource planning

433
Bar or Gantt Chart

434
The disadvantages of the bar chart are:
 It cannot show interrelationship among
activities on large , complex projects;
 There may be a physical limit to the size of
the bar chart, which may limit the size of the
project; and
 It cannot easily cope with frequent changes
or updating.

435
 D. Network Techniques
• In this technique, the
• activities,
• events, and
• their relationships
are presented by a network diagram, also
called an arrow diagram.  

436
 Why Project Network?
• It is a convenient way to show activities and
precedence in relation to the whole project.
• It is a basis of project planning:
 responsibility allocation
 definition of subcontracting units
 role of different players
• It is the base for scheduling and establishment of
work time tables

437
 • Facilitate critical path determination for
management control
– deterministic Vs probabilistic activity times
• Facilitates resource planning for projects
– Project crashing with time cost trade offs
– Resource aggregation
– Resource leveling
– Limited resource allocation
• It can handle very large and complex projects and
it can be easily computerized and updated

438
 • Uses for project implementation
– Time table for implementation
– Monitoring and reporting progress
– updating schedules and resources
– Coordination of work with different agencies
• The project network is thus a common vehicle for
planning, communicating and implementing the
right from inception.

439
 Drawbacks of network technique

• Being more complicated than the traditional bar

chart it is not easily understood by the project
personnel, and
• It does not define an operational schedule which
tells who does what and when.

440
 Basic Network terminologies

• An activity is a task or a job that takes time and

resources
• It is represented in a network by an arrow.
• The arrow doesn’t have any relationship with a
scale.
• Example: Excavate the land, Dig foundations, Lay
foundations, Build a wall, etc.

441
In a network analysis, it is important to establish:
 The activities involved in the project,
 Their logical relationship, e.g. Building a
wall comes after laying the foundation.
 An estimate of the time that an activity is
going to take

442
• An event is a point in time and indicates the start
or finish of an activity or activities, e.g. wall built,
foundations dug, etc.
• An event is represented in a network by a circle.

• The establishment of activities automatically

determines events because they are the start and
finish of activities.

443
• Dummy activity: an activity that does not consume
time or resources.
• It shows merely the dependencies or proper
relationship between activities.
• A dotted arrow represents dummy.  

444
Network: this is the combination of activities,
dummy activities and events in logical sequence
according to the rules of drawing networks. Example:

445
 Rules for drawing networks:
• A complete network should have one point of
entry – a start event, and one point of exit – a
finish event.
• Each activity must have one preceding (tail)
event and one succeeding or head event.
• Many activities may have the same tail event
and many may have the same head event.
• No activity can start until its tail event is
reached.

446
• An event is not complete until all activities leading
in to it are complete.
• A series of activities which lead back to the same
event are not allowed.
• All activities must be tied in to the network; all
must contribute to the progress of the project,
danglers are not allowed.

447
 Activity Identification
• Short description: example, Lay foundation, erect
frame, etc.
• Alphabetic or numeric code: example, A, B, C,
etc., or 100, 101, 108 etc.
• Using tail and head event numbers: example, 1-2,
2-3, 3-4, 3-6, etc

448
 Example 1: Organizing a one day seminar
Generate the list of jobs to be done:
a. Decide date, budget , venue for seminar
b. Identify speakers, participants
c. Contact and finalize speakers
d. Print seminar brochure
e. Mail brochures to tentative participants
f. Estimate number of participants
g. Decide menu for lunch, tea and coffee
h. Arrange for catering
i. Arrange projection facilities at venue
j. Receive guests at registration
k. Conduct seminar as per brochure
l. See off guests
449
Code Activity Predecessors
A Decide date, budget , venue for seminar -
B Identify speakers, participants -
C Contact and finalize speakers B
D Print seminar brochure A, C
E Mail brochures to tentative participants D
F Estimate number of participants E
G Decide menu for lunch, tea and coffee F
H Arrange for catering G
I Arrange projection facilities at venue F
J Receive guests at registration E
K Conduct seminar as per brochure H, I, J
L See off guests K
450
 Network of A one day
seminar on PM
10
L

9
K
J 8
A D E
1 5
3 4
I H
B F 6
2 C 7
G

451
 Example 2: Complex Construction Project

A = Lay foundation
B = Erect framework
C = install millwork
D = install wiring
E = install plumbing
F = plaster walls
G = install siding
H = decorate the interior
I = finish the exterior
452
The interrelationship among these activities is as
follows:
• A should precede B
• B should precede C, D, E, F, and G
• C, D, E and F should precede H
• G should precede I

453
 Network diagram of the project:
4
C

H
1 2 3
D
7 9
A B
E

F 5

I
G 6

8
454
 Activity Duration

• Deterministic [as in CPM]

– When previous experience yields fairly accurate
estimates of activity duration, [e.g., construction
activity, market surveys]
• Probabilistic [as in PERT]
– when there is uncertainty in times, as for
instance in R & D activities, new activities
being carried out for the first time.

455
 • Deterministic time estimate:
– A single time estimate is used for each activity.
This is taken from experts who have prior
knowledge and experience of the activity.
• Probabilistic time estimate:
– Multiple time estimates -Three time estimates
[Optimistic, Most Likely and Pessimistic] are
commonly used for each activity based on the
consensus of the group.

O  4 ML  P
ExpectedTime
6

456
 Critical path
• Is the longest path in the network
• Lower bound on the project duration [the shortest
time in which the whole project can be completed]
• Selective control for management of the project
• Can be determined by:
– Enumeration of all paths in the network
– Event based computations [forward pass and
backward pass]

457
• There may be two critical paths and the critical
path can pass through a dummy.
• The Critical path is determined by selecting the
chain of activities where their ESTs are equal to
their LSTs.
• The other activities with differences in their ESTs
and LSTs are non-critical activities.

458
• Earliest start time (EST): the earliest possible time
at which a succeeding activity start. Calculating the
EST is called the forward pass.

• Latest start times (LST): is the latest possible time

at which a preceding activity can finish without
increasing the project duration. Notes on
calculating LST (termed the backward pass)

459
 Example 1 2

B D

2 4

0 1 3 4 5
A C E F

1 3 1 2

• The Critical paths of this project are A, B, D and F.

• The total duration of this project is 9 days.
• The non-critical paths are C and E.

460
Example
Activity Preceding Activity Activity durations (Weeks)
A - 9
B _ 3
C A 8
D A 2
E A 3
F C 2
G C 6
H C 1
J B, D 4
K F, J 1
L E, H, G, K 2
M E, H 3
N L, M 4

Required: Find the critical path and the duration for this project.

461
 Answer 3
M (3)

7
E (3) 8

N (4)
A (9) H (1)
1
L (2)
C (8)
G (6)
4 6
D (2)

B (3) F (2)

2
K (1)
J (4)
5

Critical path : A, C, G, L and N

Project duration : 29 Weeks
 

462
Exercise 1
Activity Predecessors Duration (days)

A - 2
B - 3
C A 1
D A, B 4
E D 5
F D 8
G C, E 6
H C, E 4
I F, G, H 3

Draw the network and find the critical path?

463
• Float: Float or spare time is associated with non-
critical activities. There are three types of floats:
total floats, free float and independent float.
float
• Total float is the amount of time a path of activities
could be delayed with out affecting the overall
project durations.
• Total Float = Latest finish time – Earliest Start
time – Activity duration
• For example total float for activity C and E is 7-1-4
= 2 days.

464
• Free float is the amount of time an activity can be
delayed without affecting the commencement of a
subsequent activity at its earliest start time, but may
affect float of a previous activity.
• Free float = Earliest Finish Time- Earliest Start
Time – Activity Duration
• For example free float for activity E is 7-4-1 = 2 days

465
• Independent Float is the amount of time an activity
can be delayed when all preceding activities are
completed as late as possible and all succeeding
activities completed as early as possible.
Independent float therefore does not affect the float
of either preceding or subsequent activities.
• Independent Float= Earliest Finish Time-latest
Start Time-activity Duration
• Example, Independent float for activity E is 7-6-1 =
0 days.

466
Activity Duration EST LST EFT LFT TF FF IF

A 1 0 0 1 1 - - -

B 2 1 1 3 3 - - -

C 3 1 1 4 6 2 - -

D 4 3 3 7 7 - - -

E 1 4 6 7 7 2 2 -

F 2 7 7 9 9 - - -

467
 Uncertain activity duration [PERT]

• For each activity in the project three time estimates

are obtained:
– Optimistic times, a
– Most likely time, m
– Pessimistic time, b

468
 PERT time estimates

• Mean of activity duration:

= (a + 4m + b)/6
• Variance of activity duration:
=( (b-a) /6 )2
• Standard deviation of activity duration:
= sq. roots of variance = (b-a )/6

469
 Basic PERT Procedure

• Compute mean and variance of all jobs

• Conduct forward and backward pass on the project
network with expected times of all activities
• Identify the critical path
• Obtain variance of critical path by adding variance
of activities.
• Obtain the distribution of the project duration

470
• Make probability statements about the project
– Chances of meeting the target date
– Probability of exceeding A given ceiling date
– Probability that the project duration is confined to
an interval of time.
– Z (standard normal deviate) = [x-q]/SD

471
 Multiple time estimate

1
3

C
A D F

0.5, 1, 1.5
2, 3.5, 4 5.6, 7, 15 3, 4.5, 5.4

2
0 4
E
B

5,6,8
4,5,6

472
Activity Expected duration
 a  4m  b 
 ED 
 6 

A 3.33
B 5.00
C 1.00
D 8.10
E 6.17
F 4.40

The critical path B, D and F

Project duration = 5+8.1+4.4 = 17.5

473
• To calculate the probability that the project can be
completed within 19 days:
• Calculate the SD of each activity on the critical path
using the formula:
b a
6
64
– Activity B = 6  0.33
15  5.6
1.57
– Activity D = 6

5.4  3
– Activity F = 6 0.4

474
• Find the combined standard deviation of all activities
on the critical path.

0.33  1.57  0.4 1.65weeks

2 2 2

• Find the number of standard deviations that the

scheduled date is away from the expected duration.

19  17.5
 0.91
1.65

475
• Look up this value in a table of areas under the
normal curve to find the probability.

• In this case the probability of achieving the

scheduled date of week 19 is 82%.

476
 Exercise 2
Activity Predecessor Time estimates
s a m b

A - 2 4 8
B - 4 6 10
C A 6 6 6
D A 2 8 14
E A 6 8 12
F B,C 9 3 15
G D,F 8 16 20
H D,F 4 4 4
DrawI the network? Find the CP?
E, H 4 8
What is the probability of completing the project by 36 days?
10
What is the probability of finishing the project by 28 days?
477
 Cost scheduling

• The overall objective is to calculate the cost of

various project durations and to find the cheapest
way of reducing the overall duration

478
 Multiple Objectives
• Project cost and time are undoubtedly the two
major objectives that project managers strive to
minimize and control.
• Project performance (in terms of both quantum
and quality of work done)needs to be monitored
and controlled.
• There could be a number of attributes that reflect
project performance, time and cost.

479
 Conflicting objectives:
• Meeting a certain contracted date
• Minimizing the total project cost
– Direct activity cost
– Indirect activity cost
– Penalties for project delays
• Ensuring that certain activities are not crashed for
quality reasons
• Confining the expenses to a fixed budget

480
 • With expenditure of additional resources it is
generally possible to accomplish the activity in a
shorter duration
• The minimum possible duration of the activity is
its crash duration, when its cost is the highest.
• For technological reasons it is not possible to
shorten duration below the crash limit even by
spending more money or resources.

481
 • project schedules influence both the direct costs of
activities and indirect costs associated with the
project.
• Activity direct costs:
– Costs associated with the performance of the
specific activity, such as:
• cost of planning and design
• raw materials procurement
• Labor costs
• Manufacturing or processing costs
• Travel, communication and transportation
• Consultation fees, etc

482
 Project indirect costs

• Overhead costs such as:

– managerial services
– Indirect supplies
– Equipment rentals
– Allocation of fixed expenses
– Site office maintenance
• Indirect costs increase with the duration of the
project

483
• Project cost comprises direct costs and indirect
project costs.
• As we shorten project duration, direct costs
increase whereas indirect costs decrease.
• Therefore, there is optimal project duration
where the total project cost becomes the
minimum.

484
 Project direct cost- time relationship

• Normal cost: The costs associated with a normal

time estimate for an activity.
• Crash cost: they are caused by extra wages,
overtime premiums and extra facility costs.
• Crash time: the minimum possible time that an
activity is planned to take. Applying extra
resources usually brings this about.

485
• Cost slope: this is the average cost of shortening an
activity by one time unit.

CrashCost NormalCost
CostSlope 
NormalTime  CrashTime
• Least cost scheduling or crashing: The process by
which we can find the least cost method of reducing
the overall duration of a project.

486
 Heuristic solution procedure:
• Start with the normal project duration
• Obtain the critical paths
• Choose that activity on the critical path which is
cheapest to crash
• Crash that activity till either another path becomes
critical or the activity is fully crashed

487
 • Determine the most economical set of activities to
be crashed or relaxed to reduce the durations all
critical paths
• No further crashing is possible when at least one
critical path can not be reduced
• When two or more activities on any path are
simultaneously crashed, some previously crashed
activity on the path may be relaxed.

488
Example: Given the information below, find the maximum length of the
schedule and the minimum cost schedule when the indirect cost is Birr70
per day.

Preceding
Time Cost
Activity
Activity
Normal Crash Normal Crash Slope *

A - 4 2 150 350 100

B - 8 6 100 200 50
C A 2 1 50 90 40
D B 10 5 100 400 60
E B 5 1 100 200 25
F C, E 3 1 80 100 10
Total Direct Cost 580

* Average cost of shortening an activity by one time unit

489
 2

4 13
C (2)
A (4) 4
F(3)
0 5
13 15
18 18
0 0 E (5)

B (8) 3 D (10)

8 8

The critical paths are B and D

Normal project duration is 18 days

490
Step 1: The first is to determine the normal costs and
normal durations of the project.
• The critical paths are B and D
• Normal project duration is 18 days
• Direct Cost = Birr580
• Indirect cost = 70X18= 1260
• Total project cost = Birr1840

491
Step 2: Reduce the least cost slope critical activity B by
two days
• The critical paths B and D (Not changed)
• Project duration 16 days
• Direct cost = normal cost + crush cost =
580+100 = 680
• Indirect Cost = 70X16 = 1120
• Total project cost = 1120 + 680 = 1800

492
Step 3: Since we have fully used the crash time for B,
now crash critical activity D by two days
• Two Critical paths: the first is B and D; and the
second is B, E and F.
• Project duration 14 days
• Direct cost = Cost of step 2 + crash cost =
680+(60*2=120) = 800
• Indirect Cost = 70X14 = 980
• Total project cost = 980 + 800 = 1780

493
Step 4: Three crashing days remain from activity D.
We select one either E or F with the least cost slope
to crash it together with activity D. Therefore, we
can crash two days of activity D and only two days
of Activity F.
• Two Critical paths: the first is B and D; and
the second is B, E and F.
• Project duration is 12 days
• Direct cost = Cost of step 3 + crash cost
(crash cost of D + Crash cost of F) = 800 +
(60+10)*2 days = 940
• Indirect Cost = 70X12 = 840
• Total project cost = 940 + 840 = 1780
494
Step 5: We can further crash by one more day activity D
and E but not activity F
• Two Critical paths. The first is B and D; and
the second is B, E and F.
• Project duration is 11 days
• Direct cost = Cost of step 4 + crash cost (crash
cost of D + Crash cost of E) = 940 + (60+25)*1
days = Birr1025
• Indirect Cost = 70X11 = 770
• Total project cost = 1025+ 770 = 1795.

495
• Conclusion: The student should note that the total
project cost starts to increase at step 5 when
compared to step 4. Then the optimal solution for
this project is the values of step 6 as follows.
• Project duration = 12 days; Total project cost = 1780

496
 The activities and time estimate ( in weeks) for various
activities are illustrated below:
Activity Preceding Time Estimates
Activity Optimistic Most likely Pessimisti
c
A - 1 2 3
B - 8 10 12
C A 2 4 6
D B 1 2 3
E C,B 6 8 10
• F
Draw the networkD diagram? 4 3 8
• Determine the critical path
• Calculate EST, LST, EFT and LFT of the activities on the critical path?
• Detriment the average estimated duration of the project?
• What is the probability of finishing the project with in 20 weeks?

497
• Given the following list of activities , precedence
relationships, normal and crash time and cost of a project,
when the indirect cost is birr 120 per day,
Activity Preceding Time Cost
activity Normal Crash Normal Crash

A _ 6 4 500 620
B _ 4 2 300 390
C A 7 6 650 680
D A 3 2 400 450
E
• Calculate theB,C
cost slope? 5 3 850 1000

• Draw the network diagram?

• Determine the project completion time?
• Determine the critical path?
• Construct a least cost schedule for the network (Crash it)?
498
 Successful Project Implementation
• Project implementation success has been defined in
many ways to include a large variety of criteria.
• However, in its simplest terms, project success can be
thought of as incorporating four basic facets.

499
 • A project is generally considered to be successfully
implemented if it:
– Comes in on-schedule (time criterion).
– Comes in on-budget (monetary criterion).
– Achieves basically all the goals originally set for
it (effectiveness criterion).
– Is accepted and used by the clients for whom the
project is intended (client satisfaction criterion).

500
 Reasons for Project Failure

1. Poor project and program management

discipline
2. Lack of executive-level support
3. No linkage to the business strategy
4. Wrong team members
5. No measures for evaluating the success of the
project
6. No risk management
7. Inability to manage change

501
 Success in Project Implementation

1. Commitment
2. Simplicity of Design
3. Careful Preparation
4. Good Management

502
 Problems in Project Implementation

1. Financial Problems
2. Management Problems
3. Technical Problems
4. Political Problems

503
 Phase 5
Monitoring and Evaluation

504
 Monitoring and Evaluation
What is Monitoring?
• Monitoring is the systematic and continuous assessment of the
progress of a piece of work over time.
• It is a continuous process of gathering, analysing and interpreting
of information of the daily use of inputs and their conversion into
outputs.
• It is the systematic and routine collection of information from
projects and programmes for four main purposes:
1. To learn from experiences to improve practices and activities in the future;
2. To have internal and external accountability of the resources used and the
results obtained;
3. To take informed decisions on the future of the initiative;
4. To promote empowerment of beneficiaries of the initiative.

505
 Monitoring and Evaluation --- cont’d
• Monitoring is a periodically recurring task already beginning in the
planning stage of a project or programme.
• Monitoring allows results, processes and experiences to be
documented and used as a basis to steer decision-making and learning
processes.
• Monitoring is checking progress against plans.
• The data acquired through monitoring is used for evaluation.
What is Evaluation?
• It is a systematic and periodic gathering, analyzing and interpreting of
information on the overall project performance and objective
achievement in light of relevance, efficiency, effectiveness, impact and
sustainability.
• Evaluations appraise data and information that inform strategic
decisions, thus improving the project or programme in the future.
• An assessment of the extent to which a project is achieving or has
achieved its stated outcome goals .

506
 Monitoring and Evaluation --- cont’d
What is M&E?
• M&E is an embedded concept and constitutive part of every
project or programme design (“must be”).
• M&E is not an imposed control instrument by the donor or
an optional accessory (“nice to have”) of any project or
programme.
• M&E is ideally understood as dialogue on development and
its progress between all stakeholders.
• M&E can help one to:
1. Identify problems and their causes;
2. Recommend possible solutions to problems;
3. Raise questions about project assumptions;
4. Reflect on where the project is going, and on how best to
507
accomplish its aims and objects.
 Monitoring and Evaluation --- cont’d
• The power of measuring results:
 If you do not measure results, you cannot tell success
from failure.
 If you cannot see success, you cannot reward it.
 If you cannot reward success, you are probably
rewarding failure.
 If you cannot see success, you cannot learn from it.
 If you cannot recognize failure, you cannot correct it.
 If you can demonstrate results, you can win public
support and donor interests.

508
 Monitoring and Evaluation --- cont’d
• Why undertaking M&E?
1. To check whether our project meets its objectives.
2. To generate data about the project’s progress.
3. To build greater transparency and accountability.
4. To improve day-to-day decision-making.
5. Inform us about the strengths and weakness of the project.
6. To detect unexpected and unintended results and effects of the
project.
7. To provide early warning of problems.
8. Explain the reasons why project activities succeed or fail.
9. To build understanding and capacity.
10. To stimulate learning.
11. To demonstrate & strengthen accountability

509
 Monitoring and Evaluation --- cont’d
• There are different ways to perform an evaluation:
1. Self-evaluation
2. Participatory evaluation
3. Rapid participatory evaluation
4. External evaluation
5. Interactive evaluation

510
 Traditional vs result based monitoring and evaluation (RBME)

Elements of traditional M & E Elements of result based M & E

Description of the problem or situation Baseline data to describe the problem
before the intervention; or situation before the intervention;
Indicators are for activities and Indicators are for outcomes and
immediate outputs; impact;
Data collection focuses on inputs, Data collection focuses on outputs and
activities and immediate outputs; how/whether they contribute towards
achievement of outcomes
Systematic reporting on provision of More focus on change among
input and attainment of output ; stakeholders by indicating the
performance trend over time
Directly linked to a discrete intervention Systematic reporting with more
(or series of interventions); qualitative and quantitative information
on the progress of outcomes
Designed to provide information on Captures information on success or
administrative,
511 implementation. failure of the project partnership
 Reaching Results

Later in the life of the project

Early in the life of the project

Strategic
Objective(SO)

Outcomes

Outputs

Inputs
Activity Level

512
 Monitoring and Evaluation --- cont’d

Types of evaluation
• Evaluation can be characterized as being either formative or
summative.
1. Formative evaluation
• It takes place in the lead up to the project, as well as during
the project in order to improve the project design as it is
being implemented (continual improvement).
• Formative evaluation often lends itself to qualitative methods
of inquiry.
• Is conducted at mid-term (also called periodic evaluation) or
semi-annually ( also called process evaluation)

513
 Monitoring and Evaluation --- cont’d
2. Summative evaluation
• It takes place during and following the project
implementation, and is associated with more objective,
quantitative methods.
• Is conducted only when the project has been completed.
• Summative evaluation is also called terminal, final, outcome,
or impact evaluations.
• Summative evaluation falls into two categories: end
evaluation and ex-post evaluation.

514
 Monitoring and Evaluation --- cont’d
Difference between Monitoring and Evaluation

Item Monitoring Evaluation

Frequency Periodic, regular Episodic /not regular

Main action Keeping track/oversight Assessment

Basic Purpose Improve achievement, Improve effectiveness,

Adjust work plan impact, future
programming
Focus Inputs, outputs, process, Outcome, relevance,
work plan sustainability, impact

Information Sources Routine or sentinel systems, Same, plus surveys and

field observation, progress studies
Undertaken by Internal staff, community, Internal staff, stakeholders,
funder/donors funders/donors, external
515 evaluators, community
 Complementary Features Monitoring and Evaluation

Monitoring Evaluation
1. Implementation oriented 1. Policy oriented
2. Tracks results/output 2. Explain results/output, outcome,
3. Assess intermediate results and impact
4. Focus on timeliness 3. Assess attributes
5. Emphasis on multi-level results 4. Focus in rigor
6. Informs Budgeting 5. Emphasis on final results
7. Strengthens accountability for 6. Informs broad resources
managing results allocation
8. Essential for programme 7. Strengthens accountability for
implementation & improvements results themselves
9. Can use disaggregated data 8. Essential for strategy
development
9. May need aggregated data

516
 Project Monitoring: What, When and How to Monitor?
• Monitoring, supervision and control are tools for
project managers to use in judging and influencing the
progress of project from inception to
operation/implementation.
• Control is verifying whether everything occurs (quality,
cost, and time) in conformity with the plans adopted,
the instructions issued and the principles established.
• Control includes reporting on any deviations from the
plan, the reasons for the deviations and the corrective
actions that need to be taken.

517
 Project Monitoring: What, When and How to Monitor?
• Supervision on the other hand, involves keeping a finger
on pulse of the program/project, diagnosing problems as
they arise and advising on their solution.
• It is watching and assessing the environment for factors
and situations which may have an adverse effect on the
project, anticipation of problems before they overwhelm
the project and coming up with suitable proposals to solve
them.

518
 Project Monitoring: What to Monitor?

There are two types of monitoring and a distinction has to be

made between these - process monitoring and impact
monitoring.
• Process Monitoring: considers the use of resources, the
progress of activities, and the way these are carried out. It is
a means for reviewing and planning work on a regular basis.
• Impact Monitoring: Helps to monitor changes brought as a
result of the project/program intervention while the project
is still on progress. This might be economic aspect, social,
organizational, technological, attitude, etc. or other
intended and unintended results over a longer period. This
is different from impact evaluation or assessment which is
expected to be done sometime after the project is
completed.
519
 Project Monitoring: What & How to Monitor?

The following are among the major items that have to be

closely monitored in any development programme/project
in process monitoring:
1. Project Physical Progress (inputs, activities, and outputs)
2. Finance Progress (expenditure)
3. Project Quality Monitoring /service & products/
4. Assumption and Risk Monitoring
5. Beneficiary Contact Monitoring (BCM)
6. Management related issues

520
 Steps in Developing Monitoring Tools (How to monitor)
1. Review expected inputs, activities and outputs
2. Determine information needs for monitoring
3. Decide on key elements to be monitored
4. Identify key factors
5. Identify key indicators to be used to measure key factors
6. Decide on the key indicators which should be used in
developing the monitoring tool
7. Use key indicators to formulate key questions
8. Check the relevance and validity of the questions
9. Pre-test the monitoring tools and improve according to
feedback obtained
10. Distribute the monitoring tools for application and improve
further on the basis of field application results
521
 Steps in Developing Monitoring Tools (How to monitor)
• The most widely used means of communication tools
employed in project monitoring and control are:
a. reports,
b. meetings, and
c. site visits(observations).

522
 Project Evaluation: When, What, and How to Evaluate?
• Evaluation can be seen in two ways i.e. on periods of
evaluation and persons conducting the evaluation.
• In terms of the periods of evaluation, four types of
evaluation are commonly distinguished. These are;
1. Ex-ante Evaluation (Start up Evaluation),
2. Mid-term Evaluation or On-going Evaluation/ Formative
Evaluation/
3. Terminal Evaluation (Summative Evaluation); and
4. Ex-post Evaluation (Impact Assessment).

523
 Project Evaluation: When, What, and How to Evaluate?
• Based on persons involved in the evaluation process we
have:
1. Internal and
2. External evaluation
3. Interactive/joint evaluation
• Internal Evaluation: It is performed by persons who have a
direct role in the programme/project.On-going or formative
evaluation can be done by the management team or
persons assigned from the implementing agency.
• External Evaluation: Here the evaluation is carried out by
persons from outside the programme/project. Terminal is
often conducted by external evaluators. In most cases it is
conducted by the funding/ sponsoring/ agencies with
formally designated persons outside the project at fixed
points in time.
524
 Evaluation Criteria /What to Evaluate?/
• Most of the basic evaluations criteria and concepts are
universally accepted and used by all organisations as well as
by the donors’ community.
• The criteria for evaluation address five major sets of issues.
These are:
1. Relevance
2. Efficiency
3. Effectiveness
4. Impact
5. Sustainability

525
 Evaluation Methods (How to Evaluate)?
• The commonly used evaluation methods are;
1. Physical Measurement: like height, weight, length, etc.
2. Verbal questions
3. Survey (questionnaires)
4. Analysis of existing information: such as regular records; reports;
diaries
5. Field visits or observation
6. Meetings and discussions

526
 Steps in Developing Evaluation Tools
1. Review project objectives
2. Convert project objectives into evaluation objectives
3. Identify and list down key factors
4. Select indicators for key factors
5. Determine the key factor that should be used for
developing the evaluation tools
6. Decide the method(s) used for evaluation
7. Determine the tools to be used
8. Utilize the key indicators in formulating key questions
9. Check the relevance of the key questions to the
information needs
10. Pre-test evaluation tools, orient evaluators on the tools
and put the tools to use
527
 Activity: Form a small group and discuss the following
points:

1. Evaluate the monitoring and evaluation practices of

your organization.
2. What methods, tools and approaches you have been
using in your organization? Which tools, methods,
and approaches do you think is appropriate for your
organization? Why?

528
Setting Up Monitoring and
Evaluation System

529
 M & E instruments design has five
components:
1. Clear statements of measurable objectives
e.g. Providing more equitable access to health
services.
2. A structured set of Indicators
Types of Indicators:
a. Input Indicators- are quantified and time-
bound statements of resources to be
provided.
E.g. Vehicle operating costs for the crop
extension service.

530
 Designing Monitoring and Evaluation
Instruments
b. Process indicators -measure what happens during
implementation.
e.g. latest date for delivery of fertilizer to farm stores.
c. Output indicators- show the immediate physical
and financial outputs of the project: physical
quantities, organizational strengthening, and initial
flows of services. E.g. cost per kilometer of road
construction.

531
 Designing Monitoring and Evaluation Instruments

d. Impact refers to medium or long-term developmental change.

e.g. (education) continuation rates from primary to secondary
education by sex, proportion of girls completing secondary
education
e. Exogenous indicators are those that cover factors outside the
control of the project but which might affect its outcome. e.g.
currency exchange rates.

532
 Designing Monitoring and Evaluation Instruments

3. Provision for Collecting Data and Managing Project Records

-so that the data required for indicators are compatible with
existing statistics, and are available at reasonable cost.
• Indicators of inputs and processes will come from project
management records originating from field sites.
• To measure output and impact may require the collection of
data from sample surveys or special studies.

533
 Designing Monitoring and Evaluation
Instruments
4. Institutional arrangements for gathering, analyzing, and
reporting project data, and for investing in capacity
building, to sustain the M&E service.
5. Proposals for the ways in which M&E findings will be fed
back into decision making.

534
Monitoring and Evaluation Report

535
 Monitoring and Evaluation Report … cont’d

The M & E Report could be presented in two forms:

1. Narrative Report
The following information should be addressed in a narrative
report:
 Introduction. Significant developments in the reporting
period.
 Objectives and planned activities for the period.
 Were the objectives and the activities of the project
achieved?
 Did you meet any bottlenecks and/or problems? (If not,
why? What was done to deal with them?)
 Were you able to carry out the activities according to
schedule? (If not, why? What was done to adapt the
activities? )
536
 Monitoring and Evaluation Report … cont’d

• Has the target group been reached?

• Copies or samples of every material produced during
the project implementation, like posters, leaflets, study
reports, newspaper articles, publications, training
lessons and programs, etc.
• Objectives and planned activities for the next period.
• Specific recommendations for any action necessary to
ensure that the project achieves its objectives.

537
 Monitoring and Evaluation Report … cont’d

2. Financial Reports
Financial reports should address the following
information:
 An account of the progress made towards the
achievement of the project objective.
 An overview of expenditures during the reporting
period.
 An explanation of any deviation from the budget and
links to actual progress.
 An overview of the budget required for financial
activities and expected output over the next 12
months.

538
Activities: Form a small group and discuss the following
points:

• Assess the reporting practice of your organization

and indicate the major components of the report.

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 Questions and/or comments

540
 Thank you!
Wishing you Continued Success
on your Project Management
Journey!
541