Course: Project Identification, Analysis & Appraisal

Course Objectives

To discuss project identification, and identify sources of project

ideas
– To define project feasibility studies and appreciate their services in
the effective management of projects.
– To build the structure of project analysis
– To discuss and practice the process and techniques of project
analysis focusing on the marketing, technical, financial, socio-
economic, environmental, and human resources/organizational
factors.
– To discuss project proposal, its part in project appraisal, and how to
organize the proposal document.

2
 Course Contents
Chapter one: Overview of Project and Project Management
–Definition of Project and project management
–Project Management Framework
–Project success factors
–Project Management Skills
–Project & Project Cycle Models
Chapter Two: Project Identification
•Identification of Projects for Business Firms
•Purpose and need for project identification
•Sources of project ideas
•Screening project ideas
•Identification of Development Projects
Chapter 3: Project Analysis (Feasibility Study)
• Market Analysis
• Technical Analysis
• FINANCIAL ANALYSIS
• ECONOMIC Analysis
• Manpower / Personnel Analysis
Chapter 4: PROJECT APPRAISAL 3
Chapter one: Overview of Project and
Project Management

4
Facts about Projects

• 70% of projects fail.

• Organizations that undervalue project management see 50% more of

their projects failing.

• 9.9% of every dollar is wasted due to poor performance.

• $2 trillion a year wasted

• 42% of companies don’t understand the need or importance of project

management.

• Projects are 2.5 times more successful when PM practices are

implemented. (89% vs 35%).

• Organizations that invest in PM practices waste 28 times less money.

Sources 4PM, PMI 2018, PMI 2016, CIO, G2, Geneca, PMI 2014, PMI 2017, KPMG, Business2Community,
PMI, Wellingtone, Agile247, Mordor Intelligence, Datanyze, Business First Family, PMI, Wellingtone, Wrike,
Business2Community, Workamajig
5
Ethiopia….8% success rate but data is not confirmed from
reliable sources

For Improvement… Proper project management practice

• Project management doesn’t come cheap—it

takes up to 20% of the overall project budget.
• Better project management processes….(Org.
Assets)

6
 What is a Project?

A project is a unique, complex, and non-routine endeavor

or effort to produce a set of deliverables within clearly
specified time, cost and quality constraints to meet
customer needs.

TIME COST

QUALITY

7
 The Triple Constraint
• Every project is constrained in different ways by its:

– Scope goals: What work will be done?

– Time goals: How long should it take to

complete?

– Cost goals: What should it cost?

• It is the project manager’s duty to balance these

three often-competing goals.

8
 Project Management
Definition:

Project management is the application of processes,

methods, skills, knowledge, and experience to deliver the
project goals within scope, time, and budget constraints
to achieve specific project objectives.

Project management includes the planning, initiation,

execution, monitoring, and closing of a project.

9
 Characteristics of a project
• Projects have single, definable purpose, end-item, or result

(usually specified in terms of cost, schedule, and performance

requirements)
• Every project is unique and projects cannot be replicated

• Projects are temporary activities

• Projects cut across organizational lines… I some cases
communication of project issues may break defined scalar chains
• Project Has a life cycle…they start and die like other products or
living ones
• Project need Flexibility…projects are subjected to modification and
so need maximum flexibility
10
 Project versus Operations
What is a project?
A project is a temporary activity or task with a specific start and end date. Projects are often
unique and created with a specific end goal, such as a new product or service that creates
value for a team. After project completion, the team moves on to other tasks. A team
usually creates a project to address business or social needs, customer requests or market
demands.

What are operations?

Operations are ongoing, routine tasks that adhere to a team's procedures. They don't
produce new deliverables and are less risky to affecting a team's success because the team
is familiar with calculating their performance, cost, time and objectives. Operations are
permanent and produce the same result or service to sustain a team's daily affairs. Some
characteristics typical of operations include using systems or processes that already exist
and managing multiple objectives at once.

11
Differences between project and operations management
There are differences between project management and operations management
regarding:
•Time frame,
•Output, and
•Risks involved.

1: Time frame
Projects are time-bound, with start and finish dates. Operations are day-to-day activities
that ensure the business runs effectively. Projects can be short-term or long-term, but
every project eventually comes to an end. On the other hand, operations run
continuously. In line with that, a project team is assembled to work on a particular
project and disassembles after the project ends. Similarly, a project manager’s role is
temporary, while an operations manager’s role is ongoing.
2: Output
Just as projects are unique, their outputs are as well. They vary depending on the project
and the result we want to accomplish with a particular project. The project produces new
outcomes to achieve business objectives. On the other hand, operations don’t aim to
produce anything new but to maintain and sustain a system. They produce the same
products, services, or results repeatedly.
3: Risks involved
In project management, the risk level is higher as projects imply exploring new territories.
Operation management risk level is lower as the tasks are recurrent. 12
13
 Project, Program , and Portfolio Relationship

Projects versus Programs

• Program is a set of identifiable projects aimed at achieving some goal or

objective.
• Program is of longer duration than any individual project within it.
 Some program might not have any specified end date and will run until a
decision is taken to stop or replace them
• Many projects may be undertaken under the overall umbrella (program)
 Criteria Program Project
Scope/Objectivities Wide/diverse Narrower/limited
Location Diffused/wide Specific
Life time Non-time bound Time bound
Beneficiaries Not specific Specific
Resources Larger budget Limited budget

Portfolio
• Portfolio a group of programs that are carried out on a coordinated
manner to collectively generate bigger outcome.
• portfolio is also considered as a complex of projects, programs, subsidiary
portfolios, and operations managed as a group to achieve strategic
objectives
• The following figure illustrates a sample portfolio structure indicating
relationships between the programs, projects, shared resources, and
stakeholders
15
 PROJECT LIFE CYCLE – MODELS

It is the cycle that defines distinct but interdependent phases

through which a project passes from its point of initiation to
its completion.

There are many valid ways based on which the project cycle may be
classified. Various models deal with the project cycle. However, here we
give more emphasis on the basic models:

 Baum’s model of project cycle

 UNIDO Project cycle
 DEPSA’s cycle

17
Baum’s model of project cycle: Initiated by Baum in 1970, was improved
in 1978 and has been adopted by the World Bank ever since. initially recognized
four main stages, namely:
– Identification
– Preparation
– Appraisal and Selection
– Implementation
– Evaluation ( added later in 1978)

Identification

Evaluation
Preparation

Implementation
Appraisal

Figure 1.1: project cycle (Source: Baum 1978) 18

Identification: the first stage in the cycle which deals with finding potential
project ideas. Project ideas can be originated from:
– Resources
– Market
– Need
– Well-experienced technical specialists
– Existing projects
Preparation (Pre-feasibility and feasibility studies): is a key process that justifies
whether to go ahead with a certain or particular project idea or to disregard it.
In other words, a feasibility study is an analysis of the viability of an idea from
different dimensions like:
 Market analysis,
 Technical analysis,
 Financial analysis,
 Socio-economic analysis
 Environmental analysis
 Organization and management analysis. 19
 Project appraisal:
 involves a careful checking of the basic data, assumptions and methodology used in project preparation,
an in-depth review of the work plan, cost estimates, and proposed financing, an assessment of the
project's organizational and management aspects, and finally the viability of project.
It provides an opportunity to re-examine every aspect of the project plan to assess whether the proposal
is appropriate and sound before large sums are committed.
• should cover at least seven aspects: technical, financial, commercial, incentive, economic, Managerial and
organizational .

Implementation
• a critical stage of project work & perhaps the most important part of the project cycle.
• funds are actually disbursed to get the project started and keep running.
• Priority is to ensure that the project is carried out in the way and within the period that was planned.
• Is where many of the real problems of projects are first identified.

Evaluation
• compares actual progress with the plans, and judges whether the decisions and actions taken were
responsible and useful.
• The main purpose is to learn lessons for the design of future projects and help ensure accountability.
• provides a comprehensive and detailed review of the elements of success and failure of the project for
enhancing the impact of project work.
• may take place at several times in the life of a project.
who handles evaluation?
» Project management
» The sponsoring agency,.
» the project's administrative structure
20
 2. UNIDO PROJECT CYCLE
 The Pre-Investment Phase
 Investment Phase
 Operational/Normalization Phase

1) The Pre-Investment Phase: includes

a) Identification of investment opportunities (opportunity study)
 General opportunity studies (sector approach)
Specific Project Opportunity Studies (enterprise approach)

b) Pre-feasibility studies
a further assessment of the project idea might be made in a pre-feasibility
study. This is to see if:
» All possible project alternatives are examined
» The project concept justifies detail study
» All aspects are critical and need in-depth investigation
» The project idea is viable and attractive or not.
 its structure should be the same as that of a detailed feasibility study.
21
c) Support (functional) studies
prerequisite for, or in support of, a pre-feasibility and feasibility studies,
particularly large-scale investment proposals. They include:
» Market studies of products
» Raw materials and factory supplies studies
» Laboratory and pilot plant tests
» Location studies
» Environmental impact assessment
» Economies of scale studies
» Equipment selection studies
d) Feasibility studies
 defines and critically examines the commercial, technical, financial, economic, and
environmental prerequisites for an investment project on the basis of
alternative solutions already reviewed in the pre- feasibility study. It should provide
all data necessary for an investment decision.
e) Appraisal report
• It is considered as an independent stage of the pre-investment phase, marked by
the final investment and financing decisions taken by the project promoters.

• It is carried out when a feasibility study is completed, where various parties will
22
handle their own appraisal of the investment project in accordance with their
 2) The investment (construction or implementation) phase

– Negotiations and contracting

– Technology acquisition and transfer
– Engineering and contracting
– Construction
– Pre-production marketing
– Recruitment and Training personnel
– Plant commissioning and start-up
3). The operational (normalization) phase
objective: to produce goods and services for which a project is established.
Problems: of this phase need to be considered from both a short-term &
long-term viewpoint.

23
3. DEPSA'S PROJECT LIFE CYCLE MODEL
According to the Guidelines to Project Planning in Ethiopia (1990) of
Development Project Studies Authority (DEPSA), a project cycle comprises
three major phases:

1.Pre-investment
2. Investment and
3. Operation
Each of these three phases may be divided into stages. The guideline has divided
the cycle into 6 stages.

25
 Project life cycle based on Process Groups
A process group based project life cycle is a five-phase framework project managers use to guide their
projects to completion. It outlines all project stages, from inception to final implementation, and describes
what the team must achieve during each phase.
Below is a summary of the project life cycle phases and their primary objectives.
1. Initiation: Define the project’s scope, cost, feasibility, goals, timeline, and success criteria.
2. Planning: Create a project roadmap or detailed action plan that outlines the tasks needed to complete
the project.
3. Execution: Carry out the work to complete the product, service, or result. Ensure your team has all the
necessary resources, tools, and instructions.
4. Monitoring and controlling: Monitor the progress and performance of your team and project to
identify any deviations from the plan or quality issues so you can make changes accordingly.
5. Closure: Close the project, sign any outstanding contracts, pay vendors, conduct a post-project review,
and identify how to improve next time.

When project managers clearly understand the various project management phases, they can see the big
picture and better understand how to handle each stage. By breaking the project down into more
straightforward steps, it’s easier for project managers to anticipate what’s coming next, which helps them
stay on track and ensure the project’s success. Using the right tools and methods contributes to effective
team management throughout the project life cycle.
26
Project Management Framework (based on PMP)

27
 Brief Description of Knowledge areas

1. Project Scope Management

Project Scope Management involves the project scope, that is, the work that is included
in the project. The process is all about ensuring that everyone concerned with the project
is clear about what it aims at and includes.

Scope changes and alters mostly the project itself, so the project boundaries must be
well-defined from the beginning and are carefully monitored. Changes can occur at any
point in time, but even the simplest of changes can have a lasting result on the outcome
of the project.

2. Project Schedule Management

Project Schedule Management is a process that refers to how the project manager
manages his schedule for a particular project. It includes the time that is catered to
complete each task about the project’s objectives with the desired skills, tools, and
techniques. To become a successful project manager, one has to understand the activities
of the project clearly and should possess the necessary skills to plan, schedule, and
control a project within its timeline. Apart from these skills, one must also utilize schedule
management tools to help them analyze, measure, and assess their time management
techniques.
28
3. Project Cost Management
Project cost management is the process concerned with planning and controlling the
project’s budget. This process includes planning, budgeting, estimating, financing,
funding, managing, and monitoring costs to ensure that the project is finished within
the scheduled budget. It’s all about handling the project’s financial requirements. This
phase covers and tracks the project’s total expenditure against the actual budget to
ensure the project is moving on track and within the fixed budget.

4. Project Quality Management

Project quality management is the main criterion when it comes to determining the
value of a project. The project at all times is required to meet the standards which were
originally defined for it. The bottom line is that the quality of the project has to meet the
needs of the stakeholders.

29
5. Project Resource Management
In this method, it’s all about how the project manager runs the project team. Firstly, he
has to understand what resources (people, equipment, facilities, funding) are required
to complete the project at hand and then organize a team to execute the work involved.
This method mainly concentrates on how the project is carried out utilizing the desired
resources to complete a project activity.

6. Project Communications Management

As the name suggests, it is mostly about communication. 80% of the project manager’s
job is to do with communication. Project communication is what keeps all the team
members on the same page; if there exists a gap in the communication level, the project
can have a negative impact on the final product the project. Communication must occur
between the project manager, his team members, and the stakeholders involved in the
project.

30
7. Project Risk Management
Initially, in the project risk management process, the project manager should conduct
risk management work and then identify and analyze risks; later, he/she should develop
a risk response plan, which will control risks on an ongoing basis. These methods are
introduced one by one to understand and assess the risks related to the project. It all
depends on how one performs quantitative and qualitative risk assessments.

8. Project Procurement Management

The procurement management process isn’t something that the project manager has to
do on all projects, but it is quite common. This knowledge area relates to purchasing or
acquiring products, services, or results from outside the project team. This project
knowledge area keeps track of all the project procurement and supplier work starting
from planning purchases, and involvement in the surrendering and acquiring process to
executing the task of the supplier. And ultimately, closing the contract when the project
reaches its conclusion.
31
9. Project Stakeholder Management
Project Stakeholder play an important role in determining the success and failure of a
project. Getting stakeholders to take part in the project right from the beginning is
crucial because they are the ones who decide on what changes will meet their
requirements. If the project manager fails to involve them at the initial stage, the
changes set forth by the stakeholders at a later stage will hamper the quality and
value of the project.

10. Project Integration Management

The this knowledge area contains the tasks that withhold the overall project together
and integrates the project into a unified whole. It touches on the five phases of a
project– Initiation, Planning, Execution, Monitoring and Controlling, and Closing.

Everything is covered under this phase, starting from scheduling tasks, purchasing
tasks, replacing team members, addressing risks, and re-scheduling tasks.

32
 Project Success Factors*
. Executive support
. User involvement
. Experienced project manager
. Clear business objectives
. Minimized scope
. Infrastructure
. Firm basic requirements
. Formal methodology
. Reliable estimates
. Other criteria, such as small milestones, proper planning,
competent staff, and ownership
33

*The Standish Group, “Extreme CHAOS”

 The Role of the Project Manager

• Job descriptions vary, but most include

responsibilities such as planning, scheduling,
coordinating, and working with people to
achieve project goals.

• NB: 97 % of successful projects were led by

experienced project managers.

34
 Project Management Skills
– Hard skills include product knowledge and
knowing how to use various project management
tools and techniques.

– Soft skills include being able to work with various

types of people.

35
 Skills for Project Managers (contd...)

• Communication skills: Listens, persuades.

• Organizational skills: Plans, sets goals, analyzes.
• Team-building skills: Shows empathy, motivates,
promotes esprit de corps.
• Leadership skills: Sets examples, provides vision (big
picture), delegates, positive, energetic.
• Coping skills: Flexible, creative, patient, persistent.
• Technology skills: Experience, project knowledge.

36
 Most Significant Characteristics of Effective and
Ineffective Project Managers
Effective Project Managers Ineffective Project Managers
• Leadership by example • Sets bad example
• Visionary • Not self-assured
• Technically competent • Lacks technical expertise
• Decisive • Poor communicator
• Good communicator • Poor motivator
• Good motivator
• Stands up to upper
management when
necessary
• Supports team members
• Encourages new ideas
37
 Chapter 2: Project Identification

38
 Definition and meaning project
identification
Project identification is the systematic process for finding or
locating and screening promising project ideas from their
respective sources.

In other words, project identification is the first stage in any

project cycle which is concerned about generation or
incubation of promising project ideas using appropriate
method.
First stage in any project cycle
Project identification is the systematic process
for finding or locating and screening
promising project ideas from their
respective sources.
Sources of project idea
39
 Macro-level Project Ideas
At the macro-level, project ideas emerge from:
 National policies, strategies & priorities as may be
enunciated by government from time to time;
 National, sectoral, sub-sectoral or regional programs

40
supplemented by special studies, sometimes called
opportunity studies, conducted with the explicit
aim of translation of national and sectoral, sub-
sectoral and regional programs into specific projects;
 Constraints on the development process
 Government decision to correct social and regional
inequalities
 A possible external threat
 Unusual events such as droughts, floods,
earthquakes, hostilities, etc.
 At the macro-level, project ideas can also originate
from multilateral or bilateral development agencies
 Micro-level Project Ideas
At the micro-level, the variety of sources is equally broad. Project ideas
emanate from:

The existence of unsatisfied demand or needs.

41
The existence of unused or underutilized natural or human

resources and the perception of opportunities for their

efficient use.
Analyze the performance of existing industries.

Review imports and exports;

Attend Trade fairs, exhibitions and conferences.

Approaches to project identification

Approaches to locate project ideas from diff. sources include:

 SWOT analysis

 PEST analysis

M. Porter five competitive forces model

42
Project would be promising and passes to the next stage (feasibility analysis)
when strengths and opportunities outweigh weaknesses and opportunities
 PEST Analysis

Project would be promising and passes to the next stage (feasibility analysis) when the PEST factors are
favorably go with the project.
 STRENGTHS (INTERNAL, POSITIVE FACTORS) WEAKNESSES (INTERNAL, NEGATIVE FACTORS)

OPPORTUNITIES (EXTERNAL, POSITIVE FACTORS) THREATS (EXTERNAL, NEGATIVE FACTORS)

Political Opportunities Political threat

Economic Opportunities Economic threats
Social Opportunities Social threats
Technological Opportunities Technological threats
Legal Opportunities Legal threats
Environmental Opportunities Environmental threats

NB: in OT and PEST are conceptually similar .

Porter model
 Michael Porter has argued that the profit potential of an
industry depends on the combined strength of the
following five basic competitive forces:

46
o Threat of new entrants
o Industry rivals
o Threat of substitute products
o Bargaining power of buyers
o Bargaining power of sellers

According to this model, project ideas that favorably

live up to these forces are promising and should be
passed to the preparation phase.
 Identification of Development Projects
 Undertaken by government and NGOs.
 There are two major approaches to identification of Development projects:

a) Top-down approach
b) Bottom-up approach
Top-down approach
Projects are identified based on demands from beyond the
community.
This may include directives from:
a) international conventions (such as Kyoto Protocol/climate change)
b) international institutions or NGOs that have determined particular
priorities and thus projects;
c) national policy makers identifying projects that pertain to party
48 manifestos and/or national plans.
 Top-down Project identification alternative ways:
1. The household (socio-economic) survey:
 studies social and economic situations of a given area
e.g. climate, geographical set-up, economic activities,
political set up, education system, culture, diet, social
services, physical infrastructure etc;
 uses questionnaires, interviews, documentation, and direct
observation;
2. Rapid appraisal
It is rapid because investigation, assessment and identification
of projects are done at the same time.
 Primary purpose is to acquire the information in the shortest
time possible and it lowers the cost.
49
 3. Needs assessment survey (NAS)
 also referred to as situation analysis.
 fact finding in a given area or community
 analyze
o what is lacking…. problems or needs
o causes of the problems
o seek appropriate solution …. leading to project identification.
Advantages of top-down approach
 rapid response to disasters like floods, war outbreak
o because there is limited time and chance to consult the
beneficiaries.
 effective in providing important services like education, health,
water, roads, etc.
 wider benefit (trans-boundary resources, such as climate, water
or others).
50
 Limitations of top-down approach
 Does not help in modifying strongly established ideas and beliefs
of people;
 Assumes external individuals know better than the beneficiaries
of the service;
 Communities have little say in planning process rendering
approach devoid of human
resource development;
 Community develops dependency syndrome on outside
assistance and does not exploit
their own potential;
 The development workers (change agents) become stumbling
blocks to people-led development (there is tendency to impose
their own biases, etc. on people).

51
 1.3.2 Bottom-up approach
 community beneficiaries are encouraged to identify and plan the
projects themselves with or without outsiders.

1. Animation
 Process of stimulating people to become more aware and
conscious of problems they suffer from.
 It enables to gain confidence in their ability to deal with these
problems and take initiatives to improve situation.
 Animation makes the community better understand and be
prepared to overcome its problems and take decisions with full
responsibility.
 Carried out by Animators / helpers / change agents, viz. internal
animators if they come from within the community or external
animators if from outside.
52
 2. Facilitation/Community action
 assist people to get over problems by (say) training them in
certain skills,
 providing them with the needed information e.g., market
information

3. Participatory appraisal
 involving local communities in identifying and prioritizing their
needs.
 enable people to express and analyze the realities of their lives
and conditions
 to plan for themselves what action to take, and to monitor and
evaluate the results.
 The communities themselves determine the issues, priorities
53 and courses of action.
 Advantages of bottom-up approach
 Interveners accomplish more with limited resources since people tend to safeguard what
they have provided for themselves;
 Develops people’s capacity to identify problems, needs and to seek possible solutions
 Provides opportunities of educating people;
 Helps people to work as a team and develop a “WE” attitude,
o makes project progressive and sustainable;
 Resources are effectively managed; dependence reduces, there is increased equity,
initiative, accountability, financial and economic discipline.

Limitations of Bottom-Up Approach

 Not always effective for projects that require urgency to implement
 Time-consuming and requires patience and tolerance.
 People sometimes dislike approach because they do not want to take responsibility for
action.
 The agency using this approach is never in control and cannot guarantee the results it
would want.
 The priorities of communities may not fit with national or international priorities that
seek to have a broader impact
54
 Project idea screening

Once potential project ideas have been identified and before

they are placed into a detail project feasibility study, they
should be subjected for preliminary screening. With project idea
screening, those ideas are evaluated in terms of :

For project idea screening mostly we use project rating index. To

work with project rating index the analyst should follow the
following steps.
1. Identify factors relevant for project rating.
2. Assign weights to these factors (the weights are
supposed to reflect their relatives importance).
3. Rate the project proposal on various factors, using a
suitable rating scale. (Typically a 5-point scale of a 7-
point scale is used for this purpose).
4. For each factor multiply the factor rating with the
factor weight to get the factor score.
55 5. Add all the factor scores to get the overall project-
planning index.
 Assignment – 1 (20 marks allotted)

Identify two project ideas ( for profit or non-

profit) and evaluate these projects using two
approaches:
 SWOT/PEST analysis (NB:OT is similar to

PEST)
 Porter five competitive forces model

56