PROJECT ANAYSIS AND PLANNING

Objectives
Main Objective: To deepen participants knowledge and skills in the Analysis, design & management of development projects. Learning Outcomes: At the end of the course, participants will be able to: Use the Logical Framework as a tool for project planning and monitoring Undertake stakeholder analysis Undertake investment analysis Undertake technical analysis of projects Undertake environmental impact assessment

Achieving the Intended Outcome

To achieve the learning outcomes, there will be a combination of lectures, case studies and group discussions Class assignments are a very important component of the learning package The lectures provide the basic framework for the module and should be supplemented by further reading of the professional literature.

References
Rory Burke: Project Management-Planning and Control Techniques P. Belli, J.R. Anderson, H.N. Barnum, J.A. Dixon and Jee-Peng Tan, Economic Analysis of Investment Operations, First Published 2001, World Bank Institute, ISBN0821348507. D. Potts, Project Planning and Analysis for Development, First Published 2002, Lynne Reinner Publishers, ISBN1555876560.

What is a Project?
A project is any series of interrelated activities or tasks that have to be accomplished within a specified time frame to achieve well defined objectives. Specific package of investments, policies, institutional reforms and other actions designed to designed to achieve a specific development objective or set of objectives within a designated period of time (W. B) A project can vary in size & complexity from a simple intervention like drilling a borehole, to a complex endeavour like design & production of a new aircraft.

Development projects
A devt. project can be described as a specific task or set of activities designed to take place within a specified timeframe in order to improve the living standards or socio-economic life of a people. A development project may consist of investments in the following: construction or civil works, Provision of socio-economic services Institutional strengthening Focus will be on social & construction projects

Characteristics of a Project
Set of activities or tasks Has time-frame (defined start & end time) Has well defined objective (s) Has cost constraints Unique (may never be repeated the same way by the same group of people.)

Projects and Operations

Organizations perform work, which generally involves operations or projects. Operations & projects have similar characteristics: Performed by people, Constrained by limited resources Planned executed and controlled Although the two may overlap, the main difference is that operations are ongoing (permanent) & repetitive activities to deliver products & services, whilst projects are temporary and unique.

Projects and Operations Contd.

The temporary nature of projects stands in contrast with business as usual (or operations) Once a project is completed, it is either dissolve or turned into a normal on-going organization

Why Undertake Projects?

To meet some development need or problem, such as lack of potable drinking water, deforestation etc. To take advantage of some opportunities. To satisfy an interest. Note: Projects can generate innovative, locally adjusted solutions that can be up-scaled to accelerate development process.

What is Project Planning

Project planning is concerned with making rational decisions or choices among alternative projects or interventions that would optimize the benefits to a society or group. It involves identifying priority needs & opportunities, setting clear objectives and the most appropriate interventions to accomplish those objectives as well as working out the human and material resources needed. The various stages of planning may be linked to the project cycle as captured in the next slide.

The Traditional Project Cycle

IDENTIFICATION (Conception) (Assessment of needs & opportunities)

FORMULATION (design) EVALUATION

APPRAISAL IMPLEMENTATION (Scheduling, control, monitoring etc)

Project Identification Phase

At this stage, an idea to address some problem or take advantage of some potential is identified. This idea is usually hatched through discussions with specialists and local community leaders Projects can be conceived based on the following:
Needs, such as basic materials and services to a community that should be fulfilled Market demand- domestic or overseas that should be taken advantage of Resource availability Political consideration

Project Formulation (design)

At this stage, project objectives are defined and alternative solutions described. The alternative solutions are assessed to ascertain their feasibility in relation to technical, economic, social & environmental dimensions, & best options selected This requires collection and analysis of relevant data (information) For complex projects details feasibility studies are done, which may involve technical surveys, drawings, etc.

Project Cycle Contd.

Appraisal: For complex projects, or projects with high investments, further feasibility studies are done. This involves critical review & verification of all aspects of the project to guarantee success. Usually done by third party (funding agency). May be followed by negotiations & approval of the Project Implementation: Executing the project to realize its objectives: preparing work plans; physical construction, procurement, recruitment, setting up institutions, managing people, monitoring activities.  An aspect of implementation is the project control, which seeks to keep the project on-track, on-time and within budget

Project cycle contd.

Evaluation: Assessment of project effectiveness, efficiency, relevance and impact, so as to draw lessons to guide the way forward. Note: The breakdown and terminology of these phases differ, depending on type of project

PROJEC PLANNING-USING THE PLANNINGLOGICAL FRAMEWORK APPROACH

The logical framework (Logframe) is an analytical tool used for the design, execution and evaluation of projects It derives its name from the Logical linkages set out by the planner(s) to connect a projects means with its ends The key features of the project is summarized in a matrix highlighting the cause effect logic or If/Then (If we supply farmers with improved seeds and assume there is adequate rainfall, then production will be increased.

Logical Framework Matrix

NARRATIVE SUMMARY GOAL: PURPOSE: OUTPUT: ACTIVITY:

PERFORMANCE INDICATOR

MEANS OF VERIFICATION

ASSUMPTION

INPUTS

The Logical Framework Matrix Contd.

The Logical Framework Matrix provides answers to the following questions of a project: WHY: a project is carried out WHAT: the project is expected to achieve? HOW: the project is going to achieve these results? WHICH: external factors are crucial for its success? HOW: we can assess project success? WHERE: we can find data required to assess its success WHAT: the project will cost

Logframe
NARRATIVE SUMMARY PERFORMANCE INDICATOR MEANS OF VERIFICATION ASSUMPTION

GOAL:
Health Status of Rural Population Improved

PURPOSE:
Health Services Expanded and Utilized by rural population

OUTPUT:
1.Clinics Constructed 2. Primary Health Staff Trained and Posted

ACTIVITY:
1.1 Locate site for the construction 1.2 Clearing of site

Logframe - Goal
The Goal is the strategic or development objective, that the project combined with others will achieve This is the sector goal or broad objective to which the project contributes It is fairly broad in scope like increased annual income of farmers. It is usually stated in a positively achieved future condition.

Purpose or Immediate Objective

The Purpose is the result expected at the end of the project execution period. It is the change that the project will foster or what would occur after producing & utilizing the outputs? It is often the change in behaviour of project beneficiaries or their response to the project. E.g what will farmers do differently if improved seeds are provide? This will be stated as: Food production increased The Purpose is rationale for the project & an important cause of the Goal. The title of the project should come directly from the statement of the Purpose

Project Purpose Contd.

The logical framework requires that each project have only one Purpose, so as to ensure clarity If there is more than one Purpose there is ambiguity, and trade-offs can arise Furthermore, experience shows that it is easier to focus project outputs on a single Purpose since multiple Purposes diffuse project efforts & weaken the design In practice, however, the logframe of a complex programme may have different sub-projects each with a purpose and outputs

Project Outputs
These are the specific products and services generated from the project activities These are the desired results generated from the project activities The outputs should bring about the project purpose Examples of Outputs: Clinics Constructed 50 farmers acquired knowledge and skills in improved farming methods Project implementers are held accountable for achievement of project outputs.

Output

Purpose

Goal

GOAL: Health Status of Rural Population Improved

PURPOSE: Health Services Expanded and Utilized by Rural Population

OUTPUTS: Clinics Constructed Primary Health Care Staff Trained and Posted

THE OBJECTIVE PYRAMID

INCREASED INCOME

IIMPROVED AGRICULTURAL PRODUCTION

SEED

CREDIT

EXTENSION

The Activities
The activities describe what the implementers will do or how they will carry out the project to achieve the outputs. Example: For the output 50 Farmers trained in modern farming practices, the activities will include:
Develop training materials Conduct training Evaluate training.

Performance Indicators
Indicators define in measurable detail the performance levels or evidence that a goal, purpose or output is achieved.(How much, how well, timeframe etc.) Indicators tell us how to recognize successful accomplishment of results (outputs, purpose & goal) The basic principle of the column is if you can measure it, you can manage it?.

Means or Sources of Verification

These describe the sources of information that will demonstrate what has been accomplished. They tell us:
Where to get the evidence that the objectives have been met Where we can find the data necessary to verify the indicator

Important questions include:

How available are the means of verification? How reliable are the sources? Is special data gathering required? If so what will it cost?

Assumptions/Risks
Assumptions are the external conditions that must exist if the project is to succeed. They are statements about the uncertain or risky factors between each of the levels in the Hierarchy of Results. They may describe important natural conditions, such as
25 millimeters of rain falls between May and October, or factors such as No labor strikes during start up of project, Community transportation systems can handle weekly shipments, Timely release of budget, Crop prices remain stable, Farmers willing to try new methods, etc.

Assumptions contd.
Assumptions complete the if/then logic (describing the necessary conditions between each level) by adding the if/and/then logic (describing the necessary and sufficient conditions between each level). Determine the Assumptions by asking; what conditions must exist in addition to my Purpose (or Activities, Output, Purpose, Goal) in order to achieve the next level?

Exercise
Indicate the cause and effect relationship with each set of statements by labeling them with 1,2,3,4 beginning with 1 as the first cause.

______ Increased small farmer income. ______ Distribute the seeds. ______ Standard of living in the rural areas raised

______ Potable water available to 60% of the villages in the southern region ______ Sickness due to water impurities decreased in the southern region ______ Choose the sites for the water purification systems. ______ Water purification systems in operation.

____Recruit extension personnel.

______ Total cereals production increased. ______ Extension program operational. ______ Rice production increased.

4 ______ Design refresher course for health personnel. ______ Health units meet medical needs of local population. ______ Rates of morbidity and mortality decreased. ______ Medical skills of health personnel upgraded

Processes that precede Logframe

A Situational Analysis is carried out which comprises of:
Problem Analysis Objective Analysis and Stakeholder Analysis

Problem Analysis
Planners often use problem tree analysis technique to identify all the problems surrounding a given problem and arranging these in a cause-effect relationship A problem tree approach can also be used to diagnose root-causes of various problem including organizational ones The problem analysis begins by identifying a core problem ( the trunk). The tree is then expanded upwards and downwards by continousily asking the following questions;
What is the cause of this problem? What is th e effect of the problem?

 To enrich the discussions and analysis, it is desirable to identify major interest groups ( those affected or involved) in the project and involve them Capture the diverse perspectives as to the causes and effects of each identified problem Arrange the problems & their effects in logical cause effect manner as shown in the next slide

Example of problem tree

Declining income of farmers Declining national supply of fresh coconut oil No more exports of coconut products

Declining Coconut Production

Coconut palms increasingly affected by virus diseases

Farmers do not plant new coconuts

Farmers rarely apply plant protection measures

Traditional varieties susceptible to virus

Farmers do not have access to more resistant varieties

Farmers lack capital to buy inputs

Farmers dont know how to apply new varieties and related inputs

Producer prices not attractive for farmers

Effective protection measures very complex

Traditional protection rather ineffective

No local nurseries

Resistant varieties not available on local markets

Mobility of extension service severely restricted

Extension service concentrates only on food crops

Objective tree analysis

The problem tree so constructed can be converted into an objective tree by rephrasing the problems into future desired states This is captured in the next slide

Example of objective tree

Increased income of farmers
Increased national supply of fresh coconut oil Exports of coconut products resumed

Increased Coconut Production

Reduced occurrence of pests and diseases

Farmers increasingly plant new coconuts

Effective pest and disease control system in place

Access to needed inputs guaranteed

Farmersknowledge on

improved coconut cultivation practices enhanced

Government price

policy favorable for coconut production

Effective input supply system in place

Credit facilities for input procurement by farmers

Import restrictions for essential inputs removed

Sufficient capacities of extension service

Capable extension staff

Effective extension strategies for coconuts

STAKEHOLDER ANALYSIS (SA)

Stakeholders are persons, groups or institutions with interests in a project or programme. Primary stakeholders are those ultimately affected, either positively (beneficiaries) or negatively Secondary stakeholders are the intermediaries in the aid delivery process. This definition of stakeholders includes both winners and losers, and those involved or excluded from decision-making processes.

STAKEHOLDER ANALYSIS (SA)

This is the identification of key stakeholders of a project and their interests and power differentials to influence the outcome of the project
stakeholder analysis can: draw out the interests of stakeholders in relation to the problems which the project is seeking to address identify conflicts of interests between stakeholders, which will inform assessment of a projects help to identify relations between stakeholders which can be built upon, and may enable "coalitions" of project sponsorship, ownership and cooperation help to assess the appropriate type of participation by different stakeholders, at successive stages of the project cycle.

Stakeholder matrix
STAKEHOLDERS 1) Primary a) Beneficiaries b) Negatively affected groups c) Implementing agencies INTERESTS (expectations & fears) Power or influence on Project

2) Secondary a) Policy makers b) Donor c)

Stakeholders Interests and Power Differentials.

High

Keep Satisfied

Engage Closely & Influence Actively Keep Informed

POWER

Monitor
(Minimum effort) Low

INTEREST

High

ASSIGNMENT
Your situational analysis revealed that the rampant violent conflicts in districts X and Y are due to the following underlying causes, as shown in the next slide

Assignment contd
Rampant violent conflicts Poor natural resource management Poor democratic culture

Unfair benefit sharing

Overlapping Land ownership

Weak Admin. system

Nontransparent Electoral process

Political opponents as enemies

Assignment contd.
TASK:
Undertake further analysis development of the problem tree on conflicts in the two districts and outline project proposal to address this problem. The proposal should capture the goal, intermediary objective (s), short term objectives and their indicators as well as the proposed activities. Summarize the proposal in a logframe.

Techniques in Project Analysis

Various appraisal techniques are usually employed in project planning to decide on the merit of a project and to enhance its effectiveness, efficiency and sustainability The various dimensions of project analyse include: Technical Analysis Economic Analysis Social Analysis Environmental Impact Assessment

Technical Analysis of Projects

i. Technical Analysis involves two things: Determination (measurement) of some technical parameters that are fundamental to effective project design & implementation e.g yield of crop or capacity of machinery. Based on these measurements, determine soundness of the project. Examination of the linkages and inter-relationship between various technical components of a project. E.g linkages between animal breed, feeding, health & housing.

ii.

Why Undertake Technical Analysis?

To establish project technical feasibility To provide a basis for making tentative choices among technological alternatives. To ensure that technical estimates or projections are realistic. To align technical design with project requirements or objectives (e.g meeting budgetary and socio-cultural requirements) To improve efficiency of operations.
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Why Technical Analysis (2)

To provide a basis for monitoring project performance. E.g technical estimates and projections on crop yields can serve as indicators to monitor project performance To minimize risk by providing knowledge and visibility of some critical issues that would influence project viability. E.g some missing linkages made visible.
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ELEMENTS OF TECHNICAL ANALYSIS

Elements of technical analysis will vary from project to project. For example, an agricultural project will tend to focus on issues like soils, vegetation & climate, while an industrial project will focus on quality of machinery and equipments, costs, building plans and technology, etc.
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Elements of T.A Continued

However, there are common elements of technical analysis relevant to most projects. These are: Appropriateness of technology. Scale of operation, Location and layout of the project.

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Common Elements of T.A

i. Choosing the Right Technology Technological analysis is done by generating technological alternatives that are evaluated based on some critical factors or questions:
Is the technology suitable for the realization of the specific objectives of the project?

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Elements of T.A Contd.

Is the technology feasible within the physical limitations of the site? For example, small power tillers may not be able to till heavy soils. Is the technology consistent with the general socio-economic conditions of the area? Is the cost of the technology within budget constraints?
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Elements of T.A Contd

Is there local capacity to operate and maintain the technology effectively? If not is it possible to build such capacity in the short run?

Is the quality of machinery and equipment reflecting value for money? Is the technology environmentally sound?

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ii Scale of Operation
This is analysed with reference to the following issues, among others:
Are there sufficient raw materials or other vital inputs to justify the scale of operation? Is the scale of operation consistent with the technological choice? Will the prevailing physical limitations allow for the proposed scale of operation? Is there market for the level of output?

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iii. Location & layout of the project

Project location analysis may consider:
Availability of raw materials Access to labour Transportation problems Access to markets Available government concessions for locating projects in some places Environmental & geo-physical constraints Availability of basic infrastructure or utility services
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Note: choice of project location will be determined by type of project. E.g a project for agroforestry will consider different parameter than a pastoral project. The selection of site may involve a trade- off among various considerations like proximity to source of raw materials, market, infrastructure facility and access to labour.

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Layout
For industrial projects, the lay out of the plant facilities is also critical so as to improve operational process (way of doing things) and cost efficiency. ( See Flow Chart on Technical Analysis)

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Analysis of Technical Feasibility.

i. The following methods may be used: Technical Surveys: Depending on the project, different types of surveys may be conducted to evaluate some parameters:
Soils survey: to determine soil structure, nutrients and suitability. Topographic surveys: to design drainage system or for irrigation devt. Hydro-geological surveys to evaluate rock types & ground water.
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ii. Use of Historical Records: Historical records may be used to evaluate environmental factors, incidence of pests and diseases etc. iii. Field Trails: This may be necessary to verify yields and other information. Some machinery or equipment may also be tried to ascertain their suitability. iv. Field Interviews: Knowledge about the socio-cultural realities of people in the project area may be assessed through field interviews and direct observations
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Investment Analysis
Investment analysis is about choosing among various investment options that are competing for our limited resources Projects require initial investments of scarce resources & the project will yield a stream of benefits over a period called the project life. A the same time, in order to sustain the benefits, a stream of costs called the operating costs will be generated. These project costs and benefits must be identified and valued (cost benefit analysis), based on which the most beneficial project is selected from others

Investment Analysis Contd.

In Assessing the worth of a project or investments (be it public, private or business concerns) consideration is given to:
the size of the outflows and inflows of funds the lifespan of the investment, the degree of risks attached and cost of obtaining funds.

Investment Analysis contd.

Careful project analysis will point out unrealistic or questionable assumptions and indicate ways to modify the project so as to enhance the benefits A project carefully analysed has better chances of being implemented on time and yield the desired benefits

Financial Vrs Economic analysis

Projects can be appraised from the viewpoint of the projects beneficiary or loser ( financial analysis) or from the viewpoint of the whole society (economic analysis) Financial analysis seeks to answer the question: Is the project financially profitable to a given individual, group or business? Here costs & benefits are valued at market prices Financial analysis is important to check if project is financially sustainable whether cash flow will be sufficient to meet commitments

Financial Vrs Economic analysis Contd Economic Analysis seeks to answer the question: Is the project profitable to the society or the target population as a whole? What is its impact in areas like job creation & linkages with other sectors? In Economic Analysis, costs and benefits are valued at shadow (efficiency or accounting) prices

Financial Vrs Economic analysis Contd

The main sources of the difference between financial and economic analysis are: i. Market imperfections: market values are equivalent to social values only under conditions of perfect competition ii. Externalities: A project may have benficial or detrimental external effects beyopund the project environment. E.g A road benefits not only the project target group but also neighboring area iii. Taxes & Subsidies: In financial analysis, ( private point of view) taxes are costs and subsidies are finacial gains, but in economic naluysis ( social point of view), taxes and subsidies are only transfer payments, without any relevance to the projects outcome

Financial Vrs Economic analysis Contd

iv. Concerns for savings: From the private point of
vie (financial analysis) consumption & savings are treated equally, but in capital-scarce developing countries, the two should be valued differently (economic analysis) v. Concern for Redistribution: Private firms are not concerned about the way their benefits are distributed across various groups in the society but this is important from the social point of view Note: Initial section will focus on Financial Analysis

Investment Analysis contd.

The steps for investment decisions are: i. Setting objectives that we wish to achieve by means of our investment ii. Examining alternative means of achieving the set objectives iii. Predicting the consequences of each alternative path to the desired objective iv. Evaluation of alternatives v. Selecting best alternative & making the expenditure (decision making) vi. Monitoring Project(s)

Investment decision procedure

Individual Objective Alternative ways Maximize annual profit Company Profit & market expansion Public Entity Increased capacity of Port -New docking facilities with 7, 8 or 9 berths 7, 8 or 9 berth will involve different costs & benefits Compare Benefit: Cost Ratio for each alternative Stocks or Bonds -New trucks & warehouses or combination - Expanded sales program -New product line -12% pa. for bond Stocks: Predicted with less accuracy Compare NPV for each alternative - How much cost & how much profit from each alternative

Consequences of each Alternative

Evaluation of Alternatives Selecting or decision-making

Compare cash flow NPV, IRR for each alternative

Investment Appraisal Methods

Investment appraisal methods mainly focus on weighing project benefits against the costs, using financial and economic analyses. The various methods used to decide the merits of projects include:
Non-discounted methods like Payback period & Average Rate of Return (ARR)

Discounted cash flow methods like NPV, Benefit-Cost Ratio & IRR

Payback Period
The pay-back method computes the time or number of years it takes to recover the initial outlay from earnings generated by the investment. It can be determined from the formula: P=I/E, where: P= the pay back period in years I= Initial Investment E= Annual after-tax earnings Example: If GH4000 is invest in a project with the aim of earning GH500 a year, the pay back is 4000500 = 8 years Decision criteria: Investments with shorter pay back periods more desirable.

Payback Period Contd.

If however the project has uneven cash inflows, the payback period will be determined by the cumulative cash flow over the duration of the project as indicated below:
Year 0 1 2 3 4 5 6 Cash Flow (Gh) (4000) 750 750 900 1000 600 400 Cumulative cash flow (4000) (3250) (2500) (1600) (600) zero 400

Note: the payback period is 5 years

Payback Period Contd.

year 0 1 2 3 4 5 6 Payback period (yrs) Project1 (50) 5 10 15 20 Project 2 (100) 50 30 20 10 20 10 Project 3 (80) 40 20 20 20 20 20 Project 4 (100) 40 30 20 10 5 10 Project 5 (100) 30 30 10 10 20 40

Average Rate of Return (ARR)

ARR expresses the profits or the average annual income arising from a project, as a percentage of the initial capital cost It captures return on capital employed ARR = (Average annual revenue/initial capital cost) x 100 Example: A project to replace a machinery is being appraised. The machine will cost 240,000 and is expected to generate total revenues of 45,000 the projects five year life. What is the ARR of project? Answer: ARR= (45,000/5)240,000 x100 = 9000 24000 x 100 = 3.75%

Discounted Cash flow methods

Discounting is a technique that converts all benefits and costs into their value in the present. It is the process of finding the present worth of a future amount. The present worth is determined by multiplying the future amount by the expression 1/(1 + r)n , where:
r= interest rate and n= the year

Generally, this expression is obtained in the form of DISCOUNT FACTOR from compounding and discounting tables.

Discounting contd.
Discounting is based on the premise that a Cedi received today is worth more than a cedi received in the future. This is based on the fact that any amount of money that is offered to be paid to you in future has lower worth than it's face value, mainly due to interest rate and inflation. Hence the need to discount Discounting is the opposite of compounding, which is the process of finding the future value of a present amount, growing at compound interest

Discounting Contd.
The future value is determined by multiplying the present amount by the expression (1+r)n, where r= interest rate and n=year For example, if the interest rate is 10%, then GH100 placed in the bank today will be worth GH110 a year from now This means that if the interest rate is 10%, then GH110 to be received next year is worth only GH100 today.

Discounting Contd.
If the interest rate is r, then the following formula can be used to find the present value (PV) of an amount (Pt) received at some time t in the future:

Discounting Methods
The most commonly discounted methods of measuring profitability of projects include:
Net Present Worth (Value) The Benefit Cost Ratio Internal Rate of Return

Net Present Value (NPV)

Net present value of a project is the difference between discounted benefits and discounted costs associated with a project. Net present value is the sum of discounted future cash flows to reflect their worth as of present day It is sum of the discounted benefits-discounted costs
t=n

NPV =
t=0

(Bt Ct) / (1 + i)t

where i = the discount factor t = time in years; Bt = Benefits in each year Ct = Costs in each year Note: present value for 0 years is always 1

Example of NPV
Calculate the NPV of this projects cash flows, using a discount rate of 10%
Year 0 1 2 3 4 5 Cash Flow (GH) (75,000) 10,000 25,000 35,000 35,000 30,000 Discount Factor 1.000 0.909 0.826 0.751 0.683 0.621 Present Value (GH) (75,000) 9090 20,650 26,285 23,905 18,630

NPV Contd.
A positive NPV means the project is worthwhile, because the cost of tying up the investment in the project is compensated for by the resulting cash inflows If NPV>0 for a given discount rate, then project is acceptable, and not acceptable if NPV<0. If NPV =0, then project breaks even When more than one project is being appraised, choose the one that produces the highest NPV.

Benefit Cost Ratio

This is the ratio of Present Value of the Benefits to the Present Worth of the Costs BCR=[7Bt/(1+r)t] / [7Ct/(1+r)t ] If B/C>1 for a given discount rate, then the project is acceptable and If B/C<1, then project not acceptable If B/C=1, then Project breaks even If more than I project, chose one with highest B/C Example, calculate the CBR of the same project that was used to calculate NPV (previous slide)

Calculation of BCR
Year 0 1 2 3 4 5 Initial cost 75,000 Discount factor 1.000 0.909 0.826 0.751 0.683 0.621 Present Value 75,000 PV of Costs 75,000 Benefit -------10,000 25,000 35,000 35,000 30,000 Discount PV of Factor Benefit 1.000 0.909 0.826 0.751 0.683 0.621 9090 20,650 26,285 23,905 18,630 98,560

Present Value

The BCR = PV of Benefit = 98560 = 1.31 PV of Cost 75,000

 Costbenefit analysis is often used by governments and businesses, to evaluate the desirability of a given policy. It is an analysis of the expected balance of benefits and costs, including an account of foregone alternatives and the status quo, helping predict whether the benefits of a policy outweigh its costs, and by how much (i.e. one can rank alternate policies in terms of the ratio of costs and benefit).

Internal Rate of Return

The IRR is the discount rate, which reduces NPV to zero
t=n

IRR =
t=0

(Bt Ct) / (1 + i)t = 0.

The project is acceptable if IRR " opportunity cost of capital IRR answers the question: 'What level of interest will this project be able to withstand?

 To compute IRR, guess the discount rate and compute the NPV. If the NPV is Positive, select a larger discount rate, If NPV is Negative, select smaller discount rate Recomputed NPV until value is zero Or extrapolate by first using two discount rates that will give a positive and negative NPV and extrapolate, using the formula: IRR = Discount rate with +ve NPV + Difference between the two discount rates x Positive NPV Range of +ve to -ve NPVs

Illustration of NPV and IRR

An initial investment of GH2 500 in a project produces cash inflows of GH750, GH750, GH900, GH900 and GH595 at 12 month intervals. The cost of capital to finance the project is 12 %. You are required to decide whether the project is worthwhile using: The Net Present Value The Internal Rate of Return
Year Cash flow 0 (2500) 750 1 750 2 900 3 900 4 595 5

Answer
1) Computing NPV
Year 0 1 2 3 4 5 Cash flow (2500) 750 750 900 900 595 Discount factor @ 12% 1.000 0.893 0.797 0.712 0.636 0.567 Net present value Present value (2500) 669.75 597.75 640.80 572.40 337.37 318.07

The NPV is positive which makes the project worthwhile

Answer Contd.
2) Computing for IRR The above calculation for NPV used a 12% discount rate and produced a positive value of GH318.07. We need to find a discount rate that produces a negative NPV. Let's try 20 %.
Year 0 1 2 3 4 5 Cash flow (2500) 750 750 900 900 595 Discount factor @ 20% 1.000 0.833 0.694 0.579 0.482 0.402 Net present value Present value (2500) 624.75 520.50 521.10 433.80 239.19 (160.66)

The IRR lies between 12 % and 20 %. But we can get much closer to the precise answer by using arithmetic.

Answer on computing IRR contd

IRR = 12 % + Difference between the two discount rates x positive NPV NPV range of +ve to -ve NPVs IRR = 12 % + (8 % * 318.07) 478.73 IRR = 12 % + 5.32 IRR = 17.32 %

Economic Analysis
This is undertaken to ascertain the overall impact of the project on a country's economy and wider society. In the financial analysis, which was the focus of the previous analyses, the emphasis is mainly on financial or monetary costs and benefits at the neglect of wider economic benefits or costs In economic and social analysis ( social cost benefit analysis) the project is examined using the whole country as the accounting entity with broader development objectives of the country.

Economic Analysis Cont.

Critical questions during economic and social analysis (social cost benefit analysis) the analysis include the following: What are the direct economic benefits and costs measured in terms of shadow (efficiency) prices & not market prices? What will be the impact of the project on the level of savings & investment in the society (country)? What would be the impact of the project on distribution of income?

Economic Analysis Cont.

In computing economic NPV and Economic Rate of Return (ERR) use the stream of financial costs and benefits and remove from them identifiable transfer payments such as taxes and direct subsidies
Similarly, for the economic NPV the discount factor i will be the opportunity cost of capital for the economy, which is the Bank of Ghana prime rate, as against the interest rate of the project credit facility used for the financial appraisals.

Other Dimensions of Social Analysis

A project will not be effective & sustainable if:
it is inconsistent with the socio-cultural realities of the people There is wide perception of injustice (may lead to conflicts & instability) Local people are not organized around the project to continue with the project activities, or project linked to existing institutions to continue project activities after it ends

Social Analysis contd.

The social analysis examines broader social implications of proposed investments (project), including the following: Extent project addresses felt needs of the people. Sense of ownership & commitment to project by beneficiaries Level of support or acceptability of project objectives and activities by wider community members Sense of equity in sharing of project benefits Employment opportunities and Income distribution Effects of project on particular groups Consistency of project with values & beliefs of community What modification in the target groups behaviour pattern is anticipated?

Environmental Impact Assessment (EIA)

EIA is a process that ensures that environmental matters are taken into account early used early in the project planning process The EIA process identifies, predicts interprets & communicates information about impact of the project on biophysical environment (air, water, land, plants & animals) This is necessary because there is likely to be self destruction or system failure if the environmental impact of a project is so severe E.g if an agric project leads to severe degradation of the soil, then the soil will eventually fail to support the crops

Environmental Assessment Contd

A Sustainable Project should seek to enhance the natural resource base, but not to deplete or severely damage it Environmental Impact Assessment is often required to determine the possible environmental effects and any mitigation measures to take. Development projects such as dam, road, & power line construction bring about changes in the ecosystem in which they are undertaken. Such changes affect both the environment and well being of man, unless mitigation measures are taken

Environmental Assessment Contd

Key questions during Envtal Assessment: i. What are the likely environmental impacts from undertaking a project? ii. What is the cost of reducing the negative impact? iii. Are there alternative ways of supplying the good or service of project without incurring these environmental costs? iv. What are the costs of these alternatives

PROJECT IMPLEMENTATION TECHNIQUES

Key Activity Areas During project Implementation: Establish an appropriate project organization. Prepare and maintain a project workplan. Mobilize project resources. Manage staff. Manage funds. Manage materials and facilities. Maintain facilities. Monitor and evaluate progress. Maintain Communications. Review project relevance

Establish Appropriate Project Organization

Responsibility for project implementation must be assigned to an appropriate organization. If one does not exist, then a new one must be designed and staffed. This may begin with the appointment of a project manager who may be charged with the task of designing the project organization structure, if non-exists In designing the project organization, we must relate the positions to the work that has to be accomplished. A useful technique or tool that can be used is the Work Breakdown Structure (WBS). Various forms of organization structures are designed to implement projects.

What is WBS
The work breakdown structure is a technique for breaking down a job (a project) into its component elements which can be displayed to show the relationship of the elements to each other and to the whole project It is a sub division of the project into smaller and manageable bits It seeks to break the project down into work packages which are assignable and for which accountability can be expected

WBS contd.
The WBS ensures that all the work required to achieve the project objectives is included in the project plan It forms a logical organized base from which to: establish cost accounts define work packages develop budgets establish schedules establish life cycle costs The WBS can be represented either in a graphical tree format (like an organizational chart) or in an indentured or textual format

HOUSE

CIVIL

PLUMBING

ELECTRICAL

FOUNDATION

WALLS/ROOF

PIPING

SEWERAGE

WIRING

APPLIANCES

FIGURE 1 House Project WBS Subdivided into Boxes

The Numbering or Coding System -WBS

HOUSE 1.0.0

CIVIL 1.1.0

PLUMBING 1.2.0

ELECTRICAL 1.3.0

Foundations 1.1.1

Walls/Roof 1.1.2

Piping 1.2.1

H/C Water 1.2.2

Wiring 1.3.1

Fitting 1.3.2

Various forms of organization

Various forms of organization structures are designed to implement projects. These are: i. Project as part of a functional organization (Department-led) ii. Matrix Structure iii. Separate project organization iv. Project as a staff function.

Project as part of a functional organization

MANAGING DIRECTOR

ADMINISTRATION

Finance

OPERATIONS

Production

ENGINEERING

Engineering

Marketing FINANCE

Project A

Mechanical

Electrical

Civil

Transport

Matrix Structure

MD MANAGING DIRECTOR

PROJECTS

FINANCE
PROJECT A PROJECT B

PRODUCTION

ENGINEERING

Pure Project Structure

PROJECT MANAGER

ADMINISTRATION

OPERATION

ENGINEERING

FINANCE

MECHANICAL

ELECTRICAL

CIVIL

TRANSPORT

Tips for effective organization of work

Once the structure has been agreed upon, job descriptions have to be prepared for the various positions. This will include responsibilities, limits of authority, how performance will be measured and personnel specifications. There is also the need to formulate and document administrative policies and operational procedures, which can guide both the project team and other staff. Terms of reference for all expatriate and external personnel, consultants and technical experts should also be prepared. After all these preparatory work the project team is then recruited with the active involvement of the Project manager

 The project manager must possess leadership qualities; He/she must be a facilitator giving equal attention to all critical areas of the project He/She must also have technical administrative, and political credibility.

Prepare and Maintain a Project Workplan

A workplan is a written statement, which describes in concrete terms the specific activities required to execute the project, the duration of each activity, who is responsible and the resources needed. Prior to preparing a detailed Workplan for implementation, it is, important to review project priorities to ascertain their relevance. This is necessary because usually, there is a long time span between project design and project implementation. During the time lapse, a lot of things may have changed on the ground to perhaps warrant a review of the project plan or design.

Steps in preparing workplan

i. Breakdown the project into its constituent activities. ii. Determine the duration of each activity. iii. Determine start and finish dates of each activity. iv. Assign responsibility v. Determine the resources required Various advance techniques are used to prepare detailed plans for implementation. These include Critical Path Method, Gantt or Bar Charts. Workplans have to be updated periodically depending on the progress of work.

The work plan does the following:

Guides plan or project implementation Serves as a means of control Helps to do the right things in the right order since we have to do many different things Tells us when to start and finish each activity and the project as a whole

A FORMAT OF A WORKPLAN

Activity Action Step

Respons Time Frame ibility

Remarks Resources Milestone /Intermediate Output

Start

Finish

1. 2. 3. 4. 5. 6. 7.

Gantt or bar Chart

One of the most popular project planning techniques for scheduling, reporting, and control of simple projects is the Gantt or bar chart. This technique graphically represents the progress of a project versus the time frame within which it must be completed They can be used as simple and easily understood models for communicating information to all levels or for project management & supervisors supervision. Gantt charts allow project managers to plan all activities, estimate the time necessary to complete each, the time required to complete overall project

Gantt Chart Contd

To prepare a Gantt chart: List each of the discrete project activities or tasks that needs to be completed Establish the execution sequence of these activities Estimate the duration of these activities (done in collaboration with those responsible for completing the activities) List all activities in chronological order and determine those that can be carried out simultaneously & those that must be carried out sequentially.

Gantt Chart Project Example

1 Dig basement Pour footing Lay block Finish base work Install main floor Erect frame Secure sheathing Install roof boards Install windows Finish frames Activity Task Bar Milestone Milestone 2 3

Week 4

10/21 10/28 11/4 11/11 11/18 11/25 12/2

Monitoring & Evaluation of Projects

Monitoring and evaluation are important components of project implementation There is usually need to design a monitoring and evaluation system to help track the implementation and performance of a project.

What is Monitoring?
Monitoring is the systematic and continuous assessment or tracking of the progress of a piece of work or a project. It means constantly checking how things are going & comparing actual progress to what was planned. Within project context, monitoring is the tracking of resource acquisition & allocation, cost, production of goods & services, delivery of goods/services, and intermediate outcomes.

Why Monitor?
Monitoring provides managers with information to:
analyze current situation, keep project activities on schedule, track progress of a project towards set objectives enhance accountability draw lessons to guide decision making.

The prime purpose of monitoring is to learn and adapt in order to maximize the value of the intervention. However, the monitoring information can feed into any external evaluation

Key Questions that Monitoring Seeks to Address

To what extent is the project execution consistent with the design or plan? To what extent are planned activities actually realized? Are we making progress toward achieving the set targets and objectives? What services are provided, to whom, when, how often, for how long, and in what context? How well are the services/ products provided? What is the quality of the services/ products provided? What is the cost per unit service/ product?

Domains of Monitoring
InputsResources/ Investments going into conducting and carrying out the project or programme. These could include staff, finance, materials, and time. Process --- Project activities and how they are being carried out OutputsImmediate visible, concrete and tangible results obtained through the execution of activities (e.g., number of water points, number of staff trained) Outcomes: Observable changes as a result of the outputs

What to monitor:
1. Management/Administration
Information to be collected
Staff/ Personnel Issues y y y y y y y y y y y y Performance Absenteeism Problems Expectations How staff Work as Team Whether Staffing Structures Work Fuel Consumption Mileage Repairs New Parts Capital and Running Costs Performance

Sources of Information Use of Information

y y y y y y y y y y y y Staff/Team Meetings Staff Reviews Supervision Informal Meetings Observation Log Book of Fuel and Mileage Record Sheets of Repairs and Spare Records of Money spent on each Vehicle Meetings with Driver Observation Suppliers, Catalogues Inventory of Stocks Stock-keeping Record System y y y y Give Staff support and Feedback Training and Staff Development Improve Management Practices Modify/Clarify Job Descriptions

Vehicles

y y y y

Decisions about replacing Old Vehicles when the become uneconomical to run Compare different makes of Vehicle Check Mechanic s Performance re:parts fitted, frequency of repairs, etc. Identify problems, e.g. excessive fuel consumption Obtain best value supplies Obtain supplies on time Maintain adequate stock levels

Supplies

y y y y y y

Where to Obtain Supplies Cost from Different Supplies Stock levels Re-order Levels Items about to Run Out Time Needed to Supply

y y y

What to monitor contd.

2. Finance
Information to be Collected
project Budget and Expendit ure Expenditure by budget head y Balance of budget remaining this year y Regularly recurring items of expenditure, y Previous year s budget and expenditure y Rates of inflation y Exchange rates y y y y y Salaries Tax, insurance, etc. Annual increments Final pay Other payments: e.g. health allowance, staff loans

Sources of Information
y y y y Invoices & vouchers Budget break-down Analysis of budget and expenditure, Newspapers, banks

Use of Information
y y y y y Predict expenditure for budgeting Compare costs of different projects Identify areas of excessive expenditure Identify any savings Compare costs with project achievements to assess cost- effectiveness Ensure staff are paid according to pay scale reflecting nature of job and length of service Ensure other payments are made according to correct procedures Ensure all staff know what benefits they are entitled to To ensure sufficient but not excessive cash is available

Staff Salaries

y y y

Staff records Payslips Salary records

y y y

Cash Flow Analysis

y y y

When is cash needed for project? y Where will cash come from? (might include loan repayments, sales etc) What and when are cash outgoings? (regular and irregular)

Cash record system

What to monitor contd.

3. Project Activities
Information to be collected
Results of y Activities, y Project Outputs y y y What has been done What has not been done but was planned What problems have been uncounted How the problems have been addressed How external situation has changed

Sources of Information
y y y Regular records of activities Supervision reports Meetings with staff, project partners, and people affected by the work Informal discussion Observation Surveys From suppliers, other organizations, etc. Information about key indicators Observation

Use of Information
y y y y y y y y y y y Plan future work Identify project successes & opportunities Identify problems /weaknesses, & plan strategy Review priorities Identify training needs Identify need for further information or research, Plan and schedule activities Monitor costs and budget Modify strategy and/or objectives if necessary Feedback Identify need for further improvements in monitoring systems Show need to change management style Identify need to change methods to encourage more participation Identify problems in relationship between partners, people affected by the work , staff, etc and address them

y y y

Project Inputs Progress of Project According to Objective s The Way project is managed how things are done (process)

y y y

What is needed, when & where to y find it and at what cost Progress towards achieving objectives y Are objectives still relevant? y

y y y

How are decisions made? Are the people who are supposed to be involved really involved? Do beneficiaries feel a sense of ownership of the programme?

y y y

Indicators which show degree of participation Meetings, discussions Observation

y y y

PerformancePerformance-Based Monitoring
Traditional monitoring focuses on implementation issues (i.e., tracking of inputs, activities and outputs) performancebased monitoring goes beyond the tracking of inputs and outputs to the regular collection and analysis of actual results (i.e., outcomes and impacts).

What is Evaluation?
In ordinary usage, evaluation is the process of determining the merit, worth, or value of a programme In a technical sense, evaluation is the process of making judgments about a project based on systematic data collection and analysis relative to specific issues of interest, like project relevance, effectiveness, efficiency etc.

Areas of Evaluation.
i. Evaluation exercises often seek to collect & analyse data on the following: Relevance: Are the programme objectives clear and appropriate? Are the activities the best way of achieving the objectives? Effectiveness: To what extent have the objectives been achieved or the progress being made towards achieving the programmme objectives

ii.

Areas of Evaluation Contd.

iii. Efficiency: How well activities are being carried out. i.e cost effectiveness or value for money. For example is the organizational arrangement or the way activities are carried out conducive to efficient mode of operations? iv. Results: What difference has the programme made in the life of the beneficiaries?

Areas of Evaluation Contd.

v. Sustainability: Refers to the capacity of a project to continue the activities and deliver the intended benefits for a long time after the financing period.
Sustainability analysis of a project may be examined under 5 dimensions:
Social Economic Environmental Technical Organizational capacity