CHAPTER ONE

INTRODUCTION TO PROJECT ANALYSIS AND MANAGEMENT

Learning Objectives: At the end of the first chapters, you will be able to:

 Define a project
 Understand the characteristics of project
 Know the types of projects
 Explain the difference between projects and programs
 Explain the relationship between plans and project
 Briefly describe what project life cycle means
 Identify and describe the stages/phases in a project cycle
 Describe the different stages in each phase of a project life cycle
 Compare and contrast different classifications of project life cycle

1.1. Introduction
Project analysis and management plays a key role in the economic development of a country.

Projects are the predominant means adopted by businesses, government and non-governmental
organizations to introduce major changes and undertake new activities to accomplish their objectives such
as infrastructure development, or increase profit by certain percent, or increase market share with a new
product. However, despite the preeminence/incomparability of projects as means to achieve
organizational ends there is a gap in translating project plans in to actual investment and operation. No
matter how sophisticated or detail the project preparation work, it has no value unless it is transformed
into action or implemented. With this regard studies based on previous project implementation
experiences shown that there is continuing difficulties in many developing countries in transforming plans
or project studies into investment projects due to lack of adequate knowledge and project management
skills by most of the individuals engaged in project undertakings.

 Countries of the world, especially, developing countries have been investing large amounts
of money in projects related to industry, minerals, power, transportation, irrigation,
education etc. with a view to improve the socio-economic conditions of the people.

 The money invested both in industrial and social projects keeps increasing. These projects
are designed with the aim of earning adequate returns to provide for future development.
But, experience shows that there are several shortcomings in the ultimate success of

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 achieving the objectives of the proposed projects.

One of the main reasons for the failure of many projects in the developing countries is the inadequacy
of managerial skill for project implementation and imperfect planning and control of projects.
Therefore, this course is designed with the purpose of solving these problems.

1.2. Definitions of Project

The word project has a wider meaning. Many people and organizations have defined what a
project is, or should be, but probably the most authoritative definition is that a project is “a
unique set of coordinated activities, with definite starting and finishing points, undertaken by
an individual or organization to meet specific objectives within defined schedule, cost and
performance parameters.” Turner defines project as an endeavor in which human, financial
and material resources are organized in a novel way to undertake a unique scope of work, of
given specification, within constraints of cost and time so as to achieve beneficial change
defined by quantitative and qualitative objectives. A project is a complex of economic activities
in which we commit scarce resources in expectation of benefits that exceed these resources. A
project is an investment made on a package of interrelated time-bound activities; consequently, a
project becomes a time-bound task.

Project is a set of proposals for the investment of resources in to a clearly identified set of actions and
these actions are expected to produce future benefits of a fairly specific kind. It can be small, as in the
case of the construction of a house, awareness campaign or it can be large as in the case of multi-lateral or
integrated project involving a number of sectors or rural and urban communities.

Project is also defined as a non-routine, non-repetitive, one-off undertaking, normally with discrete time,
financial and technical performance goal. Project may be defined as planning work for various activities
for a completion of a final work. Project is a plan for arranging, coordinating, supervision, monitoring and
complication of various activities related to a final objective.

Examples of projects include construction of building, construction of road, establishment of factories,

launching of products, developing a new product, designing a software, implementation of software,
develop a new system or service, making significant improvements to a system or service, improving

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 internal processes or introduce new ones, building or significantly enhancing infrastructure, researching
new technology for a specific purpose, etc.

Some examples of work that are not projects include daily production support activities (system
administration, system operations, break/fix activities, customer support, etc.), other operational
activities that follow a defined process, very small system change requests, etc.

From the above definitions and examples, we can understand that projects:

 Have well defined objectives,

 Start and finish dates,
 Are designed and implemented to produce specific results,
 Require financial, material and human resources,
 Involve one or more individual or groups,
 Are unique (i.e., they will not be repeated precisely in the same way in the future), and
 Have definite location and target group (beneficiaries).

1.3. Characteristics of Projects

From the above definitions, we can have the following features (characteristics) of projects:

 Projects have a purpose/objective: projects have clearly-defined aims and set out to produce
clearly-defined results. A project has a set of objectives or a mission. Once the objectives are
achieved, the project is treated as completed.
For example the objective of a project may be construction of a highway connecting two cities
‘A’ and ‘B’. Once the construction of the highway is completed the project comes to an end.
 Projects are realistic: their aims must be achievable, and this means taking account both of
requirements and of the financial and human resources available.
 Projects are limited in time and space: they have a beginning and an end, and are implemented
in a specific place and context. That means they cannot continue forever.
For example: Construction of a highway connecting two cities for instance is a project which is
to be completed within a given time limit.

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 Projects are complex: projects call on various planning and implementation skills, and involve
various partners and players. (Since the stakeholders are plenty they are complex)
 Projects are collective: projects are the product of collective endeavor. They are run by teams,
involve various partners and cater for the needs of others. A project normally consists of diverse
areas. There will be personnel specialized in their respective areas.
Any project calls for the services of experts from a host of disciplines. Co-ordination among the
diverse areas calls for team work. Hence a project can be implemented only with teamwork.
 Projects are unique: all projects stem from new ideas. They provide a specific response to a
need (problem) in a specific context. The principal identifying characteristics of a project is its
novelty/originality/newness. No two projects ever exactly alike and even a repeated project will
differ from its predecessor in one or more commercial, administrative, or physical aspects.
 Projects are an adventure: every project is different and ground-breaking; they always involve
some uncertainty and risk. It is a step into the unknown, fraught with risk and uncertainty.
 Projects can be assessed: projects are planned and broken down into measurable aims, which
must be open to evaluation.
 Projects are made up of stages: projects have distinct, identifiable stages.
 Commitment of Scarce Resources: A project consumes resources. The resources required for
completing a project are man, material, money and time. The nature of resources is that they are
limited and scarce.
 Change: A project is not rigid in its life span. Changes occur throughout the life span of a
project as a natural outcome of many environmental factors. The changes may vary from minor
changes which may have very little impact on the project to major changes which may have a big
impact or even may change the very nature of the project.

1.4. Classification of Projects

Projects may be classified in different ways for different purposes. For example we can classify projects
from the point of view of ownership, sources of finance and forces behind as follows:

1. Based on Ownership
 Private sector projects – projects undertaken by business enterprises
 Public sector projects – projects undertaken by national and or local government bodies
 NGOs projects – projects undertaken by non-governmental / non-for-profit organizations

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 Projects undertaken by public sector such as federal/state governmental units and NGOs are called
development projects.
2. Based on Sources of finance
 Government treasury projects – projects financed by government from taxes, sale of bonds, treasury bills
 External assistance/loan (debt) projects – projects financed by loans
3. Based on the Forces behind
 Demand/need driven - projects which are based on identified unsatisfied demand/unsatisfied basic needs
like food, water, and shelter/building, schools, transportation, telecom, and health centers.
 Donor driven- projects which are initiated by donors. E.g. constructing donor backed health centers,
schools
 Political driven – projects driven by intentions to memorize some people. E.g. constructing martyr
(willing victim/sacrificial victim) building/monument. (Memorial/headstone)

Projects can also be classified under the following four main headings

1. Civil engineering, Construction, Petrochemical, Mining and Quarrying (Mining or Extracting)

Projects

There common features is that the fulfillment phase must be conducted on a site that is exposed to the
elements, and usually remote from the contractors head office.

These projects may result special risks and problems. They often require massive capital investment and
they deserve (but do not always get) rigorous/serious management of progress, finance and quality.

2. Manufacturing Projects

Manufacturing projects aim at the production of a piece of equipment or machinery, ship, aircraft, land
vehicle or some other item of specially designed hardware. The finished product might be purpose-built
for a single customer, or the project could be generated and funded within a company for the design and
development of a new product intended for manufacture and sale in quantity for the entire market.

3. Management Projects

This class of project proves the point that every company, whatever its size, can expect/need project
management expertise at least once in its lifetime. These are projects that arise when companies relocate
their headquarters, develop and introduce a new computer system, prepare for a trade exhibition,

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produce a feasibility or other study report, restructure the organization, mount a stage show or engage
in any operation that involves the management and coordination of activities to produce an end result
that is not identifiable principally as an item of hardware or construction.

4. Research projects

Projects for pure research can consume vast sums of money, last for many years and result in a
dramatically profitable discovery. They can on the other hand, result in a complete waste of money and
resources invested. Research projects carry the highest risk because they are attempting to extend the
boundaries of current knowledge. Unlike the other types of projects, their end objectives are usually
difficult or impossible to define. Research projects might not, therefore, be amenable to the project
management methods that can be applied to industrial or management projects. (Their objective is
generating solutions on papers)

1.5. Project Analysis and Management

Projects analysis involves estimation and comparing the beneficial effects of an investment with its
costs.

The costs of investment could easily be estimated. But the benefits are not that much easy to compute
because there they are based on forecasting which is highly subjected to change.

Project management is planning / scheduling, controlling and monitoring the complex non-routine
activities that must be completed to reach the predetermined objectives of the project. It involves the
coordination of a group activity, wherein the manager plans, organizes, staffs, directs, and controls to
achieve an objective, with constraints on time, cost and performance of the end product.

Internationalization (globalization) of products, privatization policies and invitation of foreign investment

has enhanced the applications of project analysis and management techniques.

Project and Plans

Virtually every developing country has a systematically elaborated national plan to hasten/accelerate
economic growth and further a range of social objectives. Planning in general is a conscious effort to

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 direct human energy for the purpose of securing a rationally desirable end. Planning is a means to an end.
It's a guide to achieving certain objectives in an optimum manner by means of an orderly sequencing of
activities. In other words, planning is a form of decision making in using scare resources in selective and
economical ways to achieve a pre-determined objectives or goals.

Planning is necessary because:

- it helps to make necessary arrangements in advance of possible challenge

- it helps an organization to think ahead and anticipate future events
- it gives clear picture of future events to measure and control actual activities
- it helps to identify operational problems of past performance and future corrections

Projects provide an important means by which investment and other development expenditures foreseen
in plans can be clarified and realized. Sound development plans require good projects, just as good
projects require sound planning.

 National Plans require projects: a sound national plan requires a great deal of projects. Since a plan lay
down growth rate target, for Gross Domestic Product (GDP), investment, employment etc., a realistic
assumption must be established with regard to such growth.
This pre-supposes knowledge of the rate at which good projects can be planned. Thus, good and
realistic plan cannot be formulated in the absence of a great deal of project planning and without proper
economic appraisal of projects.

Development strategies are packages of ways / means by which available resources are put in their best
use in achieving specific objectives. Since projects commit scarce resources, project selection is
meaningful only when it is consistently placed within a broader development framework. This framework
is usually delineated in medium and long-term development plans and policy statements issued by the
government. It is within this framework that all affects a project such as its requirements and benefits can
be assessed properly. The more elaborate the development plans and policy statements, the easier
becomes the work of the project planner.

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 As a minimum, they should outline the desired socio-economic pattern of development and should
specify the major objectives. The analyst should constantly keep in mind the declared objectives and
should always verify that the selected project contributes to the maximum extent possible in attaining
them.

Components of a Macro-Plan (National Plan): (N.B: can also apply to private sector projects)

Development goals/objectives: Are statements of intention or aspiration of a government to improve

the living conditions of its people. Example: improving the material and cultural well-being of people,
poverty reduction, etc.

Development Strategies: Are general methods of achieving stated objectives e.g. Ethiopia’s
development strategies. Example: Food security

Development Programs: Are organized set of activities directed toward a common purpose or goal and
serve as frame of references for identifying and evaluating projects. Example: Ethiopia’s rural
development program, sustainable development and poverty reduction program.

Development Projects: Are policy instruments through which national and sub-national plans are
translated in to action. They are the most practical aspects of the national plan (or any other plan for
that matter). They often referred to as the “cutting edge of development” Example: Irrigation Projects

Project and Program

The term project should be differentiated from the term program to avoid the confusion that arises when
they are used interchangeably. Programs unlike projects are open ended means they do not have a well-
defined ending date. A series of related projects make programs.

While projects are the building blocks of programs and are usually of shorter duration. A project is a
means by which national, regional local, etc. plans are made operational. This means the plan has to be
elaborated into "package of action".

The package of action can be divided into two broad categories. These are:

 Program: which is the first step in plan elaboration and

 Project: the second step in plan elaboration.

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 Program, which is a bigger package of action, is composed of a number of projects aiming at attaining
one or more related objectives of plan. Project on the other hand achieves goals which lead to the
accomplishment of specific objectives within program.

Example: The Ethiopian Road Authority may develop a program to upgrade the highways from Addis to
different regional states. Therefore, with in this program there are different projects with their unique
cost, time, scope, beneficiary group, etc. specification.

The following are the basic difference between program and project.

 A program is broader in scope than a project.

 A program is a domain out of which project can be found. For example, if we think of extension program
under this program we could identify different projects like irrigation, crop production, Honey production
etc.
 A program has general objective while projects have a specific objectives. For example, if the objective
of the extension program is self-food efficiency, the objective of the project could be increasing crop
production, milk production, honey production etc. which are more specification than being general.
 Project has a specific project area while program don't have a specific program area.
 Projects have specific beneficiary groups. For example, if one establishes a cattle raring project at
Somalia region, that doesn't mean that every Somalia will be willing to buy your product rather there will
be a specific client who will purchase your product like Yemen etc.
The differences and similarities between project and program can be summarized in the following table:

Project Program

 Is specific in objectives/purpose  Has got general objectives

 Has specific area/geographic unit  May not have specific area
 Has specific target groups  May not have specific target groups
  May not have clear and detailed financial
Has clearly determined and allocated
Difference fund. allocation
s  Has specific life  May not have specific time of ending.


Similarities Have purpose/objectives
 Require input (financial, manpower, material, etc.).
 Generate output(goods and/or services) and Operate over space and time.

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 Projects, Capital Expenditure and Capital Budgeting

1. Projects and Capital Expenditure

 Almost all projects contain capital expenditure.

 Capital expenditure requires capital budgeting decisions.
 Capital expenditure is characterized by:
 Long-term effects
 Effect on organizational operations extends far into the future.
 Scope of current production activities governed largely by capital expenditures in the past.
 Current capital expenditure decisions provide the framework for future activities.
 Irreversibility
 Wrong capital investment decision cannot be reversed without incurring a substantial loss.
 Substantial outlay
 Involve significant outlays of resources.
2. Capital Budgeting Decision

 A long-term planning for making and financing investments on projects having a long-term implication
 Pose difficulties arising from:
 Cost and benefit measurement problems especially for;
 Development projects involving costs and benefits that cannot be objectively quantified
 Projects involving some intangible consequences (e.g. improving employee morale, quality of product)
 Projects having impact on other activities of an organization
 Uncertainty
 Great deal of uncertainty characterized by costs and benefits
Example

- Cost reduction decision - e.g. facility replacement

- Expansion decision - e.g. construction of new facilities
- Facility selection decision - e.g. which facility to buy
- Screening decision - whether a project meets standard of acceptance and
Selection decision - selecting from among alternatives

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