Summary Notes – Introduction to Project
Topic Summary
Definition of Project A project is a temporary activity
undertaken to achieve specific objectives
within a given time, cost, and performance
standard. It uses resources to create
benefits greater than costs.
Examples of Projects Building houses, bridges, roads, software
development, weddings, MBA study,
garden planting, etc.
Main Features of a Project Has start and finish, unique/non-repetitive,
involves risk, uses resources, has budget,
creates beneficial change, teamwork, and
responsibility.
Benefits/Objectives of Projects Economic growth, employment creation,
poverty reduction, welfare improvement,
transport and social development.
Planning Planning helps organizations think ahead,
control activities, and achieve development
goals effectively.
Gantt/Bar Chart A visual planning tool showing activities
vertically and time horizontally. Developed
by Henry Gantt.
Network Model Diagram showing activities and logical
relationships in a project. Useful for
scheduling and coordination.
Classification by Ownership Private projects, Public/Government
projects, NGO projects.
Classification by Source of Finance Government funded, jointly funded
(government + donors), externally funded
projects.
Classification by Purpose New projects, Expansion projects,
Updating/Replacement projects.
Classification by Time Horizon Long-term, Medium-term, Short-term
projects.
Classification by Locality Regional, National, International projects.
Classification by Resource Use Capital intensive, Labor intensive, Energy
intensive projects.
Project Stakeholders Individuals or organizations affected by the
project such as government, donors,
contractors, and beneficiaries.
Beneficiaries People who directly receive benefits from
the project.
Quick Revision Points
Project = Temporary + Unique + Goal-oriented
Every project has: Time, Cost/Budget, Performance/Quality
Projects help economic and social development
Planning tools include Gantt Chart and Network Diagram
Projects can be classified by Ownership, Finance, Purpose, Time, Locality, and Resource use
Difference Between Plan, Program, and Project
Aspect Plan Program Project
Meaning A broad guideline A group of related A specific activity
for future action. projects managed undertaken to
together. achieve objectives.
Scope Very broad. Broader than Specific and limited.
project but
narrower than plan.
Duration Usually long-term. Medium or long- Temporary with
term. fixed start and end.
Objective Provides direction Coordinates related Produces a specific
and policy. activities. output/result.
Example National Education Construction of a
development plan. improvement school building.
program.
Chapter 2: Project Life Cycle - Summary Notes
Topic Summary
Project Life Cycle The project life cycle refers to the different
stages a project passes through from
beginning to completion.
Major Project Life Cycle Models Baum Model, UNIDO Model, European
Commission Model, and DEPSA Model.
Baum Project Life Cycle Developed by the World Bank. Main stages:
Identification, Preparation, Appraisal &
Selection, Implementation, and Evaluation.
Identification Phase Finding promising project ideas from
resources, market needs, environmental
concerns, diversification, import
substitution, etc.
Preparation Phase Detailed project proposal preparation
including technical, financial, social,
economic, institutional, and environmental
feasibility studies.
Appraisal and Selection Critical review of the project before
approval or financing. Includes technical,
financial, commercial, economic,
managerial, organizational, and
environmental appraisal.
Implementation Phase Actual execution of the project including
land acquisition, construction, recruitment,
installation, training, marketing, and
startup.
Evaluation Phase Comparing actual performance with
planned objectives to assess efficiency,
effectiveness, and proper resource
utilization.
UNIDO Project Life Cycle Consists of Pre-investment Phase,
Investment Phase, and Operational Phase.
Pre-investment Phase Includes opportunity studies, pre-
feasibility studies, support studies,
feasibility studies, and appraisal reports.
Investment Phase Implementation of project activities and
investment decisions.
Operational Phase Operation, expansion, innovation,
rehabilitation, and replacement activities
after implementation.
European Commission Project Cycle Includes Programming, Identification,
Formulation & Appraisal, Financing,
Implementation & Monitoring, and
Evaluation & Audit.
Evaluation Criteria Relevance, efficiency, effectiveness, impact,
and sustainability are checked during
evaluation.
DEPSA Project Life Cycle Used in Ethiopia by Development Project
Studies Authority (DEPSA). Includes Pre-
investment, Investment, and Operation
phases.
DEPSA Pre-investment Phase Identification stage, Formulation stage
(pre-feasibility and feasibility study), and
Appraisal report.
Important Note Different project cycle models may differ in
sequence and detail, but the basic concepts
are similar.
Quick Revision Points
Project life cycle = stages from project beginning to completion.
Baum model has 5 major stages.
UNIDO model has 3 major phases.
European Commission model focuses on monitoring and sustainability.
DEPSA model is commonly used in Ethiopia.
Evaluation checks efficiency, effectiveness, and impact.
Chapter 3 Summary Note: Project Identification / Idea Generation
Prepared from Chapter 3 PowerPoint slides
Topic Summary Note
Introduction (3.0) Project identification is the process of
generating project ideas. Ideas may come
from problems to solve, available
resources, government development
efforts, or entrepreneurs. A viable project
idea is the first step in project success.
Sources of Project Ideas (3.1) 1. Analyze
capacity existing industries (profitability,
use)
2. Examine inputs and outputs of industries
3. Analyze import and export trends
4. Study government plans and guidelines
5. Suggestions from financial institutions
and development agencies
6. Investigate local materials/resources
7. Analyze economic and social trends
8. Draw ideas from consumption abroad
9. Identify unfulfilled psychological needs
10. Attend trade fairs
11. Ideas from local leaders
12. Ideas from entrepreneurs
Screening Potentially Promising Ideas (3.2) Project ideas are screened using:•
Compatibility with
entrepreneur/promoter• Consistency with
government priorities• Availability of
inputs• Market adequacy (demand,
competitors, price, sales)• Reasonableness
of cost (labor, materials, overhead)•
Acceptability of risk level (technology,
substitutes, imports, policies)
Project Rating Index (PRI) (3.3) PRI is used to evaluate and compare
project [Link]. Identify relevant
factors2. Assign weights to factors3. Rate
projects (e.g., 5-point or 7-point scale)4.
Multiply rating × weight to get factor
score5. Add scores to get overall PRIHigher
PRI = better project idea.
Case Study Example Possible business ideas near offices:
cultural coffee service, fast food service, car
wash, internet café, beauty salon. Evaluate
them based on market, cost, risk, and
viability.
Summary Note – Chapter 4: Technical Analysis of Project
4.0 Introduction
Technical analysis studies whether a project is technically feasible and how it can be
designed in the best possible way.
Main Purposes:
- Ensure all required inputs are available.
- Select the most suitable technology, plant size, location, machinery, and equipment.
4.1 Overview of Technical Analysis
Technical analysis focuses on:
1. Plant Capacity
2. Raw Materials and Supplies
3. Location and Site Selection
4. Technology and Engineering
5. Human Resource and Organization
4.1.1 Plant Capacity
Plant capacity is the volume or number of units produced within a given time period.
Types:
• Feasibility Normal Capacity (FNC): Production under normal working conditions.
• Nominal Maximum Capacity (NMC): Higher production through overtime and extra
resource use.
Factors affecting capacity:
- Technology requirement
- Input constraints
- Market condition
- Financial and managerial resources
4.1.2 Raw Materials and Supplies Study
Technical analysis identifies required raw materials, utilities, and supplies.
Important considerations:
- Types of materials needed
- Sources of materials
- Method of supply
- Unit and total costs
- Environmental impacts such as pollution and deforestation
4.1.3 Location and Site
Location refers to a broad area while site refers to the exact land chosen for the project.
Factors affecting location:
- Climatic conditions
- Ecological requirements
- Environmental Impact Assessment (EIA)
- Public policies and incentives
- Infrastructure availability
General rules:
- Raw material projects → near resources
- Perishable products → near market
- Imported materials → near ports
4.1.4 Technology and Engineering
Main areas:
1. Technology Choice
2. Technology Acquisition and Transfer
Factors affecting technology choice:
- Plant capacity
- Proven success by other users
- Latest developments
- Ease of adaptation
- Labor situation
Methods of technology acquisition:
- Technology licensing
- Purchase of technology
- Joint venture arrangement
4.1.5 Human Resource and Organization
Projects must identify human resource needs, availability, and costs.
Human resource categories:
- General management
- Production management
- Finance
- Marketing
- Production control
Human resource costs include:
- Fixed and variable costs
- Training costs
- Administration and marketing costs
Quick Revision Table
Topic Key Idea
Technical Analysis Checks technical feasibility
Plant Capacity Amount produced in a period
FNC Normal operating capacity
NMC Maximum possible capacity
Raw Materials Study Identifies materials and costs
Location Broad project area
Site Exact project land
EIA Environmental impact study
Technology Choice Selecting suitable technology
Technology Transfer Licensing, purchase, joint venture
Human Resource Labor requirement and cost analysis
Chapter Five: Financial Analysis of Project
Summary Table
Topic Definition / Formula / Key Point Decision Rule
Meaning
Financial Analysis Checks whether a Focuses on cash Project should
project is financially inflows and generate enough
feasible and outflows return
profitable
Cash Inflows Money entering the Sales revenue, by- Higher inflow is
project products, sale of old better
assets
Cash Outflows Money leaving the Investment and pre- Lower cost is better
project production costs
Fixed Investment Spending on long- Land, buildings, Initial capital
term assets machinery requirement
Pre-Production Costs before Training, Capitalized before
Costs production starts registration, operation
consultancy
Net Working Capital Short-term NWC = Current Positive NWC
(NWC) operating fund Assets - Current needed
Liabilities
Payback Period Time needed to Initial Investment / Accept if shorter
recover investment Annual Cash Flow
Discounted Payback Payback using Uses present value Accept if within
discounted cash required period
flows
Net Present Value Difference between NPV = PV inflows - Accept if NPV > 0
(NPV) PV inflows and Investment
investment
Profitability Index Return per birr PI = PV inflows / Accept if PI > 1
(PI) invested Investment
Important Formulas
NWC = Current Assets - Current Liabilities
PV = CF / (1+r)^t
NPV = Σ CFt/(1+r)^t - I0
PI = PV of Future Cash Inflows / Initial Investment
Decision Summary
Technique Accept Reject
Payback Period Shorter than required Longer than required
period period
Discounted Payback Shorter than required Longer than required
period period
NPV NPV > 0 NPV < 0
PI PI > 1 PI < 1
Chapter Six: Economic Analysis of Project (SCBA)
Summary Table
Topic Definition / Key Point / Formula Main Idea
Meaning
Economic Analysis Evaluation from Uses market or Focuses on social
(SCBA) society/national shadow price welfare
economy
perspective
Financial Analysis Evaluation from Uses market price Focuses on private
(CBA) investor perspective profit
Market Market prices not Monopoly, taxes, SCBA uses shadow
Imperfection reflecting real value subsidy prices
Externalities Effects on third Pollution, roads, Considered in SCBA
parties infrastructure
Taxes & Subsidies Government Transfer payments Not real resource
payments/supports in SCBA cost
Concern for Savings Project impact on Savings encourage Relevant in SCBA
national saving investment
Concern for Distribution of More value to poor Social equity focus
Redistribution income among groups
groups
Merit Wants Socially desirable Education, health Important in SCBA
goods/services
Demerit Goods Socially harmful Alcohol, cigarettes Lower social value
goods
Opportunity Cost Benefit sacrificed Second best forgone Core concept in
from next best SCBA
alternative
Shadow Price Real economic value Reflects true cost Used in SCBA
under imperfect
market
Differences Between Financial Analysis and SCBA
Area Financial Analysis SCBA
Objective Profit to investors Benefit to society
Price Used Market price Market or shadow price
Externalities Ignored Considered
Taxes & Subsidies Cost/benefit Transfer payments
Redistribution Not important Very important
Savings Concern Not relevant Relevant
Merit Wants Ignored Important
Important Formula
Saving = Σ Yi MPSi
Yi = Change in income of group i
MPSi = Marginal propensity to save
UNIDO Stages of Economic Analysis
Stage 1: Calculate financial profitability using market prices
Stage 2: Calculate economic benefit using shadow prices
Stage 3: Measure impact on savings and investment
Stage 4: Measure impact on income distribution
Stage 5: Measure impact on merit and demerit goods
Chapter Seven Complete Summary Notes in Table Form
Project Planning, Organization, Implementation, Monitoring, Evaluation and Formulas
Topic Summary Notes Important Formula / Key
Point
Meaning of Project Planning Preparing a blueprint for Planning is the foundation
achieving project goals.
Determines what, how, of project success.
when, and who.
Functions of Project Organizes work, improves Activities should be
Planning communication, encourages manageable, measurable,
future thinking, monitoring independent, and
and control. integratable.
Types of Project Plans Single-use plans and Single-use = one-time
standing plans. purpose; Standing =
repeated use.
Project Organization Arrangement of Ensures efficiency,
responsibilities among effectiveness, and
managers, contractors, and coordination.
stakeholders.
Project Implementation Putting project plans into Requires proper resource
action through scheduling, allocation and control.
supervision, and
coordination.
Problems in Poor planning, lack of These reduce project
Implementation finance, delays, poor performance.
coordination, lack of
manpower.
Success Factors Good planning, Strong management
communication, finance, improves project success.
monitoring, and
stakeholder participation.
Project Monitoring Continuous tracking of Monitoring identifies
project activities and problems early.
progress.
Project Evaluation Systematic assessment of Types: Ongoing, Terminal,
project performance and Ex-post evaluation.
results.
Project Audit Life Cycle Audit initiation, baseline Used to evaluate overall
definition, database project performance.
establishment, analysis,
reporting, termination.
Post Completion Evaluation Evaluation after project Improves future decision
completion. making.
Project Impact Analysis Measures project impact on Impact levels: Low,
(PIA) society or business. Medium, High.
Variance Formula Measures difference Variance = Actual
between actual and planned Performance − Planned
performance. Performance
Cost Variance (CV) Measures cost performance. CV = EV − AC
Schedule Variance (SV) Measures schedule SV = EV − PV
performance.
Cost Performance Index Measures cost efficiency. CPI = EV / AC
(CPI)
Schedule Performance Measures time efficiency. SPI = EV / PV
Index (SPI)
Percentage Completion Measures project progress. % Completion = (Completed
Work / Total Work) × 100
Budget Utilization Rate Measures percentage of Budget Utilization = (Actual
budget used. Expenditure / Total Budget)
× 100
Interpretation of Variance Positive variance = Variance = 0 means project
favorable; Negative is on target.
variance = unfavorable.
Abbreviations:
EV = Earned Value
PV = Planned Value
AC = Actual Cost