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Chapter I: Basic Concepts
1.1. The Project Concept
What is a Project?
Different organizations and authorsprovide different definitions for the concept project.
A project is a proposal for an investment to create, expand and/or develop certain facilities in
order to increase the production of goods/services/during a certain period of time in a
community, region, country, market area and/or certain organization (firm, public
organization, NGO, etc).
A project is defined as a complex economic activity in which scarce resources are committed
in the expectation of benefits that exceed these resources (costs).
According to Little and Mirrlees, a project is a scheme, or part of scheme, for investing
resources which can reasonably be analyzed and evaluated as an independent unit.
A project is an investment activity upon which resources are expended to create capital assets
that will produce benefits over an extended period of time and which logically lends itself to
planning, financing and implementation as a unit. A specific activity, with specific starting
point and specific ending point, intended to accomplish a specific objective. (Gittingger,1982)
Generally, a project is:-
An investment activity which lends itself to planning, financing and implementation as a unit;
Expressed in terms of definite location, time and target group or beneficiaries;
Expected to generate specific output(benefit) after its completion;
Managed by a separate administrative structure or operated through
the existing structure
Basic characteristics of a project:
1. A project involves the investment of scarce resources in the expectation of future benefits.
Projects have specific benefits that can be identified, quantified and valued, either socially
or monetarily/commercially/.
2. Projects have measurable objectives
Projects have specific beneficiaries that need to be specifically spelt out during project
planning.
3. A project is the smallest operational unit.
A project can be planned, financed and implemented as a unit.
Despite the fact that a project constitutes many activities and tasks, it is defined as the smallest
operational unit. Because, it is bounded by different factors. These are:
Projects are conceptually bounded.
The problem and specific objective of a project involves conceptual delimitations.
Projects are geographically bounded.
Projects are organizationally bounded.
There should be certain organizational unit responsible for project implementation.
Projects are time bounded.
Projects have specific lifetime, with a specific start and end time.
4. Uncertainty and risks is inherent in any project.
Achieving project objectives cannot be predicted in advance with accuracy.
The factors that make project risk are:
Significant and multiple types of scarce resources are committed today
expecting outcome in the future;
Benefits are expected to be generated in the future, which is less predictable;
Capital investments are irreversible, i.e. exit has its own costs.
5. It has a scope that can be categorized into definable tasks.
Projects usually have well defined sequence of investment and production activities
6. It may require the use of multiple resources.
This has an implication on management of project implementation.
The more diverse the types of resources are mobilized, the more complex will the
management be.
The outcome of project and hence development endeavor is sensitive to the management of
each type of resources.
Why Project Planning?
There is basic economic problem of scarcity in the face of unlimited needs.
This leads to make choices on the means and ends of development, which involves the
rational use of limited resources to attain the economic ends.
Thus, investment decisions are an essential part of the development process.
The more sound the investment decision is, the more success will be in the development
endeavor.
The need for project planning, preparation and study emanates from:
i. The quest for change: dissatisfaction with the present and/or pressure or incentive for
improvement in the future
ii. Change involves investment/commitment of resources to realize the objectives.
iii. The scarcity of investible resources and unlimited development/business needs;
iv. Investment is all about resource commitment into the future, which is less predictable;
v. An investment schemes have an inherent high risk
vi. The costs and benefits are temporally spread and particularly the large part of the costs are
incurred earlier and the benefits are generated later on.
This raises the question of comparing and equating the future and present values.
vii. Decision-making is not simple and perfect as it is assumed in orthodox economics.
These features of investment decisions constitute:
The reasons that justify the significance and relevance of project planning and
The major constraints and challenges faced by any project planner and decision maker in
project viability studies.
Thus, decision makers have to make every effort to systematically rationalize their decisions by
undertaking rigorous viability studies.