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INTRODUCTION
Before embarking on the hard core of project development and management, let
me first introduce you to the basic project concepts and the processes involving the area
of project development. Afterwhich, you will be introduced to a case study of a rural
development endeavor in the province of Bulacan to enlighten you to the common
problems and controversies of project management. Understanding these (I presume!)
will make you a better practitioner (learning from others mistakes) once you go along
with the planning and implementation phase of the project development cycle.
COURSE OBJECTIVES
At the end of Unit I, you should be able to:
relate the basic project concepts and features as well as its characteristics;
demonstrate and discuss the different processes and phases involved in project
development; and
identify some common pitfalls of project development and management.
SUGGESTED TIMEFRAME:
3-6 hours
The following paper which I intentionally prepare for you was mainly taken and
summarized from the Project Development Manual developed by the National
Economic Development Authority (NEDA) and Agricultural Project Analysis Manual
authored by Price Gittinger of the World Bank (WB). Going through it will help you
comprehend the basic concepts, characteristics and nature of projects. The processes and
phases of project development are likewise presented herein for you to properly
understand where we are heading to as we go along with the succeeding topics.
Definition of Project
The term project refers to a great variety of endeavors. This range from
activities with single-purpose, well-defined structures such as small infrastructure
projects, to complex, multicomponent systems such as integrated and area development
projects.
Projects may be viewed as an investment, wherein investment encompasses not
only the physical infrastructure facilities and equipment but also the development
services such as agricultural extension, research and training. To distinguish it from a
program, a project is a smaller, separable operational element that lends itself to being
planned, financed and implemented independently.
The whole complex of activities using resources to gain benefits constitutes a
project. Of course, an enormous variety of agricultural activities may usefully be cast in a
project form. The World Bank itself lends for agricultural projects as widely varying as
irrigation, livestock, rural credit, land settlement, tree crops, agricultural machinery,
agricultural education, etc.
Generally, in agricultural projects we are thinking of an investment activity where
we expend financial resources over an extended period of time; we call such as the initial
capital outlay or fixed asset investments. In some projects, however, costs are incurred
for production expenses or maintenance which are incurred within a year, we call such as
operating or working capital investments.
Indeed, the dividing line between an investment and production expenditure
in an agricultural project is not all that clear. Fertilizers, pesticides, and the like are
generally thought of as production expenses used up within a single crop season or, in
any event, within a year. A dam, a tractor, a building or a breeding herd is generally
thought of as fixed asset investment from which we realize a return over several years.
But the same kind of activity may well be thought of as a production expenses in one
project and an investment in another. Transplanting rice is a production expense. Planting
rubber trees is an investment. Agronomically and economically they are not different
kinds of activities at all. In both cases we put up young plants in a nursery, from which
we expect to receive a benefit when they mature. The only difference is the time span
during which the plants grow.
All we can say in general about a project is that it is an activity on which we will
spend money in expectation of returns and which logically seems to lend itself to
planning, financing, and implementing as a unit. It is the smallest operational element
prepared and implemented as a separate entity in a national plan or program. It is a
specific activity with a specific starting point and specific ending point intended to
accomplish specific objectives. A project is something that you can draw a boundary
around, at least a conceptual boundary to say this is the project, which will have a
specific geographical location or a rather clearly understood area of geographic
concentration. Usually, a project has a specific clientele group that it intends to reach. It
has also a well-defined sequence of investment and production activities that we can
quantify and to which we can normally put a money value for.
A project sometimes has partially or wholly independent administrative structure
and set of accounts and is financed through specifically defined financial package.
As a specific activity with defined set of objectives and boundaries, a project
usually possesses key elements by which it can be further categorized, namely:
Sometimes people are concerned with the subtle issue of not being able to define
a project. There is no need for such a worry. In practice, the definition works itself out;
there are much more important aspects of project analysis to grapple with than trying to
formulate an academic definition of a project.
Project Categories
Projects are usually categorized as follows:
Focus
A. Technology Transfer
B. Capability Development
C. Institution Building
Organization of cooperatives
Formation of livelihood enterprises
Formation of associations/federations
Provision of public service centers
(e.g. health, education, etc.)
D. Community Resource
Development
PROCESSING
Cleaning and grading
Milling
Crushing/Extraction
Mixing
Dehydration
Chemical alteration
EXAMPLES
Fresh fruits
Fresh vegetables
Eggs
Rice and corn
Coconut
Oil palm
Sugar
Fruit juices
Animal feeds
Rubber
Fruits
Vegetables
Meat
Tires
Instant foods
Rice milling
Cocoa drying
Slaughtering
Corn milling
Sugar milling
Vinegar making
INTEGRATED
Product Marketing
And Distribution
Input Processing
Figure 1
The Project Development Cycle
Project
Identification
Project
Preparation
Project
Evaluation
Project
Monitoring
Project Appraisal
and Financing
Project
Implementation
Detailed Project
Engineering
Figure 2
The Process of Project Development
Project
Identification
Project
Preparation
Pre- investment
Phase
Project Appraisal
and Financing
Detailed Project
Engineering
Investment
Phase
Project
Implementation
Project
Operation
Post - Investment
Phase (Operational Phase)
Ex-post Project
Evaluation
10
YOUR ACTIVITY
1. Before sleeping tonight, please read the case of Sta. Maria Dairy Cooperative, Inc.
(attached at the end of Unit I). During your free time the next day, outline your case
analysis using the following format:
I.
II.
III.
IV.
V.
How did you fare in your brainstorming activity? If you were able to answer the
above requirements, Im sure you already have the grasp of what project development
and management is. It requires deeper conceptual, analytical and decision-making skill,
isnt it?
Dont bother with the case anyway, mine is just to introduce you to the realities of
project development and management. I hope that your proposed rural development
11
project will be better than Sta. Maria Dairy Cooperative, Inc. If you make your Project
Feasibility Study, please consider and try to avoid the occurrence of similar problems.
This would help you become an effective project planner and manager then. Take this as
a piece of advice from me. Okay?
RECAPITULATION
Unit I has introduced you to the basic concepts and processes of project
development and management. The key words associated with the definition of a project
is herein provided for your comprehension and self-understanding. The stages of project
development cycle is likewise incorporated for you to be guided on where we are heading
through as we go along with the succeeding topics.
I intentionally included the different types of RDPs for you to be aware of the
nature and focus of Rural Development Projects. Likewise, different types of agribusiness
projects are herein presented for your consideration if you opt to focus your mind in the
preparation of agribusiness or rural livelihood projects. You may use all these things as
your basis in your project idea generation later.
REFERENCES:
1.
2.
3.
4.
5.
6.
12
TRAINING MATERIALS
Department of Agribusiness Management
_____________________
This case was developed by Prof. Clodualdo V. Velasco and Mr. Edwin T. Parungao of
the Department of Agribusiness Management, Central Luzon State University, Muoz, Nueva
Ecija.
The case was solely designed for instructional purposes and not to illustrate correct or
incorrect handling of administrative problems. Copyright, 1996.
13
INTRODUCTION
Agricultural cooperation and promotion of self-help has long been adopted as a
development concept in the Philippines. As a rural development approach, agricultural
cooperatives were organized to promote self-help among small farmers.
Like in any other developing countries however, implementing a development
concept in the Philippines is not free from difficulties and controversies. With the
impressive move from the Philippine Government, there are doubts as to whether the
procedures followed were correct. It was disconcerting to discover that in many places,
the idea of agricultural cooperation did not produce any dynamics beyond the concrete
program itself, and that there were the actual problems of follow-up costs and follow-up
management.
The need to re-orient the operation and management of agricultural cooperatives
is imperative. As a business enterprise, its agribusiness systems orientation needs to be
properly managed for it to become operationally viable and effective.
Sta. Maria Dairy Farmers Multi-purpose Cooperative Inc. (SMDFMPC, Inc.), a
processor of pasteurized milk in Bulacan, is a typical example of a firm that uses the
agribusiness system concept. The interrelated and interdependent operational facets from
raw material sourcing to milk processing to marketing seemed to be a major structural
strength of SMDFMPC, Inc. Likewise, the support subsystem is believed to be capable of
doing their coordinative roles (see Exhibit 1 Integrated Set-up of SMDFMPC, Inc.).
Despite these strengths however, SMDFMPC Inc. was not operating effectively and
efficiently. The systems non-viability remained a major concern of the management ever
since. Likewise, the resultant effect of uneconomical operation had most of the time put
the Dairy Processing Cooperative on the red (See Exhibit 2 Financial Performance of
SMDFMPC, Inc.).
COMPANYS BACKGROUND
The Sta. Maria Dairy Farmers Multi-Purpose Cooperative Incorporated was first
named as Sta. Maria Dairy Project. It was initiated by the Bureau of Animal Industry
(BAI) in the early fifties through its cattle dispersal project. BAI initially dispersed cows
and bulls (Murrah Buffalo) to qualified farmers in Sta. Maria to serve as sources of raw
milk for its proposed milk pasteurizing plant. In 1956, the former Sta. Maria Farmers
Marketing Cooperative (FACOMA) put up its Milk Pasteurization Plant, named Sta.
14
Maria Dairy Plant. With donated milk processing equipments from the government of
Australia, the initial operation was marred with various problems particularly in its
ownership with which the property was subleased to the BAI in 1967. The BAI operated
and managed the project until 1975. Afterwhich, the operation and management was
relinquished to the Cooperative Marketing System of the Philippines (CMSP) upon
instruction from the Bureau of Cooperative Development of the Department of Local
Government and Community Development. In less than two years, the CMSP abandoned
the project where BAI again took charge. The job of picking up the pieces was left to the
BAI. It started anew by imposing again its cattle dispersal program to build up the base
herd. Some 2000 Brahman heifers and 229 crossbred Sahiwal cows were dispersed, but
were concentrated only in Sta. Maria on December 1987.
On April 16, 1989, the operation and management of Sta. Maria Dairy Plant was
turned over to the Sta. Maria Dairy Farmers Association Incorporated. Two years after,
through the interest of its members to convert the association into a cooperative, and with
enough requirements for conversion, the Sta. Maria Dairy Farmers Association became a
full-pledged cooperative on October 25, 1991. The project then was named STA. MARIA
DAIRY FARMERS MULTI-PURPOSE COOPERATIVE.
To date, the Dairy Processing Plants activities (e.g. dairy farming, milk
collection, processing and marketing) were totally managed by the Cooperative with the
DA-BAI only providing the technical assistance.
The Sta. Maria Dairy Farmers Multi-Purpose Cooperative is only one of the milk
shed areas being developed by BAI in the Philippines. Under this scheme, BAI is
committed to perform the following functions:
1. To provide credit assistance to small farmers, through its Multi-Livestock
Loan Program for the purchase of dairy animals;
2. To provide technical assistance to farmer-beneficiaries through trainings
(technology transfer) and actual delivery of extension services regarding dairy
husbandry and health care; and
3. To provide assistance to farmers cooperatives/associations regarding dairy
plant operation and management and dairy product development.
15
Organizational Set-up
Like any other cooperatives the organizational structure of SMDFMPC, Inc. was
divided into three major levels: General Assembly, Board of Directors and the
Management and Staff (See Exhibit 3 Organizational Chart).
The overall plant operation was carried out by the Plant Manager. Under him were
the cashier, bookkeeper, quality controller, salesmen/delivery men, and utility and plant
workers. On the upper level, the Chairman has the overall control over the plant manager
and the administrative affairs of the cooperative.
Each unit and/or a position in the organizational hierarchy are briefly discussed
below:
6.
16
17
Production Subsystem
The farmer-cooperators had played a special role in the production subsystem
since they were the primary instruments in the production of raw milk. They were
likewise expected to produce and supply the raw milk requirement of their dairy
processing plant. Supposedly, each farmer should produce at least 8 liters of raw milk per
day. Due to production constraints and weaknesses, however, average daily production
was registered at only 5.13 liters per farmer-cooperator.
Findings showed that previous practices on proper care and management were no
longer performed by most farmers. Concentrate feeding was replaced totally by grazing.
The necessary veterinary services of DA-BAI were likewise done irregularly as before.
Feedbacks gathered from farmers proved that there were lot of production inefficiencies
due to negligence and/or unattended responsibilities of DA-BAI Extension Unit.
Processing Subsystem
The processing Subsystem of SMDFMPC, Inc. comprises the following
operational facets:
Milk Sourcing. Prior to milk processing, collection of milk from individual
farmers was done early in the morning. Three vehicles were mobilized by SMDFMPC,
Inc. for milk collection purposes. House to house collection was done among the
individual active farmer cooperators by the plants milk collectors. On the average,
farmer-cooperators are located within 10-km radius from the plant. As a normal practice,
collected milk were placed in pails or milkcans.
From as high as 169,188.5 liters being collected in 1988, volume of milk
collection decreases to only 52,566.9 in 1995. The big gap or shortfall in the volume of
milk collection relatively affected the degree of plant capacity utilization in 1995 (See
Exhibit 5 Raw Milk Collection).
Milk Processing Activities. The primary function of the processing plant was to
produce pasteurized milk. All collected milk were subjected to acidity, lactometer, and
butterfat test before pasteurizing. Milk that passed the test were considered good milk and
were placed in the milk receiver. From the milk receiver, the good milk were
mechanically transferred to the pasteurizer then steamed at a temperature of 65 oC for 10
minutes. Cooling process follows which is usually performed within 20 minutes. After
which, through the milk dispenser, the pasteurized milk were packed manually in plastic
packs at 1 liter each. The packed milk were sealed through the plastic sealer. These were
later on placed in the plastic crates for temporary cold storage before finally marketing it.
Aside from pasteurized milk, the plant also produced white cheese, soft ice cream
and choco milk. From being a hot pasteurized milk, cheese were formed by adding
18
sulfuric acid and salt. This process is performed in the cheese vat. Each white cheese
weighs 200 gms. and was packed in a wrapper foil. Soft ice cream on the other hand were
manufactured by using the pasteurized milk as raw material. The ice cream mix contained
33 liters of cowsmilk, 7.2 kg of sugar, 1.4 kg of skimmilk, 3.0 liters of corn oil and 4
boxes of gelatin to produce 45 liters or 11.25 gallons. The ice cream were mixed
thoroughly, stirred manually and packed in a plastic container. Prior to final disposal, the
ice cream mix is passed through a solidifying machine for it to become soft and real ice
cream. Like the ice cream, choco milk products follow the same process. They only differ
in terms of ingredients. Same is true with the milk bar products which only differ in terms
of flavoring. To solidify, milk bars were freezed for about 12 hours.
Based on gathered facts, the processing subsystem was found out to have
operational gaps and weaknesses. These gaps are presented as follows:
1. At 450 liter capacity per batch, at 16 batches per day and 8 hours working day,
the milk pasteurizer of SMDFMPC, Inc. has an estimated effective maximum
capacity of 7200 liters/day. Actual production however, was only registered at
153.33 liters per day. This indicates that the plants milk pasteurizer was only
utilized at 2% of its effective maximum capacity per day.
2. The four plant workers are expected to work 8 hours per day at 6 working
days per week or 24 days per month. They were however, underutilized since
their effective working time only averaged 4 hours per day. Most of their time
was utilized in the collection of milk which was done early in the morning (2
hours on the average). Moreover, hours utilized during actual processing
activities including the packaging activities was only observed at 2 hours/day.
Because of very low production of pasteurized milk, the plant workers
oftentimes become idle after lunchtime.
3. Products being processed in the plant usually include the pasteurized milk
(70%), choco milk (5%), ice cream (15%), cheese (5%) and milkbars (5%).
These products during the process utilize only the pasteurizer, cheese vat, milk
dispenser, plastic sealer and milk storage. Because homogenized milk were no
longer produced due to zero supply of caramilk formerly supplied by the
farmer cooperators, the homogenizer and condensing tank were no longer
utilized. Likewise, the cold storage, freezer, and the pasteurizer were
underutilized.
Marketing Subsystem
The primary marketing motive of the organization was to dispose all processed
products as effective as possible. Product produced must be delivered at the right time, to
the right place and at the right price.
19
20
For other milk products (e.g. choco milk, ice cream, milkbars), no distribution
strategy was adopted. The plant only relied on walk-in buyers and orders made by small
vendors.
The plant had no established contacts with retail centers both in Metro Manila and
in Sta. Maria.
Support Subsystem
For the agribusiness system to operate efficiently, a need for institutional support
and/or services must be present. SMDFMPCs support services (as a system) include the
technical assistance of DA-BAI Extension Unit, supportive roles of politico-entrepreneur,
financing support from Rural Bank and devoted participation and cooperation of
Farmers Association.
DA-BAIs supposed role was to assist the farmer-cooperators by providing
technical assistance regarding dairy management. Likewise, they were
intended to support farmer-cooperators in the proper handling and care of
animals, animal selection, nutrition, and disease prevention and control.
A local politico-entrepreneur, specifically the Vice-Mayor of Sta. Maria who was
a former BOD of SMDFMPC, Inc., provides livelihood support services through its own
cattle fattening and dispersal program. The Vice-Mayor provides free cattle for fattening
purposes to selected participating coop members. Under this scheme, the farmer-grower
is obliged to sell the fattened cattle to the former. The cost of cattle was deducted later
from the sales of the concerned farmer.
The Rural Bank, on the other hand, being a financing institution provides support
to the SMDFMPC, Inc. by providing financial assistance in the form of operating capital
(e.g. purchase of raw materials, payment for labor, supplies, etc.).
The Farmers Associations also play their supportive roles to SMDFMPC, Inc.
These Associations were expected to perform their roles as concerned members of
SMDFMPCs General Assembly. Being the highest governing body, proper coordination
of the whole agribusiness system is expected among them.
21
22
A.
Current Ratio
(CR)
CR
B.
Quick Acid
Test Ratio
(QATR)
Current Assets
------------------------Current Liabilities
3,429,486.85
--------------------2,451,771.30
1.39
Liquid Assets
--------------------------Current Liabilities
324,526.54
------------------
2,451,773
QATR
0.13
Current Ratio figure shows that the cooperative was still solvent in the short run.
However, if subjected to a more severe test of solvency, the project is already insolvent in
the short run. This is reflected by the very low QATR of 0.13. Because of poor liquidity
position, this resulted to continuous borrowing to sustain the Coops operation.
C.
Total Debt
-------------------Total Equity
23
2,501,771.30
-------------------1,373,016.82
=
1.82
Debt to Equity ratio shows that the company is fast becoming a debt financed
firm. This is attributed to continuous reliance on borrowing due to continuous occurrence
of operational losses. Likewise, equity becomes smaller and smaller since farmermembers have already lost their support to their coop. Because of very unfavorable
earning power of the firm, most farmers have already lost their confidence to their coop
officials and the management in general.
D.
Return on Asset
(ROA)
100
100 = (6%)
Return on assets indicates the margin on sales and overall efficiency and speed of
asset turnover. Because of negative net margin and inefficient plant operation, the
company incurred a negative ROA of 6 percent.
E.
Return on Labor
(ROL)
100
100 = (90%)
The computed ratio reflects the labor productivity of the firm. Return on labor
was computed at negative 90 percent. This reflects that the labor force was not capable of
generating enough profit to at least meet their fixed wages.
MANAGEMENT COMMENTARIES
Structurally, the integrated set-up of SMDFMPC, Inc. is considered a major
organizational strength. Due however to various misconceptions of the key players
(agribusiness participants and support agencies) regarding agribusiness systems concept
24
Exhibit 1
STA. MARIA DAIRY FARMERS COOPERATIVE, INC.
Integrated Processing Set-up
INPUT
SUBSYSTEM
PRODUCTION
SUBSYSTEM
STA. MARIA
DAIRY
COOPERATIVE
PROCESSING
SUBSYSTEM
MARKETING
SUBSYSTEM
DIRECT
CONSUMERS
*DA BAI
*POLITICIAN
*FARMERS ASSOC.
*RURAL BANK
26
Exhibit 2
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
INCOME STATEMENT
For the Year Ended December 31, 1995
Sales Milk Dairy Products
Less: Cost of Sales:
Inventory, Beginning
Add: Purchases & Cost of Prod.
Total Handled
Less: Inventory, End
P 1,156,759.70
P 65,788.20
595,856.40
661,644.60
76,386.00
Cost of Sales
Gross Profit on Sales
Add: Other Income:
Interest Income
Electric Bill (Recd-BAI)
Gross Income
Less: Operating Expense:
Salaries and Wages (Direct L.)
Salaries and Wages (Gen. Adm.)
Per diems B.O.D.
Meals Allow. Del. Personnel
Lot Rent (Dairy Plant)
Lights, Power and Water
Office Supplies Exp.
Diesel and Gasoline
Repairs and Maintenance
Telephone Exp.
Representation Exp.
Interest Exp.
Packaging selling
- IL
- Milk Bar
Crystal Ice
SS and Medicare
Barangay Meeting Exp.
585,258.60
571,501.10
1,603.69
7,805.42
P 54,460.00
218,896.65
1,685.00
10,457.50
39,564.00
65,025.32
13,305.75
59,953.18
76,715.25
3,786.38
3,000.00
420.74
14,000.50
60,725.00
13,429.00
9,689.25
15,209.00
2,918.25
9,409.11
P 580,910.21
27
4,250.00
6,455.00
27,613.00
6,627.20
11,580.50
25,975.96
10,792.00
40,487.07
3,659.28
3,825.00
6,140.52
143.34
43.34
17,198.88
828,031.86
(P 247,121.65)
28
Exhibit 3
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Organizational Chart
GENERAL
ASSEMBLY
DA - BAI
BOARD OF
DIRECTORS
CHAIRMAN
MANAGER
CASHIER
BOOKKEEPER
QUALITY
CONTROLLER
UTILITY
SALESMAN/
DELIVERYMAN
PLANT WORKERS
29
Exhibit 4
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Salaries and Wages
Name of Employee
Position
Salary/Mo.
1. Leopoldo Fajardo
Manager
P3,000
allowance
2. Emerlita Bailon
Cashier
P3,911
3. Luzviminda Cruz
Bookkeeper
P3,010
4. Pastor Buising
Plant Worker/
Utility
P2,920 +
P40m/a
Plant Worker/
Deliveryman
P2,860 +
P40m/a
Plant Worker/
Deliveryman
P2,860 +
P40m/a
Plant Worker/
Deliveryman
P2,860 +
P40m/a
8. Heidy Buising
Rolling Seller
P85 daily
basis
30
Exhibit 5
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Raw Milk Collection
(in liters)
YEAR
COWSMILK
CARAMILK
TOTAL
1985
38.668.0
24,027.1
62,694.1
1986
81,1886.3
15,201.2
96,387.5
1987
146,116.6
7,104.2
153,220.8
1988
166,177.2
3,011.3
169,188.5
1989
131,476.1
6,444.7
137,920.8
1990
131,476.1
4,115.8
137,345.6
1991
120,940.4
1,132.1
122,072.5
1992
95,400.3
3,664.1
99,064.4
1993
85,179.0
3,186.0
88,365.0
1994
63,237.5
3,768.8
67,006.3
1995
51,021.4
1,545.5
52,566.9
31
Exhibit 6
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Service Route in Metro Manila
DELIVERY SCHEDULE
ROUTE
WEDNESDAYS
QUEZON
CITY
PACO
FRIDAYS
CUBAO
TANDANG SORA
MALATE
SAN ANDRES
BUKID
PASIG CITY
32
Exhibit 7
STA. MARIA DAIRY FARMERS MULTI-PURPOSE COOP., INC.
Volume of Sold and Unsold Product
DATE
Feb. 5-10
12-17
19-24
26
March 3-8
MILK AVAILABLE
FOR SALE
400 liters
400
350
400
400
NO. OF MILK
SOLD
250 liters
283
194
288
274
UNSOLD
150 liters
117
154
112
126
Total
1,950 liters
1,289 liters
659 liters
DATE
CHEESE
PRODUCED
CHEESE
SOLD
CHEESE
UNSOLD
Feb. 5
9
12
22
26
27
28
TOTAL
36 kg
48
24
24
24
156 kgs
6 kg
3.5
2
4
25
40.5 kgs
64.0 kg
51.5 kg
115.5 kgs