Project Planning and Evaluation Handout

Prepared By: Hassan Olojoku Abdulrafiu

Department of Urban and Regional Planning

June, 2017.

1. Definition of Project
2. Identification and formulation of project

Activities take place within an integrated process known as the project cycle,
which involves a series of stages: planning, implementation, evaluation and feedback
into the planning stage at the start of the next project cycle. To improve the content of
these activities and to enhance the effect of Technical Cooperation, each stage in the
project cycle requires appropriate monitoring and management. The following items
are particularly important at each stage.

(1) Planning:

Study and analysis of the needs and requests of developing countries; definition of
target groups; specification of the purpose, targets and resources to be used (required
fields of specialization, number of experts to be dispatched, costs required for the
projects as a whole, etc.) and details of activities.

(2) Implementation:

Execution of projects according to plan; reorientation of the plan on the basis of

monitoring; and development of results.
 (3) Evaluation:

Assessment of whether the results of a project accord with the original targets;
measurement of the effects of the project; investigation of how results have been
achieved; and feedback of the findings into future project planning.

In accordance with the following four items (i.e., the three stages of the project cycle
and efforts to strengthen the foundations of program implementation):

(1) Identification, formulation and planning

(2) Program implementation

(3) Evaluation and follow-up

(4) Strengthening the foundations of program implementation

In a broader approach,

PROJECT LIFE CYCLE

Pre-Production Phase
Production
Post-Production

PROJECT LIFE CYCLE

PRE-PRODUCTION = Planning & Design

PRODUCTION = Development & Integration & Deployment

POST-PRODUCTION = Post-deployment

ADDIE MODEL
ANALYSIS = PRE-PRODUCTION

DESIGN = PRODUCTION
 DEVELOPMENT = PRODUCTION

IMPLEMENTATION = POST-PRODUCTION

EVALUATION = POST-PRODUCTION

Project Appraisal Techniques

Project appraisal is the process of assessing and questioning proposal before resources
are committed into it. It is an effective action in community renewal. It is also a means
by which partnerships can choose the best project they want for the community.
What can project appraisal deliver?
An appraisal of project helps initiators and designer to:
Be consistent and objective in choosing project in terms of feasibility and viability.
Make sure their program benefits all section of the community.
Provide documentation to meet financial and audit requirements.
Justifies spending money on a project
Appraisal is an important tool for decision making
Appraisal also laid foundation for proper project delivery.

BASIC TECHNIQUES FOR APPRAISING A PROJECT

There are two types of measures of project appraisal techniques i.e. undiscounted and
discounted. The basic underlying difference between these two lies in the
consideration of time value of money in the project investment. Undiscounted
measures do not take into account the time value of money, while discounted measures
do.
Accordingly the undiscounted measures of project worth includes
Ranking by inspection
Payback period
Proceeds per unit out lay
Average annual proceeds per unit out lay method

Discounted Measures of Project Worth/ Value

Tis technique permits to determine whether to accept for implementation,

project that have variously shaped time streams i.e. patterns of when cost
and benefits fall during the life of project differ from one another and that
are of different duration. The most common means of doing this is to
subtract year-by year, the cost from the benefits to arrive at the
incremental net benefits stream.

This approach will give one of three discounted cash flow measures of
project worth:
 The Net Present Value (NPV)
The Internal Rate of Return (IRR)
The Net Benefit Ratio or Profitability Index (NBR or PI)
The Discounted Payback Period

NET PRESENT VALUE

An investment typically consists of an initial outlay (and possible other outlays in the
future) followed by receipts. Cash flows at time t could be positive or negative and
either discrete (ct) or continuous (t).

() = + ()
0

The net present value at interest rate i is denoted NPV(i)

If an investor can lend and borrow money at rate i1, a project will be profitable if and
only if
NPV(i1) > 0
Further, if the project ends at time T, the profit at that time is
NPV(i1) (1 + i1)T

EXAMPLE
Three projects have the following cash flows
A Initial outlay of N10,000 in return for an annual income of N1,000
paid 6-monthly in arrears for 12 years.
B Initial outlay of N1,000 in return for an annual income of N200 at the
end of each of the next 20 years.
C Initial outlay of N5,000 in return for a continuous payment stream of
N2,000 per annum for 3 years, deferred for 2 years.
If the investor can borrow and invest money at 5% per annum, rank the projects under
the NPV measure at this rate
Solution:
The NPVs are computed as follows
NPVA(i) = 10; 000 + 1; 000a12
NPVB(i) = 1; 000 + 200a20
At i1 = 5%
NPVA(i1) = N1; 027:26
NPVB(i1) = N1; 492:44
NPVC(i1) = N62:55
and so
NPVB(i1) > NPVC(i1) > NPVA(i1)
Project B is therefore the best under the NPV measure at i = 5%. Project A is not
profitable at this rate.
INTERNAL RATE OF RETURN

The internal rate of return (IRR) of a project y is the annualized yield obtained over the
projects lifetime.

It can be calculated by solving the equation of value for the rate y

() = + () = 0
0

The IRR gives the % return on each N1 invested in the project.

The IRR is therefore an additional measure of the profitability of a project and can be
incorporated into project appraisals.

EXAMPLE
Three projects have the following cash flows
A Initial outlay of N10,000 in return for an annual income of N1,000
paid 6-monthly in arrears for 12 years.
B Initial outlay of N1,000 in return for an annual income of N200 at the
end of each of the next 20 years.
C Initial outlay of N5,000 in return for a continuous payment stream of
N2,000 per annum for 3 years, deferred for 2 years.
Assuming that the investor is able to fund the initial outlay from existing funds,
calculate the IRR in each case.
EXAMPLE
Answer
The IRRs are computed by solving the following equations of value
A 10; 000 + 1; 000a(122) = 0 B 1; 000 + 200a20 = 0
C 5; 000 + 2j2; 000a3 = 0
These can be solved using trial and error (or Goalseek) to show
A IRRA = 3:05% per annum B IRRB = 19:43% per annum C IRRC = 5:38%
per annum
Project B is therefore the best under the IRR measure
DISCOUNTED PAYBACK PERIOD
In many practical problems the net cash flow changes sign only once, from negative to
positive. In this case, the balance in the investors account will change from negative to
positive at a unique time t1 or it will always be negative (in which case the project is not
viable).
If t1 exists, it is called the discounted payback period (DPP) and is defined as the
smallest value of t1 such that the accumulation of all prior cash flows is first greater
than zero.
Although the DPP is defined on the accumulation, it can equivalently be obtained by
finding t1 such that the present value of prior cash flows is first greater than zero.
A project with a lower DPP starts to generate a profit more quickly and this can be
important in project appraisals.
EXAMPLE
Three projects have the following cash flows
A Initial outlay of N10,000 in return for an annual income of N1,000
paid 6-monthly in arrears for 12 years.
B Initial outlay of N1,000 in return for an annual income of N200 at the
end of each of the next 20 years.
C Initial outlay of N5,000 in return for a continuous payment stream of
N2,000 per annum for 3 years, deferred for 2 years.
If the investor can borrow and invest money at 5% per annum, rank the projects under
the DPP measure at this rate.
EXAMPLE
Answer
The DPPs are obtained from t1 such that
A 10; 000 + 1; 000a(2) = 0
t1
B 1; 000 + 200at1 = 0
C 5; 000 + 2j2; 000at1 2 = 0 At i1 = 5%
A t1 = 13:96 i.e. DPP is 14 years which is greater than the term of the project. Project A
is therefore not viable at i = 5%.
B t1 = 5:90 i.e. DPP is 6 years (since the payments are at integer times).
C t1 = 4:96 i.e. DPP is 4.96 years.
Project C is therefore the best under the DPP measure at i = 5%.

The Net Benefit Ratio or Profitability Index (NBR or PI)

This usually produces the same result as NPV and IRR in project evaluation but it is
very important in separating projects of varying sizes.
Cost Benefit Analysis
Projects generally have a diverse set of effects and project economic analysis provides a
systematic framework to identify, quantify, value, and compare costs and benefits of a
project. Thus, economic analysis brings together various divers impacts in a single
comparable measure of project worth. Its great merit is that it converts a variety of
disparate effects into a common monetary unit over time and compares these effects
systematically. It can be complemented by various forms of checklists of project
impacts; for example, including social or environmental effects.
However, some have argued that because decision makers need simple and
transparent criteria, impact assessments are a viable alternative to formal costbenefit
comparisons and that CBA is just one form of assessment that can be carried out.
For example, in the context of the UK, Eales et al. (2005) suggest as a
model a two-stage procedure of what they term integrated appraisal Initially, a
project proposal should be reviewed in terms of its broad economic, social, and
environmental implications. This involves collecting data in response to a checklist of
questions to allow a qualitative judgment on the potential consequences of a project. At
the first detailed stage of integrated policy appraisal, these consequences are
assessed in more depth. At this point, the less desirable options or aspects of a project
can be ruled out. At the second stage of impact assessment, more detailed answers
are sought on the likely economic, social, and environmental effects. Once this second
stage of screening has been completed, a project can be assessed in detail using one or
more assessment tools of which CBA will be one of several that might be applied. These
tools need not be mutually exclusive and can be used in combination or consecutively.

Project and Programmes

Define a project as a temporary undertaking to create a unique product or service. A
project has a defined start and end point and specific objectives that, when attained,
signify completion.
A programme, on the other hand, is defined as a group of related projects managed in a
coordinated way to obtain benefits not available from managing the projects
individually. A programme may also include elements of on-going, operational work.
So, a programme is comprised of multiple projects and is created to obtain broad
organizational or technical objectives. There are many differences between a project
and a programme including scope, benefits realization, time, and other variables. One
notable difference is time; for example, a project by definition has a beginning and an
end (or at least one hopes so!); certain programmes, while having a beginning may not
have an end. A classic example of one of these types programmes is an annual
construction programme.
Definition/Purpose of a Feasibility Study
A feasibility study is defined as an evaluation or analysis of the potential impact of a
proposed project or program. A feasibility study is conducted to assist decision-makers
in determining whether or not to implement a particular project or program. The
feasibility study is based on extensive research on both the current practices and the
proposed project/program and its impact on the school foodservice operation. The
feasibility study will contain extensive data related to financial and operational impact
and will include advantages and disadvantages of both the current situation and the
proposed plan.
The feasibility study is conducted to assist the decision-makers in making the decision
that will be in the best interest of the school foodservice operation. The extensive
research, conducted in a non-biased manner, will provide data upon which to base a
decision.
Feasibility Analysis
When complex problems and opportunities are to be defined, it is generally desirable to
conduct a preliminary investigation called a Feasibility Study.
A Feasibility Study is conducted to obtain an overview of the problem and to roughly
assess whether feasible solutions exists prior to committing substantial resources to a
project.
During a Feasibility Study, the systems analyst usually works with
representatives from the department(s) expected to benefit from the solution.
The primary objective of a feasibility study is to assess three types of feasibility:
1) Technical feasibility
Can a solution be supported with existing technology?
2) Economic feasibility
Is existing technology cost effective?
3) Operational feasibility
Will the solution work in the organization if implemented? By intent, the Feasibility
Study is a very rough analysis of the viability of a project.
The final product of a successful feasibility study is a project proposal for management.
The contents of this report may include, but are not restricted to the following items.
1) Project Name.
2) Problem or opportunity definition.
3) Project description.
4) Expected benefits.
5) Consequences of rejection.
6) Resource requirements.
7) Alternatives.
8) Other considerations. 9) Authorization.