Tuesday, December 18, 2007

Project formulation and Appraisal

In my previous post I dealt with project selection process. My discussion of selection of projects presupposes availability of detailed project reports (DPRs) in respect of all the projects in the zone of consideration. I do not want to elaborate the process of preparing detailed project report here unless somebody really asks for it. DPR is a document that communicates all the details about the project under consideration, like project objectives, technical aspects, commercial aspects, financial aspects, economic aspects, possible risks, feasibility analysis, so on. However, I would like to direct you to two publication of Food and Agricultural Organisation (FAO). First one is a field guide for project design and implementation- with reference to project on women in community forestry. This guide will surely help one in designing projects effectively. See the details and the link below.

A field guide for project design and implementation - Women in community forestry
link: http://www.fao.org/docrep/t8820e/t8820e00.htm
Reprinted, 1991

The other one is Aquaculture project formulation authored by David Insull Senior, Fishery Planning Officer, FAO Fishery Policy and Planning Division, andColin E. Nash, Programme Leader, UNDP/FAO Aquaculture Development and Coordination Programme. This is available online at: http://www.fao.org/docrep/003/T0403E/T0403E00.HTM

This publication details the entire project cycle in aquaculture projects. The book is in two parts. First part covers introduction to projects and second part deals with project identification, preparation and appraisal.

Project formulation

(For detailed guidelines see FAO “Guide for Training in the Formulation of Agricultural and Rural Investment Projects”)

The Six Phases of Project Formulation
The three stages of the project cycle are Identification,Preparation and Appraisal. These can be further broken into six phases as below, which may have some overlaps.

Phase I:Preparatory Organization
Phase II: Reconnaissance and Preliminary Project Design
Phase III: Project Design
Phase IV: Analysis of Expected Project Results
Phase V: Project Documentation and Submission
Phase VI: Project Negotiation

PHASE I: Preparation for Project Formulation
Step 1 -Project inception
Step 2 - preparation of a formulation workplan.

The output is the programme of work for project formulation.

PHASE II: Reconnaissance and Preliminary Project Design
Step 3 - analysis/diagnosis of the situation from an overall perspective;
Step 4 - analysis/diagnosis of the situation from the perspective of the main interest groups involved;
Step 5 - assessing the future without the project
Step 6 - outline specification of a possible project.

The output of this phase is the preliminary design of a project, including identification of its main features, such as location, type of participants, main activities, size, timing, organizational structure, and management system. It may be called a project reconnaissance and preliminary design report and also called a project prefeasibility study.

PHASE III: Project Design
Step 7 - detailed technical and socio-economic investigations,
Step 8 - more precise definition of project objectives, targets, and design criteria,
Step 9 - design of individual project components,
Step 10 - design of project organization, structure, and management arrangements, and
Step 11 - project cost and revenues estimation, and first financing proposal.

The output of the phase is a full description and costing of the project, together with a proposed financing plan.

PHASE IV: Analysis of Expected Results

Step 12 - financial analysis,
Step 13 - economic analysis,
Step 14 - social analysis, and
Step 15 - environmental impact analysis.

The output of the phase is the determination of effects and impacts of the project.

PHASE V: Project Documentation and Submission
Step 16 - project documentation and submission.

The output of the phase is the project document.

PHASE VI: Negotiating the Project
Step 17 - project appraisal and negotiation.

The output is a project fully ready for implementation.

Project appraisal:
As we can see above, appraisal is the last step in the project cycle which involves negotiation.

The aims of appraisal are to:

1. evaluate the financial, economic, and social objectives of the project;
2. verify the procedures of the project formulation team;
3. recommend the conditions which will ensure that the project objectives are met; and
4. ensure that the proposed grant/loan/expenditure is in accordance with the policy of the financing institution.

Project appraisal is a process of verification of the situation in the field and a scrutiny of the report. The form of appraisal will vary according to the type of project. For production-oriented projects it will normally include the following aspects:
1. technical, for example, engineering design and environmental matters;
2. financial, for example, requirements for funds, the financial situation of the implementing agency, and of project beneficiaries when appropriate;
3. commercial, for example, procurement and marketing arrangements;
4. social, for example, sociological factors and expected impact of the project on certain groups (such as ethnic minorities and women);
5. institutional, for example, organization and management arrangements, the requirement for arrangements of technical assistance, project monitoring and evaluation;
6. economic, for example, project costs to the national economy, and the size and distribution of benefits.

The format and content of any appraisal report changes with the agency, bank, or corporation concerned, and is their internal reference document. Thus, its reflects their views, and not those of the project formulation team. It is on the basis of this report that the project is formally approved. It is also the reference document for the implementation agreement and subsequent evaluation made.

Here I give a link to WORLD Bank's appraisal report for State Highway project in Andhra Pradesh. You may download the appraisal report of the Bank in pdf format. The report gives all the analysis the Bank made based on the project report submitted to them. The report is an internal document prepared to assess the feasibility before approval.

The report is organised into 5 blocks:

BLOCK 1: Project Description

Covers Project Objectives, Project Components , Benefits and Target Population and Institutional and Implementation Arrangements

BLOCK 2: Project Rationale
Country Assistance Strategy Objectives Supported by the Project, Main Sector Issues and Government Strategy, Sector Issues Addressed by the Project and Strategic Choices, Project Alternatives Considered and Reasons for Rejection, Major Related Projects Financed by the Bank, Lessons Learned and Reflected in the Project Design, Indications of Borrower Commitment and Ownership, Value Added of Bank Support

BLOCK 3: Summary of Project Assessments
Economic Assessment, Financial Assessment, Technical Assessment, Institutional Assessment, Social Assessment, Environmental Assessment, Participatory Approach, Sustainability,
Critical Risks, Possible Controversial Aspects

BLOCK 4: Main Loan Conditions

Effectiveness Conditions, Others

BLOCK 5: Compliance with Bank Policies

ALso contains annexures that tells the top decision making body about the Bank's lending programme ongoing in the country in question and its experience thereof, country profile, etc.