Project Planning and Evaluation: A Comprehensive Guide

Posted on Oct 17, 2024 in Economy

Project Planning and Evaluation

Plan

Definition: A coordinated set of objectives, goals, and actions related to strategies and programs. It nests a series of policies and instruments to achieve an objective view and proposal.

Phases of the Plan

1. Technical level debugging.
2. Flexible and responsive to historical and current conditions.
3. Consider direction and control instruments to guide implementation.
4. Contain viable strategies for social change.
5. Contain a relatively high degree of decentralization of decisions.

Types of Plans

1. Comprehensive Plan
2. Regional Plan
3. Sector Plan
4. Short-term Plan
5. Long-term Plan

Planning

Definition: The process required to prepare the plan. Prescriptive techniques are supported by statistical projections and quantitative and qualitative assessments to anticipate a future in terms of objectives, goals, and programs established.

Characteristic Features of Planning

1. Rationality in the selection of options.
2. Consistency with the priority goals of development.
3. Association with goals.
4. Strategies for achieving goals.
5. Bounded desired future image.
6. Feasibility of implementing the plan.

Types of Planning

1. Administrative Planning
2. Economic Planning
3. Regional Planning
4. Rural Planning
5. Social Planning
6. Urban Planning
7. Sectoral Planning

Planning as an Instrument for Transformation

Planning is an instrument used to generate the transformation process. These are strategies that can generate change in objective reality. Planning should be rational and real.

Types of Rationality

1. Technological Rationality
2. Social Rationality
3. Early Rationality

Types of Reality

1. Systematic Reality
2. Continuous Reality
3. Neutral Reality

Types of Planning (Continued)

1. Anti-cyclical Planning
2. Centrally Planned
3. Compensated Planning
4. Economic Planning
5. Structural Planning
6. Global Planning
7. Social Planning

Planning Process

The process begins with the preparation of the plan, which considers the steps and stages that make up the actions for operational purposes. The planning process is conceived by the phases required under a methodology that can be simultaneous.

This may be known as the prospective view of planning, which is exemplified in the following diagram:

Prospective Vision of Planning

Program

Definition: It is organized as a specific objective, limited in time and space, for a set of activities that are interdependent.

Types of Programs

According to some authors:

1. Operating Programs
2. Investment Programs
3. Financing Programs
4. Social Programs
5. Identity Programs

According to other authors, based on methodological purposes:

1. Development Programs
2. Global Programs
3. Microeconomic Programs
4. Macroeconomic Programs
5. Regional Programs
6. Social Programs

Project

Definition: The smallest unit of activity that can be planned, analyzed, executed, and independently administered.

Project Features

1. Every project has immediate goals.
2. Its purpose is to classify and organize resources, action-oriented.
3. Projects are implemented in non-routine activities.
4. A project requires special administrative measures for achieving its objectives.

Classification of Projects

We have two classifications:

1. According to Félix Rosenfeld:
   1. Study of the circumstances and problems that motivate the project.
   2. Defining the objectives of the project.
   3. Market research.
   4. Technical study.
   5. Study of the organization and project management.
2. According to the Latin American Institute for Economic and Social Planning (ILPES):
   1. Market research.
   2. Technical study.
   3. Financial analysis.
   4. Study of economic evaluation.
   5. Implementation plan.

UN

1. Study of the circumstances and problems that motivate the project: This consists of locating the project in the economic environment where there are human resources, activities, and institutions within a useful and necessary framework.
2. Defining the objectives of the project: At this stage, accurately determine the analysis that identifies the actions to be taken in implementing the project.
3. Market research: This is the most detailed part of a project because its results are the starting point for other studies. It must be realistic because it sets the minimum and maximum dimensions of the project.
4. Technical study: This describes the production unit (or service) and includes two types of groups:
   1. A core group: The size of the project results from the production process and its location.
   2. A group of complementary elements: These describe the physical work, the organization of production, and the timing of the project.
5. Financial analysis: This includes the investment projection of revenues, expenditures, and the financing options for the whole period of implementation and operation of the project.
6. Economic evaluation: This is the assessment of the advantages and disadvantages of allocating resources to the project for its implementation. It compares the benefits and costs with different but equally viable projects.
7. Implementation plan: At this stage, investment and financing disbursements are focused on estimated chronological forecasts to coordinate the procurement of materials, equipment, assembly, and construction tasks for the implementation of the project.
8. Organization and project management: For any project, it is always necessary to consider in advance how the project will be organized and directed, both internally and in terms of its influence on its environment.

Project Types

1. Central project: Contributes directly to the implementation of all programs of the institution or company.
2. Joint project: Its purpose is to contribute to the realization of two or more programs of the institution or company.
3. Specific project: Directly and exclusively supports the realization of the goal of a program for an institution or company.

Project Scope

Overall, there are six ways to evaluate a project:

1. Commercial feasibility study: Indicates whether or not the market is sensitive to the good or service produced in the project. Acceptability would determine the delay or rejection of the project.
2. Technical feasibility study: Analyzes the material, physical, or chemical possibilities to produce the good or service you want to build the project.
3. Legal feasibility study: Reviews the legal restrictions that prevent its operation in terms of not having foreseen during implementation.
4. Management feasibility study: Determines if there are defined minimum conditions necessary to ensure the feasibility of implementation in the structural and the functional aspects.
5. Financial feasibility study: Determines the profitability of all ROI measured in monetary basis for approval or rejection of the project.
6. Environmental impact feasibility study: Reviews the quality of life and future of the physical location where the project was implemented to prevent negative impacts or compensate for damage caused by an investment.

The Process as a Project

The process recognizes four stages:

1. From idea: Operationally, the organization is structured under a permanent scheme of new ideas, i.e., under a form of benefit management. The idea of a project, rather than a fortunate occurrence of an investor, is the realization of a diagnosis that identifies ways of solution.
2. Pre-investment: It performs the following feasibility studies:
   1. Profile feasibility study: Compiled from existing information and common views based on experience. It determines whether there is any reason to justify the abandonment of an idea before assigning resources.
   2. Pre-feasibility study: Mainly based on secondary sources to define key market variables, alternative techniques of production, and financial capacity of investors.
   3. Feasibility study: Based on primary sources. Qualitative variables are minimal, so the calculation of financial and economic variables must be demonstrative enough to justify the values of the aspects of the project.
3. Investment: There are two main sections:
   1. Stage of project formulation and preparation: Its goal is to define all the characteristics that have some degree of effect on the flow of cash income and expenses to calculate its magnitude. The following sub-steps are distinguished:
      1. Stage information: The necessary information is collected for the project. If absent, it is created from existing estimates.
      2. Systematization stage: The construction of cash flow is made, which can distinguish three types depending on the subject of the evaluation:
         1. Cash flow to measure the profitability of the entire investment.
         2. Cash flow to measure the profitability of the resources contributed by the investor.
         3. Cash flow to measure the ability to pay its obligations under the terms of borrowing.
   2. Stage of project evaluation: Well-defined methodologies determine the profitability of the project. It distinguishes the following sub-stages:
      1. Measuring project profitability.
      2. Analysis of qualitative variables of the project.
      3. Sub-raising stage of the project.
4. Operation: The investment is materialized and running, from the beginning, according to the provisions of each of the stages of the project.

“When calculating profitability, it is based on cash flow projected on several assumptions that determine the qualitative variables. These variables determine the decision of whether or not to proceed with the project. Based on the above, awareness is raised of the elements that generate the highest possible performance to ensure the return calculated in the project.”

Table of Economic Viability

Market Research

Market research analyzes and determines the supply, demand, and prices of the project. Operating costs are expected to simulate the future situation and specify the policies and procedures to be used as a business strategy.

Methodologically, four aspects are examined:

1. Analysis of consumer theory and market demand for current and projected: Aims to characterize current and potential customers, identifying their preferences, habits, motivation, and so on. The demand analysis quantifies the volume of goods and/or services that consumers could purchase from the project output.
2. Competitor analysis and offers current and projected market: It is necessary to know the strategies that the competition continues to build on. Advantages and disadvantages are avoided when you have good information to calculate the possibilities of markets and the likely cost factors involved.
3. Analysis of marketing the product or service generated by the project: It simulates a series of strategies to assess reactions and variations during the operation of the project. The decisions taken here will have a direct impact on the profitability of the project by the economic consequences that are manifested in the revenues and expenditures of the project.
4. Analysis of suppliers and current input prices and projected: It determines the success or failure of the project as it has to determine the availability of required inputs to ensure supply.

Technical Study

Technical study aims to provide information to quantify the amount of investment and operating costs. One of the conclusions of this study is to define the production function that optimizes the use of available resources in the production of goods and/or services.

The determination of equipment requirements for the operation and the amount of the corresponding investment requirements determine the dimension of physical space requirements for normal operation.

The definition of the size of the project is critical to the determination of investment and project costs.

Study of the Organization

Knowing the structure of the project is critical to defining the needs of qualified personnel to manage and, therefore, more accurately estimate the indirect costs of executive labor.

This study analyzes the financial accounting systems and procedures of information, planning and budgeting, personnel, procurement, credit and collection costs associated with specific operations.

Financial Analysis of the Project

The purpose of this stage is to order and systematize the information of a monetary nature to develop the analytical tables and additional data for evaluating the project and background that determine profitability.

The systematization of financial information identifies and sorts all the factors of investment, costs, and revenues that can be derived from previous studies.

Operating revenues are derived from information calculated from projected prices and demand from market research, the conditions of sale, the sales estimate of waste, and the calculation of income during the period of evaluation.

Project evaluation is conducted on the cash flow estimate of the costs and benefits of the project.

Environmental Impact Study

As in every production process, quality management requires input suppliers to develop end products that meet quality standards. Therefore, it is important to know the impact that the goods may have on the environment where the products of the project are produced and consumed.

To determine the impact, we have the following methods:

1. Qualitative method: Identifies, analyzes, and explains the positive and negative impacts that could arise in the environment with the implementation of the project. The hierarchy and valuation of these effects are based on subjective criteria, so their use is associated with feasibility studies that are made in the profile stage.
2. Qualitative method with numbers: Weighting factors are associated with ranges of numerical values to environmental variables. Its base is a subjective factor that assigns scores for each of its variables.
3. Quantitative method: Identifies the mitigation measures associated with all or part of the benefits of avoided damages in cash flows to minimize the total project cost, which makes it permissible to a certain level of residual environmental damage.

Social Profitability of a Project

The inclusion of monetary factors to environmental effects has the following methods:

1. Contingent valuation method: Seeks to determine the willingness to pay people for the benefits that the project is expected to produce.
2. Avoided cost method: Considers the cost associated with an externality that should be borne by the project that causes it. The costs incorporated into the cost of remedying the damage within the cost-benefits of investment avoid the rest of the community.
3. Hedonic price method: Seeks to determine all the attributes of a good that might explain the price people are willing to pay for such goods and/or service the project.