Basics of project planning

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Lecture 7: Basics of

Project Planning

Learning Objectives

• Part 1: Introduce concepts,

procedures regarding the analysis of agri/aquaculture projects

• Part 2: Sources of funding and

tactical objectives

The Project Concept

• All projects suffer from poor

• designs effective pricing policies

• mobilizes necessary resources

Why is Planning Required?

• Waste is a tragic loss to poor

• financial resources are expended

• capital assets are created

• benefits hopefully appreciate over time

(e.g., World Bank irrigation projects)

• can even be divided into smaller

subprojects (e.g., CJEDP)

• usually involve local counterparts

• sometimes funded and administered by two different governments

Private Investment (Firms)

standpoint

structure

long-term financing

Project Planning

planning

investments in the area

growth? How will they affect your

project? How much can be spent over

duration of the project?

investment?

Project Planning

numerical indicators of value of costs and

returns (ROI, NPV, IRR, etc.)

but also national income, income of typical

farmer

(actual price at which goods and services are traded)

better indicator of value (shadow price) is

used (shadow price = value based on scarcity

of the resource)

Project Planning

assistance to both types of projects

investment from outside sources (e.g., the World Bank)

(local development banks); however, criteria are

different

the country and outside

project, create a list of possible funding sources available to aquaculture projects

Project Planning Targets

implications than private investment

projects (e.g., social benefit, national

income)

policy or production targets

planning is often complicated by a need to coordinate with other plans and

investments

of investment funds, foreign exchange

rates, labor issues, etc

The Project Format - Its

Advantages

• Advances/assesses by organizing info from many sources

• gives ideas on cost, year by year, effects on

participants, possible incentives

• allows better judgement re-organization,

administration problems are faced head-on

• gives mgrs/planners better criteria for monitoring progress/implementation

• encourages checking-out other alternatives

• controls reliability of data

• format well-suited to production projects cut investments, valued costs/benefits

w/clear-Project Preparation and

Analysis

taken into consideration can its financial impact be truly realized - Why?

continually question technicians as to

whether all aspects have been considered

The Project Cycle

• Five phases:

• 1) identification (finding the project)

• 2) prep/analysis (Does it have merit?)

• 3) appraisal (critical review,

independent)

• 4) implementation (getting it started)

• 5) evaluation (success or failure)

Identification Phase

sometimes politicians

to extend on-going programs

anticipated lack of supply of some product

market trends, import statistics

Preparation/Analysis Phase

project to the point of appraisal

plan

suggest alternatives, indicate most

efficient plan, convince

analyseis (better now vs later)

Preparation/Analysis Phase

time and money

longer

Appraisal Phase

plan to assess its logic/value prior to

release of big money

outside the agency

Implementation Phase

project that can be implemented to the benefit of recipients

plan, the easier to implement

beneficial

though, considering changes in prices and technology

the project, the more changes will occur

Evaluation Phase

failure elements of a project with

relevance to the future

but sometimes only at the end

etc

for this or use outsiders

not, were the objectives realistic?

Evaluation Phase

arrangements suited to the conditions?

out?

explored?

appropriate?

to make it more flexible?

Accuracy of Project Analysis

investment decisions; however …

results?

reviews at end of implementation phase

prices

inappropriate technology, poor management, delays

Why Projects Often Go Wrong

success, it is likely due to poor project

design and faulty implementation

determine the reasons for poor

performance

Part 2: Sources of Funding

Introductory Comments

• Setting up an aquaculture project

typically requires substantial

investment

• financial implications must be

addressed well in advance

• we will look at the likely costs of such projects

• focus on ideas which are most critical

Strategic/Policy Objectives

of Aquaculture Projects

national income via increased taxation

securing of resources

improving balance of trade, transmigration

the good against the bad

Socio-economic benefits derived from

Demand for Materials

Additional Supply

Improved Std.

Of Living

National/Community Development

Foreign Exch Savings

Lowering of Prices

Increased Foreign Exchange Reserves Stimulation of Economy

How Aquaculture Projects

Attract Foreign Investment

plants, etc.)

materials

Investment Strategies

vertically integrated firms to small backyard operations

trends, look at product cycling

in order to receive better future return

Investment Strategies:

smallholders

other activities

loss of income from established crops

keep impact to a minimum

cover periods of no aquaculture activity

Aquaculture and Farm

Income

raise their income

for less input (more forgiving)

yields

Overlap Between Private

Sector and Public Sector

effort

planning)

seminars

Tactical Development

Objectives

of return (ROI)

cashflows, net present value

capital employed:

depends upon return expected by shareholders

Tactical Objective:

debt:equity

institution vary according to interest rates,

duration, size of loan

“gearing ratio” (debt:equity ratio)

interest rates are high

Tactical Objectives: rate

of return

compared to other ventures

returns to be attractive/worthwhile

over normal return

technology, the higher the risk premium

Funding Sources

loans (World Bank, Commonwealth Development Corporation, Banco International de Desarollo, etc.)

Japanese, Norwegians

grants

Funding Sources:

capital assistance

extended repayment, concessionary in nature

loans are for aquaculture

World Bank

benefit is in reducing trade imbalances

technology

Funding Sources:

credit institutions

smallholders

cooperative banks with numerous branches

minimum bureaucracy

provided

credit should also be provided (not often)

Funding Sources:

private investment

equity

companies (CAIM)

capital needs of aquaculture firms typically

too small

Funding Sources:

venture capital

Funding Sources:

joint ventures

investment via aquaculture

climate

owner and foreign investor

limited local market (product too expensive)

Funding Sources:

joint ventures

foreign partner providing technical expertise

within country, project usually started as a

pilot

should construction start immediately

Funding Sources:

joint ventures

• Most loan institutions consider cash king

• consultants taking an equity position can

seldom convince them to recognize their

consulting rates

• equity fund/venture capital partners are

very skeptical of anything but cash

• they will want to see the company

established, land purchased, business plan, financials, distribution of shares,

compensation packages, etc prior to taking the plunge

Evaluating Joint Venture

Partners

• Partners can be cash or in-kind (e.g., land) participants

• if in-kind (“sweat equity”), the value of

shares is often less than par value

• if parnters come in late, they don’t receive

a 1:1 (par) disbursement of shares

• if land is to be used as equity, have it

appraised by three parties: your own

appraiser, the land owner’s appraiser, and

by a neutral third-party (take the average)

Other Funding Issues

• Aquaculture’s bad track record on debt

service, loan payback (examples)

• simple ignorance of aquaculture on part of funding agencies

• most companies go bankrupt due to lack of cash (undercapitalized), not lack of profits

• financial crisis often result in rapid failure, whereas biological crisis can be solved

• recognition of adequate funds for

implementation phase is critical