Saeed Ahmed Rana

1. Overall Framework for Project Preparation and Appraisal Saeed Ahmed Rana ADFD/WB Project Preparation and Appraisal Workshop Abu Dhabi, April 2010

2. Why A Project? • This is an instrument to provide assistance to the billions in the developing world, who need to overcome poverty and raise their standards of living. • Investment projects contribute to the sustainable socio-economic development of member countries. • Such investment helps borrowers make the best use of their resources – natural, financial and human – to alleviate poverty, protect the environment and enhance effectiveness of public and private sectors.

3. Why project preparation and appraisal? • Project preparation and appraisal processes play an important role in enhancing the developmental impact of investments and building government capacity in national planning and investment. • These processes are not intended to be document driven but to bring together multiple perspectives on a project and various tools of analysis needed to assess, monitor and improve on the different activities and expenditure components involved in the project. • A strong foundation of preparation and appraisal can ensure better performance and disbursement during the life of the project and is the primary framework for conducting project supervision and monitoring.

4. A Framework for Project Preparation and Appraisal I. Project Cycle II. Project Rationale and Preparation III. Borrower Roles IV. Donor Roles V. Project Appraisal Costing Analysis Environmental and Social Assessments VI. Assessing Project Quality VII. Early Signs of Project Failure

5. The Bank Project Cycle Project Cycle - The project cycle starts with a development strategy based on selectivity and comparative advantage. It is targeted to country’s development objectives. It is followed by: • Identification • Preparation • Appraisal • Negotiations and Approval • Implementation and Supervision • Completion and • Evaluation

6. Stages of the Bank’s Project Cycle (I) • Country Assistance Strategy-the Bank proposes lending and advisory services to help countries identify their priorities and reach their main development goals. • Identification-Projects are identified that support country strategies and that are financially, economically, socially and environmentally sound. • Preparation-The Bank provides policy and project advice along with financial assistance. Clients conduct studies and prepare final project documentation. • Appraisal-The Bank appraises the economic, technical, institutional, financial, environmental and social aspects of the project. The project appraisal document and draft legal agreements are prepared.

7. Stages of the Bank’s Project Cycle (II) • Negotiation and Board Approval-The Bank and Borrower agree on loan or credit agreement and the project is presented to the Board for approval. • Implementation and Supervision-The Borrower implements the project. The Bank ensures that the loan proceeds are used for the loan purposes with due regard for economy, efficiency and effectiveness. • Implementation and Completion-The Bank team evaluates the performance of both the Bank and Borrower. • Evaluation-The Bank’s Independent Operations Evaluation Department prepares an audit report and evaluates the project. Analysis is used for future project design.

8. Project/Lending Types 8 • Development Projects can be original projects, pilot projects or repeater projects • Pilot projects test the design criteria and implementation strategy of new technologies before embarking upon a full scale investment. • Repeater projects adopt the design and practices of a successful project for the same Project Development Objective (PDO) under similar implementation conditions and environments. • A SWAp is a sectorwide approach that supports locally owned programs for a particular sector in a comprehensive and coordinated manner. SWAps promote increasing reliance on country systems and procedures and use a common framework for planning, implementation, expenditure, and monitoring and evaluation • Project Lending is primarily the Specific Investment type Loan (SIL). Lending is also extended for sector investment, maintenance, financial-intermediary and technical assistance projects.

9. Project Identification • Birth of a Project • Country Development Plans • Borrower Specific Request • Unforeseen Conditions (e.g. natural calamities) • Set Project Development Objectives • Basic Consideration: • If the project is successful, what will be its principal outcome for the primary target group? • General Guidelines (see next slide)

10. Project Development Objective Guidelines • What group is targeted directly by the project as the key recipient of project benefits? • Immediately after the close of the project what problem would have been solved for the target group? • What will the target group be doing differently after the project that should make it better off? • The PDO should focus on the outcome for which the project reasonably can be held accountable, given the project duration, resources and the approach. • The PDO should not merely restate the project’s components or outputs. Efficient use of inputs or delivery of outputs must be translated into outcomes or results for the primary target group. • KISS Your PDO (Keep – It – Short - and - Simple), concise and meaningful. • Don’t try to reach the sky in one go. • PDO should not encompass higher level objectives that depend on other efforts beyond the scope of the project.

11. Strategic Areas of Focus for the Bank • Achieving results on the ground • Country capacity building • Measuring and reporting on results • Enabling environment • Beneficiary participation/ownership • Communication/messaging on results • Gender balance • Harmonization with MDBs

12. Bank’s Communication/Messaging on Results • Senior Management attention • Recognition • Tools, IT systems, RX Platform, CPRT • Training, KL • Resources Harmonization with MDBs/Donors

13. Project Preparation - Borrower Role • Review identification and results • Initiate project preparation • Identify/set institutional framework • Determine need for TA • Set up project preparation office • Appoint project consultants • Inter-agency/departmental coordination • Prepare a Project Information Paper (PInfP) • Approach donors

14. Project Preparation - Donor Role • Assign project preparation team • Review borrower progress in project identification/preparation • Identify shortcomings and suggest actions to complete • Review alternative designs and justification for the selected design • Prepare Interim Information document (PID) based on PinfP • Set up peer reviewers • Review consultant’s progress and propose strengthening, if needed • Discussions • Borrower • Stakeholders • Potential donors

15. Sustainability Considerations At Preparation • Post project needs • Follow-up to sustain benefits • Institutional arrangements • Implementation • Follow up • Budget for O&M (Operation and Maintenance) • Beneficiary participation • Are beneficiaries identified? • Are they organized? • Are they willing to participate in project activities? [Participation is important to ensure ownership and sustainability.] • Any NGO participation?

16. Project Preparation • Update Project Information Document (PID) • Field visit to assess preparation progress • technical, economic, environment, social studies • Completion of feasibility studies • Discussions with probable/potential co-financiers • Prepare Project Implementation Plan (PIP) • Project components • Implementation plan • Monitoring and Evaluation (M&E) Arrangements • Prepare Project Operation Plan (POP) • Guidelines • Arrangements for effective project operation • Risk analysis and mitigation measures • Performance Indicators PI. (see next slide)

17. Performance Indicators and Guidelines • Fewer is better. Identify a limited set of indicators for the Project Development Objective (PDO)– both qualitative and quantitative • However, make sure that the selected indicators measure all PDO dimensions • Indicators should be S-M-A-R-T • S Specific • M Measurable • A Attributable • R Realistic • T Targeted

18. The Project Concept Note (PCN) Draft and Circulate Project Concept Note [PCN] *hyperlink • Three to four page document • It focuses on project concept, not design • It is prepared soon after project identification before project preparation costs become substantial Functions • Examine the strategic rationale for Bank involvement • Promote consideration of alternative project concepts • Seek a go/no-go decision from the Country Director • Obtain early guidance/agreement on issues and approaches • Flag risks and potential mitigation measures • Seek early guidance on potential safeguard issues, consultation and disclosure • Agree on a resourced estimate, schedule and team [See PCN Template 1]

19. Sample PCN Cover Sheet

20. Preparation Completed • Quality Enhancement Review (QER) • Consistency of design with approved project concept • Quality assurance of the technical aspects of the project • Establish fiduciary (Financial Management and Procurement) requirements that need to be met by appraisal • Review safeguards needed and specify project’s environmental and safeguard classifications and the requirements to be met by appraisal. • Review project feasibility and sustainability aspects. • Propose actions to update PCN At Preparation stage all technicaleconomicfinancialinstitutionalsocial environmental M&E O&M aspects must be fully analyzed with viable options presented • PCN review • Discussion at management Level • Follow up on PCN review and finalize PCN • Obtain management’s authorization for project appraisal.

21. Project Appraisal Project Appraisal is the process of assessing, in a structured way, the case for proceeding with a project or proposal. It involves comparing various options, based on economic and financial viability, technical feasibility and social and environmental consideration/justification Pre-Mission Actions • Finalize appraisal arrangements • Assign appraisal mission members • Ensure all subject matter specialists are included • Preferably Bank regular staff – consultants only in specialized areas • Ensure staff continuity until mission accomplished • Draft Project Appraisal Document

22. Pre-Mission Actions Critical elements of PAD are: • Country background • Sector background • Project Development Objectives (PDO) Project Design (Tech. Institutional, Financial, Social, Environmental, Procurement, M&E) • Project cost and financing • Project analysis (economic, financial) • Implementation arrangements (PIM, Institutional etc.) • Sustainability consideration

23. PAD Cover Sheet (1)

24. PAD Cover Sheet (2)

25. Pre-Mission Actions (Contd.) • Prepare issues paper • Explain unresolved issues and proposed solutions • Hold decision meeting • Seek managerial guidance on unresolved issues • [Note: Above two steps may be combined with activities under PCN Review] • Finalize appraisal arrangements with the government, borrower and co-financiers, if any. • Prepare mission TOR

26. Appraisal Mission Field Activities • Field check design assumptions • Ensure that all information in the draft PAD is correct – make changes as necessary to make it a factual document • Reach agreement with the government/borrower on all project aspects • Agree on holding Medium Term Review (MTR) in due course • Prepare an aide memoire summarizing main findings and understanding reached by the mission, mainly on: • Policy issues • Supplementing and strengthening project components with special reference to: • Social • Environmental • Procurement arrangements • Financial and Economic Analyses • Safeguards

27. Field Mission Completed • Institutional arrangements • NGO role, if any • Implementation schedule • Funding arrangements • M&E arrangements. • Actions to be completed by government/borrower and the donor to complete project appraisal • Confirm Aide Memoire (AM) findings and agreements with the government/borrower

28. Managing for Results: The Results Chain Time Lasting Impact? Getting Desired Results? Doing them right? Level Country/ Sector Long term Outcomes Eg: MDGs etc Doing right things? Learning loop: evaluation

29. Results Framework (RF) • RF is the program logic that explains how (PDO) is to be achieved. • It links PDO, outputs, outcomes to be delivered and indicators used to verify achievement. • RF is a management tool for all stages : • at the beginning for strategic planning • during implementation for day to day management and evaluation of project progress • near the end for overall project evaluation and feedback.

30. Example of Results Framework

31. Post-Mission Activities • Management approval of mission findings • Convey management approval and the loan conditionality to the government/borrower • Complete outstanding actions agreed in the aide memoire • Determine if post appraisal mission work is needed • Update appraisal document • Coordinate with the government/borrower • Negotiations • Board approval • Loan agreement signing • Project launch workshop

32. Assessing Project Quality • A checklist of commonly found deficiencies in project preparation is given in the next slide. • A focused and timely Quality Enhancement Review (QER) should help in making up these deficiencies before the project is appraised. • A second look at these issues would determine, among others, if post-appraisal work is needed.

33. Checklist of General Deficiencies in Project Preparation • Overambitious and non achievable Project Development Objectives (PDO) • Project design not fully relevant to PDO • Project implementation period is not long enough • Mismatch with country context • Inflexibility in project design • Complexity of project design compared to absorptive capacity of the government, including project cost and post project activities • Inadequate M&E arrangements • Weak governmental institutions • Poor risk analysis • Lack of beneficiary participation • Weak ownership by the government • Weak sustainability analysis

34. Early Signs of Project Failure • Normally, with the approval of a project by the Board and signing of the loan agreement, the appraisal team signs off with mission accomplished satisfaction and the ball bounces to the implementation court. • As noted in the project cycle steps, the next step is equally important for the parties concerned. • Early signs of implementation issues should be carefully monitored. • The main issues are listed in the next slide.

35. Early Signs of Project Failure • Undue delay in project effectiveness [recipient country’s legal requirements]. An initial test of the recipient’s commitment to the project objectives • Delay in the establishment/appointment of project implementation unit (PIU) • Delay in recruitment of project consultants • Delay in holding a project launch workshop. This is the venue to straighten out financial, procurement and startup issues • Slippage in the government’s ability to meet obligations in the conditionality package including funding • Absence of a champion in the government for achieving project objectives

36. Corrective Measures Investigate Reasons • Procedural Issues • Lack of Political Will • Lack of Commitment • Procedural Issues • Effectiveness delay • Parliamentary Approval – • Pursue with Govt, but bear with it • Covenant Compliance Delay Issues • Appointment of PIU, Consultants –Provide assistance as needed. • Co financing – Agree with Govt on initiating implementation of components not affected by co financing • Lack of Political Will • Lack of Commitment • Non compliance of Covenants

37. Corrective Measures (contd.) • Inability to provide counterpart funding • Persistent procurement delays • Poor performance of PIU and lack of action by Government to strengthen • Beneficiaries’ apathy towards project goals Lack of political will and commitment are serious matters. Donor should not ignore the above signs and should: • Discuss with Government restructuring or rescoping the project • Suspend disbursements partially or totally and put pressure on the Government to act • Based on non compliance of the covenants consider punitive actions including cancellation.

38. Mid Term Review (MTR) • Based on past ISRs, prepare an Issues Paper • Discuss issues and proposed solutions with the management. • Constitute MTR team with the specialists to deal with weak areas • Prepare Mission’s TOR emphasizing in-depth review of the weak areas • If implementation progress is satisfactory and likelihood of achievement of PDOs is satisfactory, prepare an action plan to address implementation issues • If implementation issues are serious and PDO achievement is likely, consider: • Project restructuring • Project rescoping • If above actions change PDO,seek Board approval

39. Third Public Works Project PDO • Provide needed infrastructure to improve services and environmental conditions • Creation of short term employment • Community involvement in project selection, preparation and implementation • Development of local contracting and consulting business Strength • Well designed Repeater Project • Clear objectives applying lessons from previous projects • Strong government support • PMU gained experience and responded to implementation issues (e.g. unexpected events such as sharply increasing costs of construction materials) Weakness • No major weakness. Presents a good model for Repeater Projects and Pilots.

40. Groundwater and Soil Conservation Project PDO • Improve groundwater conservation in farming areas and increasing surface water availability • Improve water use efficiency • Improve recharge and protection of watersheds • Support groundwater management framework and institutions Strength • PDOs are strategically strong but not fully supported by project design • Project pursued needed policy objectives (increasing fuel price and reducing subsidy) • Institutional strengthening e.g. IAS Fed of WUAs, quality control and agreement with beneficiaries on water usage Weakness • M&E design – inappropriate indicators • Weak project consultants (funded by other agency with no Bank control)

41. Second Rural Access Project PDO • Reduce isolation of poor rural people by giving them better access to markets and services Strength • Result framework is well designed • PDO very relevant to government’s Poverty Reduction Strategy Paper (PRSP) • Provides impetus to sound institutional framework Weakness • Beneficiary participation low • Poor preparation – premature Board presentation - first year’s design not ready • Weak risk analysis - particularly related to benefits to minorities who are the main beneficiaries - elite capture prospects

42. YemenRural Energy Access Project PDO In pursuance of GoY’s commitment to an agreed nationwide rural electrification program and the strategy set out in PRSP, the PDOs are to: • Improve electricity access of rural population in the selected areas of Yemen in a financially sustainable manner • Demonstrate feasibility of increasing access in the off grid areas using solar energy. Strength • High level of borrower commitment; Institutional and legal framework in place; significant local funding • Clear objectives relevant to sector development strategy • Achievable and monitorable objectives; satisfied consumer population is a good indicator of desired outcome • Simple design with a low cost pilot component for sustainable solar energy use • Substantial co-financing by IDB,AFD, Germany, France ($80 m+ compared to $25 m by IDA and $11 m by government) indicates confidence in project design • Targeted good training program Weakness • Selection of beneficiary areas may become an issue. • Financial sustainability RESPs will be difficult to achieve. A combination of tariff adjustment and government subsidies needed to achieve full financial viability. • Keeping end use tariff affordable to rural consumers is a High risk • Need to develop a suitable solar energy system with little outside help

43. Summing Up • PDOSimple, real, achievable - KISS it • PreparationComplete with full justification-- Resource,Availability,Institutional Framework,Risk,Analysis,Sustainability • DesignFlexible,Relevant,Proven TrackRecord • ParticipationBeneficiary,Government • Ownership Beneficiary,Government • AppraisalProject Ready for Implementation • ResultAchieve PDO • Final Word Beneficiary Satisfaction

44. Project Preparation Exercise Example: Yemen Water Sector Exercise: For information available from projects in our files, let us set up PDOs for a follow on project to the Irrigation Improvement Project in Yemen. Sectoral Objective: Enhance water resources production in Yemen Lessons Learned in Yemen Water Sector: • Give adequate time for institution building, particularly for the participatory approach • Have M&E systems in place right at the start • Clarify cost sharing by beneficiaries during project preparation • A previous project showed that it is possible to make significant water savings through improved irrigation technologies up to 30% in localized on-farm irrigation systems • Efficient conveyance, distribution and micro-irrigation technologies require decentralized structure and cost sharing by beneficiaries.

45. Project Preparation Exercise Contd. PDO: Achieve sustainability of past investments in Wadi irrigation development in Yemen. • If achieved, will it partly contribute towardsmeeting the sectoral objective? • Does it conform to the guidelines in Slide # 10 • If not, what should be the PDO? • Propose components to achieve the suggested PDO

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