The Cycle of a Project

The planning process of developing a new product, idea or service has been described in many ways. Here we look at the project cycle described by James Matson, Cooperative Marketing Specialist, in The Cooperative Feasibility Study Process, USDA Cooperative Services. Your group will most likely go through these five phases:
  • Identification: Preliminary idea creation, planning, pre-feasibility studies, refining ideas.
  • Deliberation: Formalization of a group, conducting feasibility studies, decision to proceed with the project.
  • Implementation: Securing capital, construction, obtaining permits, hiring management.
  • Operation: Mobilization of manpower, equipment and materials to carry out the plan.
  • Evaluation: Determining what worked and did not work (in preparation to plan again).
This description is chronological, but it does not signify that equal amounts of time will be required for each stage in the project cycle. The time spent on each will depend on the particulars of the project being undertaken and the group involved. It can take two years, or even more, for a cooperative project to move from the initial planning stages to the evaluation phase.

This project cycle includes deliberation as one of the stages in the project developmental process. During this time, the efforts of the planners are focused on determining whether or not they should proceed with the project. The study of feasibility is conducted during this stage, before the group has made decisions to implement the project or not. In addition, planners need to know what arrangements contribute to a successful project. Towards these ends, the feasibility study serves as an important tool for the group’s deliberations.

Many projects are quite expensive to undertake. The projects involve business operations, which differ from those of the members’ individual businesses. Often, people are unfamiliar with the risks that accompany these operations. The feasibility study allows groups developing a business idea to preview potential project outcomes and decide if they want to continue developing the project. Though the cost of conducting a feasibility study can seem high, almost always these costs are relatively small when compared to the total project cost. A small initial expenditure on a feasibility study by a group can help to protect larger investments later.

What Is a Feasibility Study?
Feasibility studies are useful tools for a wide range of projects. Evaluation of a new business idea, both from newly formed groups and existing businesses, is their most common application. Studies can help groups decide if they should expand existing services, build or remodel facilities, change methods of operation, add new products, or even merge with another business. A feasibility study can assist decision makers whenever they need to decide among alternative opportunities.

The proposed project will usually need investment in the form of risk capital from members and debt capital from banks and financiers to become operational. These potential investors typically require an objective evaluation of the validity of the project concept. A feasibility study conducted by someone who does not have a vested interest in the project outcome can provide this assessment.

The creation of a feasibility study, although part of the larger project cycle, contains a process in itself. The four key factors in the feasibility study process can be characterized as project definition, groups characteristics, group decisions and feasibility study decisions.

Project Definition
For a cooperative project to be undertaken, a group of people must feel the need for solving a problem or taking advantage of an opportunity together. The project must be understood, and the group members must believe that reaching the goal is possible. In order for a project to succeed, according to Matson, the project must be:
  • a. defined, understood, described and quantified;
  • b. significant, broad and large enough to warrant group action;
  • c. capable of solution from a purely economic and financial point of view; and
  • d. economically and socially fitting (cultural/anthropological) or capable of being considered a reasonable solution by members of the group.
When all four of these elements exist in a project idea, then a successful project can be achieved from the initial idea. If all four of these do not exist, then the idea needs to be revisited before continuing to develop a project.

Group Characteristics
A group that is large enough to achieve a “critical mass” must be interested in pursuing the project for it to have any possibility of success. The number that is “large enough” will depend on the product involved in the project, the scope of the project and the
economic resources available to the members. Obtaining the support of enough members is a critical element in the development of a cooperative project. This support by the “critical mass” of interested persons is not merely a head-counting game. A small number of people who are truly committed to the project can have a higher chance of success than a larger number who are only partially committed to the project. Before proceeding, the group must assure itself of support for the project.

Attendance at meetings and survey results expressing support or willingness to work to plan the project all are acceptable means of demonstrating support. Financial backing of the project by members is perhaps the best single method a group has for expressing its support. One of the tasks of a feasibility study is to determine what number of members or volume of product is required for the project to proceed.

Advisors and consultants are useful aids to group formation. This assistance may come from outsiders, such as Extension staff, lenders, etc., who interact closely with the group. These advisors can help the group focus its ideas. They also can help to assure that the ideas of all the members are heard and considered. Another role an advisor can play is helping the group with its own internal organization and planning.

While outside advisors can be useful to the group, they should not drive the process. The project should be developed for the group’s benefit. The leadership for the project should come from within the group. The group should make the final decisions on a project’s direction.

Group Decisions
Strong leadership is essential for the process of defining and understanding a problem and deciding if further studies should be conducted. Informed leadership with enlightened self-interest as well as a commitment to a group action is what is needed, according to Matson. Leaders must press forward and keep all parties in some degree of creative stress until there is a decision to proceed or not.

Group decision making is often one of the greatest initial challenges that a group faces in developing a project. Applying these guidelines to the group’s decision should help with the sometimes difficult task of creating a system for making decisions.
  1. Unanimous agreement is not required before going forward.
  2. Never make a decision to proceed based solely on negative reactions; for example, out of resentment toward middlemen, bankers, etc.
  3. A few reliable and loyal persons are superior to a larger number of doubtful persons.
  4. Extravagant promises of what can or will be done should be avoided.
  5. Expectations of participants should always be based on the economic and social realities faced.
  6. Make each decision only once.
Given difficulty in making a decision, some groups try to avoid it altogether. This tactic is not recommended. Not making a decision or choosing to postpone a decision are decisions in themselves. There is always more information that can be gathered; however, there is also a cost to taking more time to further deliberate. Sooner or later, a decision must be made. The proper moment is when further investigation costs more than new information is worth.

Key Questions that Need Answers
1. What is the need for the project?
  1. What product or service is the project about? What is the essence of the project? This should consist of one or two concise statements. (There can be more than one idea in which the group is interested; however each of these should be clearly defined.)
  2. What is the group’s comparative advantage? What is the market demanding, and what do producers do well?
  3. How will the project benefit the members and the community?
  4. Have the potential members determined the need or is it being promoted by others from outside the group?
2. What is the potential membership base and volume of product for the project?
  1. What is the support by producers, community and potential leaders?
  2. What is the number and size of producers who are willing to participate?
  3. What volume of product will be included in the project?
  4. What future expansion is possible?
3. What is the market and who are the potential competitors for the project?
  1. What is the size of market for inputs, outputs and supply area?
  2. Who are the major competitors? What are their market shares, their facilities, their structure, etc.?
  3. What are the possible competitive reasons?
  4. Has a clear, persuasive case been made as to how sales will be generated?
  5. Are there ways that the group might work with any of these potential competitors to accomplish its goals?
4. What are the organizational needs for the project?
  1. What organization structure is right for your project?
  2. Who will serve on the board of directors?
  3. What qualifications are needed to manage this business?
5. What are the capital needs and possible sources of this capital?
  1. How much money is needed?
  2. When will it be needed?
  3. What are the budgeting and financial needs of the project?
  4. What are the possible sources of financing?
6. What are the legal requirements of the project?
  1. What documents or agreements are needed?
  2. What permits and inspections will the project require?
7. What are management requirements?
  1. What skills will the group require for a management team?
  2. Are the skill sets readily available?
  3. What will the management cost?
  4. Can producers pay enough to attract the top personnel?

Consultants
The engagement of a consultant to create a feasibility study can be one of the most important decisions that the group makes, according to Matson.

Criteria for a good consultant should include:
  1. Previous experience conducting feasibility studies.
  2. Experience with the industry to be studied.
  3. Understanding of legal structures, including cooperatives.
  4. Willingness to listen to the group’s ideas.
  5. Willingness to work with designated contact members of the group.
  6. Accepting of reasonable revisions to the submitted study.
  7. Ability to accomplish the study within an agreed upon timeline.
  8. Ability to work within the budget designated by the group.
  9. Ability to provide clear, useful information at the completion of the study.
Positive results from a feasibility study do not necessarily imply the group should proceed. Several valid factors could cause the group to stop at this stage.

Reasons to not implement a project after a positive feasibility study include:
  1. Economic or market conditions might have worsened since initiating the feasibility study.
  2. The risks required for the project might be greater than the group is willing to accept.
  3. Capital, size, capacity, etc., requirements could be more than the group can accommodate.
  4. Other information outside the study reveals some of the key assumptions to be invalid.
By the same token, a negative feasibility study does not necessarily signify the group should stop the project.

Reasons to continue towards implementation of a project after a negative feasibility study include:
  1. Economic or market conditions have improved since initiating the feasibility study.
  2. Critical assumptions for the feasibility study might be perceived as unduly harsh or negative.
  3. More people have agreed to join the project, increasing volume, capital or viable levels.
  4. The group has found a partner to share the cost, risk, etc.
  5. Technical limitations of machinery or design have been resolved.

Resources
Matson, James, The Cooperative Feasibility Study Process; USDA Cooperative Services.

U.S. West Corporation, Planning, Research and Your Industry; NxLeveL Training.