Project Planning

Project selection must always be based in part on numerical indicators of the value of costs and returns. These can often be measured through valuation at the market prices-the prices at which goods or services are actually traded. Unfortunately, however, market prices may be misleading indicators of the use and return of real resources, so governments need to look at other aspects of potential investments to judge the real effects the investments will have. For this, good project analysis is a tremendous asset, since the investment proposal can be valued to reflect the true scarcity of resources when market prices do not. (Note that by market prices we refer to the actual prices at which goods and services are traded in a generalized system of exchange, not to the particular place at which the exchange takes place. To talk of a village "market" or a wholesale "market" is to use the word in a slightly different sense. This may seem an obvious distinction, but in project analysis it does make a difference whether the "market price" is collected in the appropriate "market," and we will return to this issue later.)

Well-analyzed projects often become the vehicle for obtaining outside assistance when both the country and the external financing agency agree on a specific project activity and know the amount of resources involved, the timing of loan disbursements, and the benefits likely to be realized. But project analysis should not be confined to only those investments for which external financing will be sought. The more investments there are that can be analyzed as projects, the more likely it is that the total use of resources for development will be efficient and effective. To concentrate a high proportion of available analytical skills on preparing projects for external assistance, and to leave investment of local resources basically unplanned, is a wasteful allocation of talent. If carefully designed and high-yielding projects are offset by essentially unplanned investments, then the net contribution to national objectives is substantially undermined.

Sound planning requires good projects, but effective project preparation and analysis must be set in the framework of a broader development plan. Projects are a part of an overall development strategy and a broader planning process; as such, they must fit appropriately. Governments must allocate their available financial and administrative resources among many sectors and many competing programs. Project analysis can help improve this allocation, but it alone cannot be relied upon to achieve the optimal balance of objectives. Within the broad strategy, analysts must identify potential projects that address the policy or production targets and priorities. Further, to make a realistic estimate about the course of a project, some idea must be gained of what other development activities will be taking place and what policies are likely to be pursued. Will employment growth make labor relatively more productive and thus more expensive to use in the project? Will input supplies be available at the time the project needs them? Will quotas be relaxed? Will food grain prices be allowed to rise? Integration of plans and projects becomes all the more important as the size of the project grows larger relative to the total economy. If the project alone is likely to have a significant effect on the availability of resources and on prices in the economy as a whole, then it must be very carefully planned in coordination with other investments and within an appropriate policy framework included in the national plan.

For the project itself, some elements used in agricultural project analysis should not be worked out in isolation by the individual analyst. All the projects being prepared and analyzed should use a consistent set of assumptions about such things as the relative scarcity of investment funds, foreign exchange, and labor. All project analyses should use the same assumptions about the social policies and objectives to be reflected in such decisions as the location of the project, the size of the landholding to be established, the amount of social services to be included, and the like.