Mwongozo wa Uombaji wa Mkopo

 

 

 

 

A GUIDE FOR PREPARING PROJECT WRITE UPS 

 

 

 

 

 

 

 

 

 

BY 

 

 

 

 

 

 

 

 

 

 

LOCAL GOVERNMENT LOANS BOARD

 

TABLE OF CONTENTS

		Page
1.0	INTRODUCTION ……………………………………………	3
	1.1    Objective …………………………………………..……	3
	1.2    Format of the Paper ………………………………….....	3
2.0	DEFINITION AND STAGES OF A PROJECT …..………	4
3.0	MAIN FEATURES OF A PROJECT WRITE-UP …........…	4
	3.1    Executive Summary..……………………………...…..	5
	3.2    Introduction Part.……………………………………...	5
	3.3    Project Description ...…………………………………...	5
	3.4    Technical Aspects.……………………………………..	5
	3.5    Organization and Manpower…………………………..	5-6
	3.6    Market Analysis  ………………………………………..	6
	3.7    Implementation Programme  ……………………………	6
	3.8    Financial Requirements/Costing  ...……………………	6
	3.8.1    Investment Costs  ……………………………..…..	7
	3.8.2    Operating Costs  ...……………………………..….	7
	3.8.3    Revenue Projection  .………………………………	8
	3.8.4    Income Statement  ...…………………………...…	8
	3.8.5    Loan Repayment Schedule  ………………………	8-9
	3.8.6    Sources and Uses of Funds  …………………...….	9-10
	3.9    Financial and Economic Analysis  ………………..…..	10-13
	3.10  Sensitivity Analysis  ……………………………………	13
	3.11  Environmental Protection Assessment  …………...…	13-14
	3.12  Recommendations  ………………………………….….	14
4.0	CONCLUSION  …………………………………………...…	14-15

INTRODUCTION:

 

Objective:

          This paper is intended to provide some working guidelines for the presentation of main features of a Project Write-up. The target leadership can happen to be wide and varied.

                   The style used in this paper cannot claim to be of universal application however, the guidelines are particularly designed to suit the needs of write-ups prepared by Local Councils/Authorities who are the sole applicants for loans provided by the Local Government Loans Board.

          The Board is aware that a number of publications exist that give a thorough and in-depth treatment of most of the issues discussed in this paper. But, it is also a fact that such useful Volumes are not easily available particularly to individuals who are engaged in preparing project write-ups. Even where they are available, due to their technicality and complexity they may not be easily assimilated.

          This paper is thus intended to fill in this gap of information. It attempts to give a snapshot of the whole process of preparing a project write-up. Furthermore, the paper is an attempt to create uniformity in project write-up prepared by the Board’s clients. Efforts have been made to ensure that the materials are presented in a simple way, clear and consistent style.

Format of the paper:

The remaining part of this paper is organised as follows: proceeding from the current part which constitutes the introduction, part two presents definition and stages of a project.  Part three then, looks at the main features of a project write-up. Thereafter, part four concludes the paper

DEFINITION AND STAGES OF A PROJECT:

 

          A project is defined as a set of proposals that entail investment of resources in a given time framework out of which benefits of a fairly specific kind are expected. In view of this definition, there are five stages (Sometimes known as a Project Cycle) which need to be observed before establishing a project. The stages are;-

1.    Project Identification

2.    Data Collection

3.    Preparation of a project write-up

4.    Project Implementation

5.    Project Monitoring and Evaluation.

The Main concern of this paper is to make a general analysis of issues pertaining to stage three of the project cycle.

MAIN FEATURES OF A PROJECT WRITE-UP:

 

Although project write-ups differ they generally contain the following salient features:-

(a)    Executive summary

(b)    Introduction

(c)    Project description

(d)    Technical aspects

(e)    Organisation and Manpower

(f)     Market Analysis

(g)    Implementation Programme

(h)    Financial Requirements and Commitments

(i)     Financial and Economic Analysis

(j)     Sensitivity Analysis

(k)    Environmental Protection Assessment

(l)     Comments/Conclusion

Executive Summary:

The Executive Summary of a project write-up gives a synopsis of an overview of the main contents of the write-up and its programme of Implementations. It abstracts the core, the fundamental framework of the undertaking and displays it in away which guide the reader towards a good general understanding of the write-up.

Introduction Part:

The introduction part will contain a brief explanation of the historical background of the project. This part tries to answer the question of as to why a certain project is intended to be established. Furthermore, it is in this part where sponsors of the project are mentioned.

Project Description:

This part will address issues like;

    Location of the project

Climatic conditions in that area

Nature of raw materials needed for the project i.e. are they locally produced or imported.

Liquidity position and the like.

Technical Aspect:

This part outlines the choice of technology which is deemed appropriate for the project. All necessary inputs are identified in this part. In addition to that, it is important to elude the knowledge of applying the required inputs. For example if you have chemicals as one of the required ingredients, then state clearly the required ratios of these chemicals to get the proper mixture or compound so as to produce the final output.

Organisation and Manpower:

It is often argued that many projects fail to operate as designed due to poor management. Projects need to have imaginative and flexible management so as to solve the problems which are thrown up. It is therefore important at this stage to conduct exploratory or diagnostics survey so as to identify the key persons who will bear all the responsibilities at the stage of implementing the project. The roles and tasks of each person should be stated clearly.

Market Analysis:

Another task before establishing a project is to identify the market for your end products. In order to attain sustainable revenue from your products, it is important to have knowledge on market. There is need therefore for the write-up to make a brief presentation on how the products will be marketed. The analysis on the market will sound more if you mention the potential clients of your products, the prevailing output (supply) before you enter the market and lastly the demand (quantified) for the product.

Implementation Programme:

Much of the debate in this part is centred on the time period in which several activities will be undertaken. The activities may include (i) negotiating period (ii) Time for erecting buildings and the like.

Financial Requirements/Costing:

This is one of the most difficult but important part of the entire preparation of a project write-up. Specification of the necessary costs demands precision.  It involves drawing some specific boundaries of the items within the write-up needs to know what is needed. This part should act as thick lines indicating the boarder and direction of the write-up. If one is successful in defining the financial requirements, one will have definitely made a step forward in the write-up effort. The opposite is equally true. Some wrong assumptions and perceptions at this stage of the write-up will inevitably lead into confusion, unwarranted financial drain and worthless efforts.  Due to such mistakes the writer will be embarking on an unproductive task.  In order to avoid this embarrassment, it is advisable to observe the following stages.

Investment Costs:

Spell out precisely the investment and re-investment costs. Normally there are costs which are not incurred annually.   The investment costs will involve costs of (i) Land clearing (ii) Buildings (iii) Machinery and Equipment (iv) Motor Vehicles and  (v) Furniture and Fittings.  The nature of the project will determine the set of items categorised as investment costs. The set could consists of all items mentioned above or can be a sub set of the items mentioned above.  The set of investment costs is incomplete when the contingency item is excluded/omitted.   Writers differ on how to calculate contingency, however the proposed specification of contingency item in project write up is 10% of total costs for items mentioned under investment costs.  The contingency item helps to cover costs of minor items which could have been forgotten.  Furthermore it helps to cover some costs which may arise due to price escalation.

Operating Costs:

Operating costs are defined as those costs which must be incurred annually.  The general and well known costs in this part include (i) Wages and Salaries (ii) NPF/PPF/LAPF Contributions (iii) Depreciation (though is a non cash expense) (iv) Repair and Maintenance Expenses (v) Utility Expenses (vi) Fuel and Oil expenses (vii) Stationeries (viii) Interest payments (ix) Bank charges and (x) Transport and Travelling on Leave allowances.  As it has been pointed out earlier, the nature of the project is the main determinant of the costs.  The above items which have been mentioned do not necessarily complete the set of operating costs. Some of the items which have been mentioned can be omitted or some of the items might have not been mentioned.  The two facts depend on the nature of the project nevertheless, to complete the required set, the contingency item must be included.

Revenue Projection:

In many cases you cannot project revenue when you do not have knowledge on the market.  Specify all the expected outputs of the project and put a price to each such output.   In this way one arrives at anticipated receipts.  This will be spaced overtime from the inception to the economic demise of the project.

Income Statement:

Having quantified the necessary costs and revenue the writer now is in a good position to know whether the project is profitable or a loss making one.  The profitability of the project will be depicted in the income statement schedule.  The table below presents a hypothetical example of Income Statement schedule.

Income Statement Schedule:

	YEAR	YEAR	YEAR	YEAR
	1	2	3	4
TOTAL REVENUE	1,000	2,000	3,000	3,000
LESS OPERATING COST	1,200	1,400	1,400	1,400
PROFIT BEFORE TAX	-200	600	1,600	1,600
LESS INCOME TAX 50%	-	300	800	800
NET PROFIT	(200)	300	800	800

Having found the net profit/loss of the project, the investor is now reminded to prepare a repayment schedule of the two components of the loan (principal and interest charges)

 

Loan Repayment Schedule:

The repayment schedule should indicate the period in which the principal loan and interest charges are to be paid.  The table below presents a hypothetical example of loan repayment schedule.

YEAR	PRINCIPAL AMOUNT	PRINCIPAL AMOUNT PAID	INTEREST PAID 25%	TOTAL PAYMENTS
1.	1,000,000	-	250,000	250,000
2.	1,000,000	250,000	250,000	500,000
3.	750,000	250,000	187,500	437,500
4.	500,000	250,000	125,000	375,000
5.	250,000	250,000	62,500	312,500

Note: that the assumption which has been used in calculating interest charges is that, the borrower pays the instalment of the principal loan at the end of the year. Otherwise if the instalment of the principal loan is paid at the beginning or in the mid-term of the year, the total payment on interest charges will differ from those presented in the table above.

Sources and Uses of Funds:

This part spells out in detail the sponsors of the project.  It is important  to  mention  the  amount  which will be contributed by  the  owner of the project  as  well  as that amount which is supposed  to  be  covered  by  the financier of  the loan.  Such explanations will depict how both sides are committed to finance the project. It is so common to find out that many financial institutions provide loans just to cover part of the total cost of the project, and in many cases they provide loans which amount to 60% of the total cost. Any failure to cover the remaining 40% means the project will not be implemented. Generally this part attempts to present how funds are mobilised from different sources and also the way these funds are being used. The table below presents a hypothetical example of sources and uses funds schedule.

Sources and Uses of Funds Schedule (000)

	YEAR	YEAR	YEAR	YEAR	YEAR	YEAR
	0	1	2	3	4	5
SOURCES
1. B/B/FORWARD	-	1,000	13,000	26,000	36,000	48,000
2. NET PROFIT	-	8,000	8,000	10,000	10,000	10,000
3. DEPRECIATION	-	10,000	10,000	10,000	10,000	10,000
4. OVER DRAFT	1,000	-	-	-	-	-
5. LONG TERM LOAN	15,000	-	-	-	-	-
6. EQUITY	10,000	-	-	-	-	-
TOTAL SOURCES	26,000	19,000	31,000	46,000	56,000	68,000
USES
1. INVESTMENT	25,000	-	-	-	-	-
2. OVERDRAFT PAID	-	1,000	-	-	-	-
3. LONG/T/LOAN PAID	-	5,000	5,000	5,000	-	-
4. DIVIDENDS	-	-	-	5,000	8,000	10,000
TOTAL USES	25,000	6,000	5,000	10,000	8,000	10,000
NET BALANCES	1,000	13,000	26,000	36,000	48,000	58,000

            

NOTE: 1 B/F stands for balance brought forward.

Financial and Economic Analysis:

Once the foregoing schedules have been prepared, it goes without say that the writer of the project write-up can now be in a good position to look at the basic indicators which one can use to judge on the viability of a project.  In principle, there are many indicators which can be used as determinants of the project viability. Just to mention a few, we have (i) the payback period (ii) Liquidity Ratios (iii) Net Present Value (NPV) (iv) Internal Rate of Return (IRR) (v) Benefit Cost Ratio (B/C) and the like.  However for our case, the indicators which will often be used are numbers, (iii), (iv) and (v) above.  These indicators can be defined as follows:-

(i)      Net present value is the present value of future returns discounted at the cost of the investment.  A project is said to be viable if and only if the NPV is positive.  The reverse is true.

(ii)     Internal rate of return is defined as the interest rate that equates the present value of future returns to the investment outlay.  The project is said to be viable if and only if the IRR is greater than the cost of capital.

(iii)    Benefit cost ration is the ratio which tries to compare an increase in benefit in relation to costs.  A Project is said to be viable when B/C is greater than one.  The tables below try to present hypothetical examples on how to calculate the above mentioned indicators.

To start with lets look at the calculations of Net Present Value.

YEAR	TOTAL REVENUE	TOTAL COST	NET BENEFIT	D/FACTOR 26%	DISCONUTED NET/ B 26%
0	-	23,000	(23,000)	1	(23,000)
1	8,596.3	1,925.8	6,671	0.794	5,296.8
2	10,316.2	2,016.2	8,300	0.630	5,229
3	12,379.4	2,144.4	10,235	0.5	5,117.5
4	14,855.3	2,221.4	12,633.9	0.397	5,015.7
5	17,826.3	2,337.9	15,488.4	0.315	4,878.9
	63,973.5	33,645.7	30,327.8	-	2,537.8

 

NET PRESENT VALUE = TShs. 2,537.8

Since NPV is positive at a discount factor of 26% (which is the cost of capital then the project is viable. As regards benefit cost ratio, the calculations are as follows:

BENEFIT COST RATIO =  Discounted total benefit

                                             Discounted total costs

 =            31,027.6     =       1,089

                                                      28,489.4

                         B/C      =             1.1

Since the ration is greater than one then the project is viable.

The last indicator is the internal rate of return. Calculations on IRR can be shown as follows:

YEAR	TOTAL REV	TOTAL COST	NET BENEFIT	D.F 26%	D.F 40%	D/NET/B.26%	D/NET B.40%
0	-	2,300	-2,300	1	1	-23,000	-23,000
1	8,596.8	1,925.8	6,671.2	0.794	0.714	5,296.8	4,763.1
2	10,316	2,016.2	8,300	0.630	0.510	5,229	4,233
3	12,379	2,144.4	10,235	0.5	0.364	5,117.5	3,725.6
4	14,855	2,221.4	12,634	0.397	0.26	5,015.7	3,284.8
5	17,826	2,337.9	15,488	0.315	0.186	48,789	2,881
	63,973.5	33,645.7	30,327.8			2,537.8	4,113

IRR  =  LDF + (DBLDF AND HDF) ( NPV OF LDF)

                         DNPVS

WHERE IRR             =       Internal Rate of Return

DBDF                        =       Difference between discount factors

HDF                          =       High discount factor

NPV                          =       Net present value

DNPVS                     =       Difference of net present value

=                 26 +  14 (2537.8)

                                                      2537.8 – (4112.7)

                                   =       26 +  14 (2537.8)

                                            6650.5        26 + 14 (0.3815928)

                                                      =       26 + 5.34

                                                      =       31.34%

                                            IRR   =       31.34

From the above results, the project is said to be viable since IRR is greater than the cost of capital. Apart from financial viability of the project, the economic analysis can also be stipulated.  Note that, the economic analysis mainly depends on the nature of the project, for example one can make analysis on the project as follows:-

It will create employment opportunities to thirty permanent staff and ten temporary labourers (the figures for employees are merely hypothetical).

The project plays a crucial role to the economy since it is a source of foreign exchange (assume the product is exported).

Depicted in income statement, the Government will receive considerable funds from this project in form of taxation totalling to so much amount.

Sensitivity Analysis:

      The reliability of the basic figures for input and output and prices of input and output depend upon many kinds of considerations. In the first place we assume that physical inputs and outputs which are presupposed by the figures for receipts and expenditures are consistent with each other. However, this might not be true due to unforeseen factors. The sensitivity analysis tries to take into account this fact. In this part, either projected receipts are reduced or costs are increased by a certain percentage. Thereafter all procedures of calculating basic indicators are repeated in order to determine the viability of the project.

Environmental Protection Assessment:

      It is a well known fact that most of the projects to be established by Local Authorities are taken into consideration as alternative means of generating more revenue apart from development levy and other sources.  The results of the appraisals may indicator that such projects are financially and economically viable.  In spite of this fact, some projects are hazardous to community.  The writer should spell out the effects of such projects.  When such a situation is identified it is advisable to make a consideration detail on effective and lasting remedies which will protect the hazards expected to happen.

Recommendation:

      Spell out all recommendations which you think can be helpful during the implementation of the project, one can put the following recommendations:

Dividends policy must favour the project in the sense that no dividends will be distributed in early years of the project to allow good liquidity position to the project.

Employment of committed and experienced staff is highly recommended.

To sum up, the recommendation part attempts to point out the control measures which can be followed in order to have a smooth implementation of the project.

CONCLUSION:

 

      It has been a tendency for many borrowers who seek loans from formal financial institutions to become frustrated due to the condition of submitting project write-ups. They do regard such a requirement as one of the barriers which make loans to be inaccessible. However, in this paper it is felt that such an assumption is quite different from reality.

      One would define a project write-up as a theoretical presentation of a given project from the time it is established until its closure. From the definition, it is worth noting that a project write-up is a guiding tool during the implementation of the project since it is at this period when theories are put into practice. Borrowers should regard project write-ups as one of the tools to enhance their ability in implementing their projects, and hence see the exercise as meaningful and helpful.

 LGLB  F1

Regulation 10

To:     THE SECRETARY,

          LOCAL GOVERNMENT LOANS BOARD,

          P.O. BOX 2710,

          DODOMA.

 

APPLICATION FOR A LOAN/OVERDRAFT FOR

..…………………. THE FINANCIAL YEAR ……….

 

 

At its meeting held on …………………………………... the ………………………………………………. Council by minute No. ………........... whose certified true copy is attached hereto approved an application for a loan/overdraft for the following purpose (if space is insufficient use a separate sheet):

………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This application if approved will be used in the following way (give details to every estimated expenditure item).

            Particulars                                                            Shs/Cts

……………………………………………………………            ……………………………………………

…………………………………………………………….           ……………………………………………

…………………………………………………………….           ……………………………………………

…………………………………………………………….           ……………………………………………

…………………………………………………………….           …...………………………………………

The Official seal of …………………………………………………….. was affixed to this application in pursuance of a resolution of the Council passed on the ………… day of ………..…….. 20…… and the same was affixed in the presence of:-

………………………………………                                ……………………………….....……...

CHAIRMAN/MAYOR                                                              DIRECTOR

……………………………....……………………..                …………………………………………….

COUNCILOR …………………………. WARD                ........……………….. TREASURER

 

NA.	VIGEZO VINGINE VYA  KUZINGATIA	HALI HALISI
1.	Viashiria vya kiuchumi Net present value (NPV) Internal rate of return (IRR) Cost - Benefit Analysis (CBA) Profitability
2.	Hesabu za CAG (Current Year)
3.	Tathmini ya Mazingira
4.	Kiziduo cha Mkutano wa Baraza la Madiwani
5.	Dhamana (Je masoko 10 yana hati?)
6.	Trend ya Mapato (own source) 3 yrs.
7.	Hati ya eneo la Mradi
8.	BOQ ya Mradi
9.	MCR >50%
10.	Andiko
11.	H’shauri kuchangia 20% ya gharama ya Mradi
12.	Mpango wa Utekelezaji (Action Plan)
13.	Fomu ya Maombi ya Mkopo (LGLB F1) iliyojazwa na Halmashauri na kusainiwa na Mwenyekiti/Meya, Mkurugenzi wa Halmashauri na Mweka Hazina.

NB:  Wataalamu wa Bodi kabla ya Kikao watatembelea kujiridhisha.