The World Bank Project Cycle WORLD A six-step process governs the World Bank's approach to BANK investment lending. Formally known as the "project cycle," it is the Bank's way of making sure that all projects receiving financial INF<>RMATI<>N backing meet the same set of rigorous standards. Bank staff work closely with developing country borrowers throughout the project BRIEFS cycle. The Bank maintains an independent evaluation department to assess the effectiveness of the projects it supports. The six stages in the World Bank's project cycle In this first phase planners answer questions such are: Identification; Preparation; Appraisal; Negotia- as: Who will benefit from the project? Will project tion and Board Presentation; Implementation and benefits be greater than the costs? Are there other Supervision; Evaluation. Some project ideas never options for achieving the same objective? A project make it past the early phase of identification. Others must also pass a priorities test: a good industrial are reworked during the preparation and appraisal project may not go forward because an agricultural phases, and end up looking quite different from their project is more urgent. Once a project passes these original design. The Bank approves over 200 projects hurdles, it is incorporated into the Bank's multi-year in the course of a year. lending program for a country, to ensure that resources will be available over time to complete all identified Identification projects. The task of identifying and proposing projects for Preparation World Bank financing lies mainly with borrowing governments. On some occasions, a project may be Though the Bank will often help, the borrowing identified as a result of general economic or more country is responsible for examining the technical, specific sector work carried out by Bank staff. For economic, social, and environmental aspects of the instance, from an analysis of a country's transportation project. It defines the available options, the feasibility or agricultural policies might come the idea to build of each, and their costs and benefits. The advantages new feeder roads to help farmers reach more markets. of a loan to improve a manufacturing industry, for A joint United Nations Development Programme- example, must be weighed against any environmental World Bank effort called the Energy Sector Manage- degradation that could occur from increased smoke- ment Assistance Program (ESMAP) identifies priority stack pollution. In an agricultural project, the bor- energy projects. rower must decide whether oxen or tractors should be used for crop cultivation, while for an urban project the borrower might have to choose between upgrading Project Development slum dwellings or building new homes. Such decisions rely on feasibility studies. A project timetable is IDENTIFICATION established during preparation. ~ EVALUATION \PREPARATION Appraisal IMPLEMENTATION II' APPRAISAL Even with all this preparation, the Bank is not yet & SUPERVISION • ready to say "yes" or "no" to financing a project. The Bank must first make its own independent assessment NEGOTIATION of the project--the appraisal. About 150 on-site & appraisal missions, lasting three to four weeks, take BOARD PRESENTATION place each year. A team of Bank staff and consultants review the studies made by the borrower and undertake Implementation and Supervision their own analysis of four major areas: technical, institutional, economic, and financial. This is the stage when the road or school is built, Technical questions: Is the dam soundly designed machinery and equipment are purchased and installed, and engineered? Does it meet acceptable standards? and people are trained. Since the World Bank is Will it displace local people? Will it affect the envi- required by its member countries to "ensure that the ronment in any adverse way? proceeds of any loan are used only for the purposes for Institutional questions: Does the borrower have which the loan was granted," about ten staff-weeks a the organization, the management, the staff, the year are spent supervising each project. Bank staff policies to build a railroad and maintain it? If not, visit the project site to identify problems and help find what changes are required to put these into place? solutions . Supervision is also an important way for the Economic questions: Will the benefits of a water Bank to provide technical assistance to its borrowers-- supply system outweigh the costs? What will its one of the Bank's primary development roles. impact be on family incomes? Will it provide job Unlike a commercial bank that approves a loan and opportunities for local people? What is the estimated hands over the money to the borrower, the World Bank rate of return on the investment? normally does not disburse its funds without evidence Financial questions: Is the borrower's financial that the borrower has spent the money to achieve plan sound? Is the electrical distribution system agreed purposes--bought the trucks needed to build financially viable? Is the proposed accounting system roads or the pumps for the irrigation system. Strict adequate? procurement rules ensure that appropriate materials and services are used. These rules usually require the Negotiation and Board Presentation borrower to purchase goods and services through international competitive bidding (ICB), open to firms The Bank appraisal report summarizing its recom- in all the World Bank' s member countries and Taiwan. mendations for a loan's conditions forms the basis for The ICB process, which involves public advertising, negotiations with the borrower. The negotiations bring ensures that contracts are awarded in a fair and World Bank staff and the borrower together to agree efficient manner. on the measures necessary for a successful project. Through a give-and-take process, the Bank and the Evaluation borrower review all the issues that have arisen during preparation and appraisal. An independent department within the World One example of negotiation is the case of an electric Bank, the Operations Evaluation Department utility receiving a loan to increase the number of (OED) is responsible for assessing the results of transmission lines. The Bank and the borrower agree projects . To ensure its impartiality, OED reports that to earn an adequate rate of return on the project directly to the board of executive directors and to the and finance a reasonable proportion of its investments, Bank's president. The evaluation compares project electricity prices to the consumer must be set at a costs, benefits, timetable, and efficiency with what had market rate. The details of this understanding and any been expected at the time of appraisal. It also suggests other obligations of the borrower are set out in loan how to improve project performance in the future. The documents, which are signed by both the Bank and the annual review, Evaluation Results, is available to the borrower. public. In February 1992, World Bank President Lewis After negotiations, the appraisal report (including Preston established a high-level task force to make any changes made during the negotiation phase), the recommendations for improving the institution's report of the Bank's president, and the loan documents portfolio management and evaluation processes. The are presented to the board of executive directors, task force's findings are being reviewed by the Bank's representing the Bank's member countries, for ap- Board of Executive Directors . (Apr.1993) proval. World Bank Information Briefs #A.04.4-93 The World Bank• 1818 H Street, N.W. •Washington, D.C. 20433 • (202) 473-1793 • Fax (202) 676-0578