This section provides general information on the project development process and offers a good overview of the steps to be taken to identify and prepare a project, which has an environmental theme, components or impact.

Information provided in this section is adopted and adapted from Environmental Project Development Manual (1997) Environmental Know-how Fund, Phare.

What is a Project?

A project is ‘a proposal for doing something’ or ‘a scheme of work’. A project aims to reach a specific goal, from a defined starting point, within a given time frame, with specified inputs (e.g. money, manpower). It is a means by which the ideas and objectives of policy are converted into practical reality.

A project can stand alone or be related to a number of other projects or activities in a programme.

A project may comprise a number of tasks; these tasks are integrated with each other and do not stand alone.

In turn, a task may comprise a number of separate activities.

A project may involve ‘hard’ activities – construction or building works – often referred to as a capital project. Capital projects involve an investment that may have a life of many years.
Examples: a new water treatment plant, a dam, a waste incinerator.

Or it may involve ‘soft’ activities – management, institutional development, training, etc. These projects often may involve continuing expenditure over a period of years, but not give rise to a capital asset.
Examples: managing a site of special environmental interest, training in environmental awareness. Running an energy advice service.

A project may also involve a combination of both types. All hard projects have associated operation and maintenance costs.
Examples: a home insulation programme, a boiler efficiency improvement, controlling pollution from a contaminated site.

A project may charge for its project or service, thereby generating revenue income. Such a project is described as “revenue earning” or “income generating”. A project is economically viable when over time revenues exceed the costs if operation, maintenance and paying back any initial investment.
Examples: a visitor centre in a country park might charge admission fees and sell souvenirs.

Projects can vary enormously in scale and complexity both technically and in terms of funding. At one extreme we could be dealing with a multi-national, trans-border project with aid or assistance from several major international financial institutions (IFI). We could be trying to help the country to move towards sustainable economic development.

All hard and most soft projects have some environmental implications or impacts. It is usually helpful to distinguish between:

  • projects having environmental objectives, and
  • other projects where objectives are not environmental but which have environmental impacts, or secondary environmental benefits.

From environmental perspective four broad types of project can be identified:

  1. where an economic activity has a substantial environmental component or impact;
    Examples: electricity generation, building or construction, industrial manufacturing processes.
  2. where the objective is to improve the environment, or environmental conditions, and/or human health. These may sometimes be referred to as “green” projects;
    Examples: biodiversity conservation, protection of a valuable landscape, controlling air and water pollution.
  3. mixture of the above, where a proposed activities brings economic benefits and at the same time helps to improve the environment. These are often called “win-win” projects;
    Examples: chromium recovery in tanneries, installing cleaner and more efficient engines in the city bus fleet.
  4. research projects – which may eventually result in commercial applications having environmental consequences.
    Examples: research on renewable energy sources; research on transportation technologies.


Projects can vary enormously in scale and complexity both technically and in terms of funding.

At one extreme we could be dealing with a multi-national, trans-border project with aid or assistance from multilateral funders and financing from several major international financial institutions (IFI). It could be trying to help one several countries in the region to move towards sustainable development.
Examples: a water management and improvement programme for an international river basin, involving several countries, and funded by the European Union, World Bank and bilateral resources. This could be regarded as one large project or a number of related, but separate, projects.

At another extreme, a project could be small, focused on only a small part of a country, and involve funds from a single agency only – perhaps from the organisation proposing the project.
Examples: raising the awareness of environmental issues of municipal government staff through training funded by bilateral assistance; carrying out a feasibility study funded by a grant.

Funding Types

The main types of funding that you will need to consider include:

  • Grants
  • Loans – soft (sometimes called “concessional”) and commercial
  • Equite

The main differences between these types of funding are in the amount of money and the conditions under which they can be made available. All funds are associated with costs (including grants). The costs if the funds will depend on the conditions under which they are made available.

A grant is a direct payment to carry out a project. It does not have to be repaid.

Grants are generally only available for smaller projects and those which cannot reasonably be funded on the basis of a loan (commercial or soft loan) or equity funding. Grants are usually given to projects regarded as important from a national or international perspective, and which cannot be funded in any other way.

May funder provide technical assistance through grants? This usually involves transfer of expertise of technology. This can be especially important aspect of institutional strengthening projects.

Bilateral funders sometimes provide grants for pre-feasibility or feasibility studies. This can lower the total costs of obtaining a larger loan from a domestic or international bank for a project, because the studies would otherwise have to be funded from the loan. They may also provide grants to fund part of a project which is also supported by IFI loans.

Advantages of grants:

  • no repayment is required

Disadvantages of grants:

  • are not available for project which will generate revenue
  • funder priorities may require project objectives to be changes

A loan is money borrowed for a project that has to be repaid to the finder under the specific conditions. This required that the recipient is:

  • creditworthy,
  • had potential cash flow sufficient to meet the interest payments and to repay the sum borrowed (also known as the principal), and
  • can provide security against default.

A loan will usually cover only a part of the total project costs (e.g. 20-50%).

A soft loan (or a concessional loan) is one provided on more favourable terms than could be obtained on the market (e.g. lower interest rates or longer repayment period).

Advantages of loans:

  • enables the development of revenue generating process
  • loans are often the only form of funding available to private enterprises

Disadvantages of loans:

  • can be expensive to obtain and to administer
  • local banks may be unwilling (or unable) to accept the risks of a project
  • need to sufficient financial resources to repay the loan

This is where an investor puts money into a company or a project (usually by buying shares) without a specific claim for direct repayment. In doing so it takes an equity stake. The expectation is that over time there will be a significant return of investment – perhaps as much as 20% – but this is a risk. The return of investment from environmental projects is often below that required by an equity investor.

The choice of funding will depend on several factors, but especially on:

  • project size – the amount of funding required
  • the nature of the project, for example, whether the project would receive income
  • whether the project is suitable for commercial financing, for example, whether it would generate enough income to repay a regular bank loan.

Large projects can be financed by a combination of these types of financing. For example, a large project can be financed through a combination of grants, soft and commercial loans, and investment capital as part of the total allocation. Moreover, large projects are always funded by more than one side: the national bank, IFIs and national environmental funds usually provide only a certain percentage (for example, 20-50%) of the total project costs in order to limit and share risks (sometimes called as “limiting their impact”).

Main sources of funding

  • Domestic – money from the initiator of the project, the state budget, commercial credit institutions or national environmental funds
  • Bilateral funds – funds provided as assistance by another country
  • Multilateral financial institutions – funds provided by a number of countries as part of an assistance program
  • IFIs – funds provided at commercial bases by international banks and related institutions

Project Cycle

Project cycle is a useful way to understand the various stages that any project will probably go through. The same approach will apply when you are dealing with as simple project idea within your own organisation or a complex project supported by a number of external funders.

Different funding agencies use different terms, but the principles behind the process are basically the same.

Project cycle stageShort description
IdentificationDefinition of the “problem”
Generation of possible project ideas (alternatives)
PreparationDevelopment of detailed project proposal
AppraisalProject proposal appraisal by the potential funder
FundingFormal agreement on funding the project between the funder and the proposer
Implementation & monitoringProject is carried our according to the contract or other agreements made
Internal monitoring and external reporting is carried out
EvaluationAssessment of project results against its original objectives in terms of its performance, efficiency and impact

The time needed for each stage of project identification, preparation and appraisal varies greatly depending the size and complexity of a project, the procedures and requirements of the potential finder, and the number of funders involved.

Project Identification

You will probably start the process of project development of one of two positions:

  1. You may have a specific environmental problem in mind, and be seeking to develop that will address it, or
  2. You may already have a project in mind, and be seeking to develop it and obtain funding.

Project identification process can be divided into 11 logical steps:

Step №DescriptionComments
1Define the wider project objectives and justify your projectWhat is the wider environmental problem that you which to address? This will provide the justification for your specific project, and allow you to consider alternative solutions.
2Define the immediate objectives of your projectDevelopment of detailed project proposal
3Define the project outputsProject proposal appraisal by the potential funder
4Define project inputsFormal agreement on funding the project between the funder and the proposer
5Set out your assumptionsProject is carried our according to the contract or other agreements made
Internal monitoring and external reporting is carried out
6Complete a log frameAssessment of project results against its original objectives in terms of its performance, efficiency and impact
7Make a preliminary estimate of project costPreliminary estimate of project cost you should estimate approximate costs of all inputs defined in Step 4.
8Identify the key policy documentsReflect key regional, national and international policies and strategies in order to justify your project to potential funders.
9Prepare a project descriptionSee the list of elements to be included in the project description, taking into consideration the requirements of the potential funders
10Identify sources of fundingWhat type of funding is the best for your project? Are you seeking a grant, a loan, equity, or a combination of these? What is the most likely sources for this funding? Will you require a combination of national and international funding?
11Contact potential fundersIn practice you will probably have been in contact with the potential finder from early in the project identification stage, in order to understand their funding objectives, priorities, procedures and areas of activity.

A project description should be brief and concise. The purpose is to “sell” the project idea and get the key people interested.

The project description will

  • Be submitted to potential funder
  • Serve as the bases fir further, more detailed project preparation

Content of project description

  1. cover page (the title, project objective, timescale, budget and the name of the project proposer
  2. project name or title
  3. objectives of the project
  4. brief description (including location)
  5. justification (why is it needed?)
  6. inputs (resources required to carry it out, including project management)
  7. expected outputs
  8. assumptions that you have made
  9. how the project outputs will become (self) sustaining
  10. risks in the project and how you will manage them
  11. budget
  12. project team
  13. time table for implementation (including provisional start and end dates)
  14. links or coordination with other projects (where appropriate)
  15. map or site plan
  16. reporting schedule

Project ideas can be drawn from a number of different sources.

You may already have a clear idea for a project. Most people start with a problem or with something that they want to do. A project is a way of implementing a policy or of solving a problem.

The following are possible sources of project ideas:

  • from an analysis of environmental problems and opportunities, a strategy or strategic policy framework has been developed – project ideas may then by invited or generated from a number of agencies, for example, central, regional or municipal government, or non-governmental organisation;
  • there may be a need to implement new legislation e.g. in compliance with international agreements;
  • there may be a national call or invination for project proposals;
  • partly or fully developed ideas may already exist;
  • ideas may have been generated in the course of evaluating and implementing earlier projects.

In other cases, you may have identified the problem, but do not know yet how to address it. Common ways of generating project ideas and alternatives are:

  • by brain-storming with your organisation;
  • by adapting good practice used in other regions or countries to suit local conditions;
  • by inviting proposals to solve an identified problem from companies known to have the required experience.

Key sources of project ideas include:

Immediate problems faces

  • Need to comply with license conditions (e.g. for industrial plant)
  • Need to reduce fines being paid to regulator
  • Need to reduce energy costs
  • Need to stop destruction of a conservation area

Ideas formulated in national and international documents

  • National Environmental Action Plan (NEAPs)
  • Regional Agreements

Project ideas developed by national agencies but not pursued by them

  • Project management Units of other Ministries
  • Other national funding bodies

Ideas of technical experts

  • Universities
  • Research Institutes
  • Industry
  • Consultants

Ideas suggested by national policy documents

  • Government and IFI indicative programmes
  • Government and IFI sector operations policy programmes
  • Regional action programmes of the government or IFIs
  • Multi-annual national government programmes
  • Private sector initiatives
  • Ideas emerging from the evaluation and monitoring of existing projects
  • Economic reform programmes e.g. privatisation, deregulation
  • Legislation

Ideas suggested in formal governmental project lists

  • Identification missions undertaken by major funders e.g. World Bank

Ideas suggested by NGOs

Ideas developed “in house”

Project preparation

The project idea is carefully developed to the point where it can be submitted to the potential funder to appraisal. It is vital to understand the interests and requirements of the potential funders, the criteria against which it will be appraised, and to have a clear idea of the type and amount of funding required.

During the project preparation stage a Project Proposal will be developed. A good project proposal will include description of some, or all, of the following elements:

Content of the Proposal

  1. Cover page
  2. Summary (including log frame)
  3. Background of the project
  4. Justification for the project – referring to any relevant policy documents
  5. The wider and immediate objectives of the project
  6. The stakeholders concerned
  7. Main assumptions- and therefore the risks
  8. Its feasibility (i.e. as appropriate the technical, financial, economic, institutional, social and environmental aspects)
  9. Expected outputs
  10. Required inputs
  11. Budget
  12. Work plan
  13. Project management and project team
  14. Indications of achievement and means of verifying them
  15. Monitoring and reporting arrangements

The time needed for each stage of the project identification, preparation and appraisal varies greatly. The time taken will depend on the size and complexity of a project, the procedures and requirements of the potential funder, and the number of funders involved.

These approximate estimates of time needed for project identification, preparation and appraisal are summarised in the table below:

Guide to Time Required for Project Preparation

Funding type
Project stage
Grant (simple)Grant (complex)Loan (small)Loan (large)
Identification1 month3-6 months3-6 months3 months – 2 years
Preparation1-2 months3-6 months6-18 months6 months – 2 years
Appraisal1-3 months3-6 months3-12 months3 months – 1 years
TOTAL TIME3-6 months9-18 months1-3 years1-5 years

It is important to check that you have the capacity to complete the preparation of your project. You should think closely about the timescale and resources required. The Table below gives some guidance on the type of preparatory work that will generally be needed for your project. Depending on which funding type is appropriate for your project, you will probably need to prepare the types of documents and supporting analysis listed in the table.

Guide to Work Required for Different types of Applicationion

Funding type
Grant (simple)Grant (complex)Loan (small)Loan (large)
Summary + log frameHelpfulYesYesYes
Project ProposalYesYesYesYes
Work PlanYesYesYesYes
Feasibility Study, includingUnlikelyProbablySometimesYes
Technical EvaluationUnlikelyProbablyYesYes
Financial AnalysisUnlikelyEssentialEssentialEssential
Economic AnalysisUnlikelyEssentialEssentialEssential
Socio-cultural or Stakeholder AnalysisNoProbablySometimesProbably
Institutional AnalysisNoProbablySometimesProbably

Best practice

Experience suggests that a successful project proposal will usually have the following features:

A summary (this should be capable of being read on its own and giving a good overview of the project)

  • a short, clear overview of the project
  • an explanation of how it relates to the priorities of the funder
  • a description of the expected benefits

A project description

  • a comprehensive (but not too long) view of the project and its constituent activities
  • a full explanation of the technical aspects
  • a suggested timescale
  • a work plan with milestones and outputs
  • an explanation of the organisation and staffing

A description of the financial and economic factors (this is the main focus of interest for many readers)

  • show that the costs and income over time are appropriate for the type of project
  • justify the project’s value in terms of all the main measures

Identification of options

  • show that alternatives have been identified and appraised
  • clearly establish and justify the best option
  • explain whether environmental assessment of options has been done

Questions of uncertainty and sensitivity

  • clearly present the risks
  • show how sensitive different elements of the project are to these risks and assumptions


  • suggest a realistic budget for the whole life of the project
  • set out the funding support required and indicate when it will be needed

External funders will generally look carefully to see whether:

  • there is sufficient participation by the beneficiaries – the beneficiaries of the project must be involved in the actual decision-making
  • there has been adequate consultation of stakeholders – stakeholders are individuals or groups of people affected by the project, or with an interest in it. This means more than just explaining the project to key people or groups who stand to gain or lose
  • where loans are involved, that the borrowers are fully committed to the project – ‘ownership’ has been gained because the borrower is responsible for preparation and implementation. This ensures that the project initiative is local or national i.e. in own country
  • risks are adequately assessed and managed
  • capacity-building permeates the whole project – pursued through separate technical assistance where appropriate e.g. staff training
  • project design is adjusted to changing conditions in a timely way

Taking into account the abovementioned consideration a well-designed project proposal will include the following items:

Checklist for project design

Context and objectives:

  • clear description of the social and economic context into which the project fits;
  • description of how the individual project related to other existing and planned initiatives;
  • clear statement of the problem/target to be addressed;
  • direct link between wider, long term objectives and the immediate objectives of the project.

Beneficiaries and impacts:

  • clear statement about who will benefit from the project;
  • demonstration of awareness of any negative impacts of the project and how these will be minimised.

Results and realism:

  • clear and distinctive objectives setting out what is to be achieved;
  • clear outputs – specific in terms of quantity, quality, time and place – with a well-defined target group;
  • it will be realistic in terms of objectives, resources and timescale;
  • the work programme for the project should be realistic in terms of the time allowed and the scheduling of tasks;
  • it will be clear about which activities contribute directly to the project and its outputs.

Project resources and management:

  • it should be specific about activities and the resources required to do them. If your proposal have activities for which no resources are allocated, there is something wrong!
  • the manpower resources and skills required for the project should be confirmed as available;
  • you should have a clear idea about the way in which the project will be managed;
  • the basic operating environment should be in order e.g. accommodation and equipment for the project team;
  • you should show that the institutional context for the project is supportive.

Assumptions and commitment:

  • the assumptions that you have built-in to the project design should be clearly set out. The more questionable ones should have been analysed and checked;
  • you should describe how you will be making a local contribution to the funding of the project. This will show funders that you are fully committed to the project.

Finally, some of the common faults of the project proposal are presented in the box below:

Checklist of the common project faults

Context and objectives:

  • the project does not fit the funder’s priorities, terms or strategy;
  • the project fails to take account of other relevant activities;
  • no clear relationship between the immediate objective of the project and the wider, longer term objectives;
  • objectives are vaguely worded, confuse ends with means, and are not distinct from each other (in the worst case they may be in conflict with each other);
  • failure to be clear about the problem and the immediate objective.

Beneficiaries and impacts:

  • unclear who are the intended beneficiaries of the project;
  • failure to appreciate the negative aspects of a project and to suggest appropriate measures.

Results and realism:

  • being over-optimistic about what can be achieved;
  • outputs confuse ends with means, or are not specified in sufficient detail.

Work plan, management and resources:

  • the work plan or programme is unclear, the resources or the time required has been underestimated;
  • not enough time has been allowed for the completion of tasks – implementation often takes longer than planned;
  • tasks are not defined in sufficient detail and do not contribute to the achievement of outputs;
  • insufficient allowance has been made for project management, or the management structure is poorly thought out;
  • local institutional capacity and leadership are inadequate to carry out the project;
  • inputs are inadequate or unrealistic.


  • the assumptions are not clear and not fully explained.


More information on project development is also available from Investors Guide.