1.4. The Project Cycle
Effective value chain development programs are designed and carried out in a dynamic process referred to as the project cycle.
The cycle comprises five phases:
- Value chain selection
- Value chain analysis
- Competitiveness strategy
- Design and implementation
- Monitoring and evaluation
Value Chain Selection
Value chain selection is the process of prioritizing industries or value chains based on their potential for growth and competitiveness, impact, and other benefits targeted by a donor or implementer. Cross-cutting objectives may also be considered, such as conflict mitigation, food security or natural resource management. The selection process is inherently subjective, and there is always a danger of selecting a value chain for the wrong reasons. The goal of the selection process is to minimize subjectivity. There are several tools that can improve objectivity, including Porter's Five Forces, the Boston Matrix, and the Ranking Matrix.
Value Chain Analysis
Once a value chain is selected, teams conduct a value chain analysis to identify the greatest opportunities for improving value chain competitiveness, the constraints to exploiting these opportunities, the set of stakeholders who will benefit from investments in upgrading, and a subset of this group with the incentives, skills, resources and power to help drive or make these investments.
Value chain analysis consists of two inter-linked components: 1) end market analysis (opportunities for competing in current and potential markets) 2) chain analysis (uses information from actors and firm-level data to map the value chain and analyze systemic constraints in the chain to competing in high-potential markets)
Value chain analysts gather information about end markets and chain-level opportunities and constraints that, taken together, illuminate how the market/value chain system functions and - based on trends - how it might change over time. Taking this systemic, dynamic view (rather than focusing on the current situation of individual firms) enables practitioners to identify key constraints to sustained competitiveness and to envision ways in which actors can collaborate to address those constraints.
The list of key constraints to exploiting identified opportunities generated during the value chain analysis is used to develop a competitiveness strategy. The competitiveness strategy is a plan for moving the industry toward sustained growth. It represents a vision for how firms might collaborate to achieve growth, rather than seeing one another solely as competitors. There are three interlinked activities that lead to the design of a competitiveness strategy: 1) establish an end-market competitiveness strategy that includes a vision for creating competitive advantage; 2) develop a plan for upgrading needed to compete in identified end markets; and 3) elaborate a process to sustain competitiveness. These elements rely on information from the value chain analysis and active involvement by the private sector to create a focused approach to improving and sustaining industry competitiveness and ensuring an equitable distribution of benefits to participating firms, regardless of their size.
Design and Implementation
The competitiveness strategy informs design and implementation. The program design should include a causal model that articulates how project interventions will facilitate implementation of the competitiveness strategy. Facilitation is defined as an agent or action that stimulates a market system without becoming part of it. The goal of facilitation is to foster behavior that drives upgrading and that makes the value chain more competitive by capitalizing on firm-level incentives and by cultivating collective action.
Monitoring and Evaluation
A well-designed monitoring and evaluation process provides information to program managers and implementers that is critical to judging the effectiveness of particular interventions so that modifications can made to optimize project impact. The goal of a monitoring and evaluation system is to increase the density and quality of information flow to improve decision-making at all levels, from the field through managers to donors and other stakeholders. Since those changes will be most helpful during a project rather than after, the monitoring and evaluation should be an ongoing feedback mechanism used throughout the project’s implementation.
Key Principles of the Project Cycle
The project cycle is not a step-wise or unidirectional process. As depicted below, the phases of the project cycle feed into one another and overlap but are not necessarily step-wise. Although the project cycle in figure 1 is drawn as an increasingly focused cycle, some steps may be skipped or repeated as dynamic forces come into play, such as return to violent conflict, shock to the macro-economy or value chain constraints that cannot be addressed through the project. Furthermore, because markets are dynamic, market-driven projects are also dynamic, and must be able to respond to changes in markets and business enabling environments. For example, in figure 2, information gathered during monitoring may identify needed changes to the design and implementation of project interventions. Similarly, in figure 3, monitoring may reveal information gaps that lead implementers to revert to the analysis phase but to conduct more focused research.
Monitoring and impact assessment are a continuous process. Feedback on the effectiveness of the project interventions is necessary throughout implementation in order to make changes before it is too late. Monitoring is critical to this process of continuous reflection and adjustment. Impact assessment benefits from a baseline survey at the beginning of the project and one or more follow-up assessments to track results over the course of the project.
The project cycle begins with value chain selection, then moves on to value chain analysis, competitiveness strategy, design and implementation, and monitoring and evaluation before starting again.
Figure 2: Information gathered during monitoring and evaluation cycles back to impact the design and implementation stage.
Figure 3: Information gathered during monitoring and evaluation cycles back to the value chain analysis phase. The cycle then continues once again to the competitiveness strategy, to design and implementation, and back to monitoring and evaluation.