Building a global community of practice around natural water infrastructure

Project Development Cycle

This framework will help PWS proponents design a project or program that fits their watershed. By clicking on each step, you’ll be able to access relevant resources and tools to help guide project development.

As design progresses through each of the three main stages, the end of each stage should signal a checkpoint at which proponents should assess whether the project appears viable or whether a different approach is called for. It’s also helpful to consider program design an ongoing process, so that even once activities have begun to be implemented and payments begin, the tools and resources used in earlier stages of project development can still be useful.


The first step to designing a PWS project is to understand your watershed as a socio-ecological system. From there, you can identify the scope and scale of the issues facing your watershed and begin to understand the role that PWS could play. Before moving forward, proponents should ensure that there is adequate demand among resource users or regulated entities to support a PWS scheme, or at least that the potential for demand to be stimulated exists. Proponents should also define project objectives and begin to work closely with key stakeholders.

Draft the Baseline

It's important to have a clear understanding of what would happen in the watershed without any significant changes to business-as-usual trends. To do this, you’ll need to identify the watershed services that are, or are likely to be, under the greatest strain in the watershed, and consult technical and local experts to get a well-informed view of the current state of those services. Next, identify the key drivers of watershed degradation, and draft a baseline—a rough projection of how continued degradation would impact future key indicators of watershed services.


Map Stakeholders

Familiarize yourself with the social, political, economic, and institutional landscape of the watershed. Identify key actors and potential partners that will need to be at the table through the design process, and begin to understand how they relate to the watershed’s services. At this stage you may also select the lead organization for the PWS project, which should have a good reputation with key stakeholder groups, particularly regulatory bodies.



Assess Demand

Identify the industries, populations, and other resource users that would be impacted by the changes in watershed service provision projected in the baseline, and determine whether one or a combination of these stakeholders are able to pay for those services. Among those stakeholders with an ability to pay, estimate interest in a PWS scheme, and gauge whether additional outreach and education could persuade more potential payers to come to the table.



After identifying the source of demand, program objectives, and key stakeholders of the project, it’s time to strategically assess whether and how a project could really be viable. Continue to work with stakeholders and to collect technical and local data in order to identify viable interventions (i.e., the actions that aim to maintain or enhance the provision of watershed services) and financing mechanisms. You should also assess the technical, financial, legal, and social feasibility of the project—and determine whether to continue onto the design stage.

Identify Possible Interventions

In order to assess the feasibility of a PWS project, proponents should lay out the range of interventions that could address, to varying degrees, the watershed services of concern. Depending on the ambition and stage of the project, this list may include interventions that are impracticable under existing regulations. Next, comparatively assess these interventions based on cost, performance against targeted objectives, and other criteria identified by stakeholders.


Identify & Assess Risks

Consider the major financial, legal, social, and political risks that the project may face moving forward. Run financial projections, taking transaction costs like project management into account, to determine whether the project could be financially viable in the near- and short-term. Assess legal risks, such as weak land tenure or a change in land use zoning, and political and social risks, such as barriers to ensuring compliance.


Identify & Assess Financing Sources & Mechanisms

At this step, work from the demand assessment in the first stage to identify the schemes “payers,” as well as the outlines of the financing mechanism. Common vehicles for PWS financing are private contracts, public funds, or trading schemes. Innovative options, like offsets or stacking multiple ecosystem services, can also be considered. Possible financing mechanisms should be assessed against their fit with the source of demand, regulatory context, project scale, and the nature of degradation drivers.



At this point, PWS proponents will work closely with key stakeholders—particularly potential participants, payers, and regulators—to design the project’s nuts and bolts. Proponents should ensure that the project is designed to be managed transparently and adaptively. Additionally, proponents may consider piloting interventions and payment mechanisms during this stage. In addition to refining project design, pilots can generate performance data that, coupled with a tailored outreach effort, can help to ensure sustainable project support.

Predict & Assess Impacts

Proponents should work with key stakeholders to understand how project activities will achieve targeted objectives and what impacts (intended and unintended) are likely to result. Trade-offs should be identified and addressed early on. The project should also design, and begin to implement, a monitoring plan that can track the project’s performance against all identified objectives, from environmental to social. 


Price & Target

Setting the price and targeting criteria is, at its core, an exercise in balancing multiple objectives, often determined through negotiation. Pricing and payments should be informed by the buyer’s willingness to pay, the cost of implementing the intervention, and the project’s transaction and management costs. Targeting criteria will determine which groups or individuals will be eligible to participate in the program. Decisions on both fronts may carry implications for the project's impacts on environmental services, social equity, and economic development.


Design Project Protocols and Governance

Here, the project designs the specific policies and procedures of all aspects of project management, including: establishing contracts/agreements, collecting and holding revenue, monitoring compliance, enforcing compliance, distributing payments, evaluating project impacts, and resolving disputes. Project protocols should be designed to reduce transaction costs, a key stumbling block for PWS to date. Strategies for doing so include fostering trust through transparent management and working through existing institutions to aggregate buyers and sellers.