Chapter three
Project Identification
The search for promising project idea is the
first step towards establishing a successful
venture.
As traditional saying goes
“ The key to success lies in getting into the
right business at the right time”.
Identification of meaningful project idea
requires,
• Imagination
• Sensitivity to environmental changes
• Realistic assessment of what a firm or
organization can do
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Project Identification(Cont …)
Identification is often the outcome of a
triggering (iterative) process rather
than an analytical exercise.
While the notion of identification is
simple it is difficult to develop methods
or procedure for accomplishing it.
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Project Identification(Cont …)
However, there are certain broad guidelines
which are helpful in the generation and
screening of project ideas
Project identification commonly follows the
following procedure.
[Link] of ideas
[Link] the environment
[Link] appraisal ( self assessment)
[Link] screening
[Link] rating index.
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3.1. Generation of ideas
Most of the new project ideas are a result of
Specialized technical knowledge or
Marketing expertise
To stimulate the flow of project idea the
following are helpful.
i. Analysis of Strength, Weaknesses, Opportunities
and Threats (SWOT):
SWOT analysis represents a conscious and
deliberate , and dynamic effort by an
organization to identify opportunities that can
be exploited.
Periodic SWOT analysis facilitates the
generation of new idea
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Generation of Ideas (Cont …)
ii. Clear articulation of objectives
The operational objectives of the organization may help
to generate ideas.
The operational objective of business firm for example,
Cost reduction
Productivity improvement
Increase in capacity
Expansion and growth
Can be helpful in generating the project idea.
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[Link] the environment
The organization must systematically
monitor the environment in which it will
operate.
In other words the organization is
expected to monitor the following key
environmental factors in relation to each
of identified ideas.
Economic aspects
State of the economy
Possible fluctuation in the economy
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Monitoring the environment (Cont …)
The degree of integration with the world
economy
National policy
Sectoral policy
Government program
Tax policy
Government support
Financial policy
Technological factor
Availability of technology
Accessibility of the available technology
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Monitoring the environment (Cont …)
Socio demographic factor
Population size and distribution
Education level
The nature of competition (for
business firms)
Number of firms in the industry
Nature of entry
Nature of input supply
Availability
Cost of row material
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3.3. Self assessment and scouting the
project idea
A realistic appraisal of the organization’s
strength and weakness is essential to select the
best idea that can be realized as a successful
venture
To screen the project idea in terms of this aspect
the following suggestions are helpful.
a) Analyze the industry (sector) and analyzing the
organization in terms of,
Its capacity (I.e., whether the organization has
the capacity to implement or to put into practice
the proposed idea).
Analyze the project in term of the benefit
(profit) that it will provide to the society ( firm).
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Self assessment (cont …)
b) Examine the input or resources requirement
and firms ability to make it available
c) Review its innovativeness
d) Study government plan, outlays, and
guidelines: This analysis is important
because;
It will help to see if the idea is in line with
the government priority area
It helps to check if there are guidelines that
need to be followed if the project idea is
acceptable.
f) Suggestion of financial institutions and
development agencies. (that is investigating
priority area of development agencies )
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3.4. Preliminary screening
In some cases it is possible to have a long list
of project ideas.
In such cases some kind of preliminary
screening is required to eliminate ideas which
are not promising.
For that purpose the following aspects could be
looked into
a) Compatibility with the promoter: The idea
should be compatible with
• The vision,
• Mission,
• and goal of the promoter
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Preliminary screening (cont…)
In business venture, it should be compatible with
the owner’s objective. In other words,
It has to fit with the personality of the owner
Acceptable to the firm’s owner
It offers the prospect of rapid growth and
high return.
b) Consistence with government priority: Evaluate the
project idea in terms of the government priority.
Here we ask questions like,
Is the project consistent with the national
goal and priority ?
Are there any environmental effect ?
Will there be any difficulty to obtain
permission?
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Preliminary screening (cont…)
c) Availability of inputs
d) Adequacy of the market
e) Cost of the project:
f) Acceptability of risk level: The desirability of the
project idea depends upon the level of risk
associated with it.
When a large number of project ideas are
evaluated, it may be helpful to streamline
the process of preliminary screening.
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3.5 Project rating index
For that purpose a preliminary
evaluation may be translated into a
project rating index.
Steps involved in the process of the
project rating index are,
Identify factors relevant for project
rating.
Assign weight to those factors ( the
weight are suppose to reflect their
relative importance).
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Project rating index (Cont…)
Rate the proposed idea on various factors
using a suitable rating scale (typically a 5-7
point scale is used)
For each factor, multiply the factor rating
with the factor weight to get the factor
score
Add all the factor score to get the overall
project rating index..
The following table illustrate the
determination of the project rating index.
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Factor VG G A P VP Factor
Factors weight 5 4 3 2 1 score
Input availability 0.25 X 0.75
Technical know how 0.1 X 0.40
Reasonableness of cost 0.05 X 0.20
Adequacy of market 0.15 X 0.30
Complementary relationship 0.05 X 0.20
Stability 0.1 X 0.5
Dependency on firm’s 0.2 X 0.2
strength
Consistency with government 0.1 X 0.1
policy
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Total 1.00 3.15
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