Dadimos Business and Technology College

Advanced Project Management

for BUMGT (PG students

By Ibrahim Hamida
 Unit Two

GENERATION AND SCREENING OF PROJECT

IDEAS
 Project selection
GENERATION AND SCREENING OF Idea generation
PROJECT IDEAS Environment appraisal.

?
Corporate appraisal

Project selection process

Project selection process starts with the generation of project ideas.

In order to select the most promising project, the entrepreneur
needs to generate a few ideas about the possible project one can
undertake.
The process of project selection consists of following stages:
1. Idea generation
2. Environment appraisal.
3. Corporate appraisal
4. Industry profitability
5. Preliminary screening.
 Project selection
Idea generation
Environment appraisal.
Corporate appraisal

The project ideas can be generated from various internal and external sources. These
are:
Knowledge of market, products, and services.
Knowledge of potential customer choice.
Emerging trends in demand for particular product.
Scope for producing substitute product.
Market survey & research.
Going through Professional magazines.
Making visits to trade and exhibitions.
Government guidelines & policy.
Ideas given by the experienced person.
Ideas by own experience.
SWOT analysis.
GENERATION AND SCREENING OF
PROJECT IDEAS

1. Idea generation ?
 Project selection
GENERATION AND SCREENING OF Idea generation
PROJECT IDEAS Environment appraisal.

?
Corporate appraisal

2. Environment appraisal

An entrepreneur or a firm systematically appraise the

environment and assess its competitive abilities.
The key elements of the environment are as follow:
Economic Sector
Government Sector
Technological Sector
Socio-demographic Sector
Competition Sector
Supplier Sector
 Project selection
GENERATION AND SCREENING OF Idea generation
PROJECT IDEAS Environment appraisal.

?
Corporate appraisal

3. Corporate Appraisal

A realistic appraisal of corporate strengths and weaknesses is

essential for identifying investment opportunities which can
be profitably exploited.
The broad areas of corporate appraisal and the important
aspects to be considered under them are as follow:
Marketing and Distribution
Finance and Accounting

Production and Operations

Research and Development

Corporate Resources and Personnel

 Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal

?
Industry profitability

4. Profit potential of the Industry/industry analysis

Tools for Identifying Investment Opportunities

i) Porter Model: Profit Potential of Industries
Micheal Porter has argued that the profit potential of an
industry depends on the combined strengths of the following
five basic competitive forces:
Threat of new entrants (Barrier to entry)
Rivalry among existing firms (intensity of rivalry)
Pressure from substitute products ( other products)
Bargaining power of buyers
Bargaining power of sellers
 Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal

?
Industry profitability

4. Profit potential of the Industry/industry analysis

1. Threat of new entrants (Barrier to entry)

New entrant can be a threat when:-
Add (increase) capacity

Inflate costs

Push prices down

Reduce profitability

Barrier to Entry may limit the threat of new

entrant.
 Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal

?
Industry profitability

4. Profit potential of the Industry/industry analysis

2. Rivalry among existing firms (intensity of rivalry)

Strong completion in the industry reduces the average profitability
of the industry. The intensity of rivalry in an industry tends to be
high when:
The number of competitors in the industry is large
The level of fixed costs is high
There is chronic over capacity in the industry
 The industry’s product is regarded as a commodity or near–
commodity
The industry confronts high exist barriers.
 Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal

?
Industry profitability

4. Profit potential of the Industry/industry analysis

3. Pressure from substitute products ( other products)

The threat from substitute products is high when:
the price-performance trade-off offered by the substitute products is
attractive
the switching costs for prospective buyers are minimal
the substitute products are being produced by industries earning superior
profits
4) Bargaining power of buyers
Buyers have high bargaining power when:
the purchase is large
switching costs are low
it poses a strong threat of backward integration
 Idea generation
Environment appraisal.
Corporate appraisal
Industry profitability

4. Profit potential of the Industry/industry analysis

5) Bargaining power of sellers

Suppliers have strong bargaining power when:
few suppliers dominate
the supplier group is more concentrated than the
buyer
group
there are hardly any viable substitutes for the
products
supplied
 the switching costs for the buyers are high
GENERATION AND SCREENING OF
their strong threat
PROJECT IDEAS for forward integration

?
 Environment appraisal.
Corporate appraisal
Industry profitability
Preliminary Screening

From the long list of project ideas, preliminary screening is required

to
eliminate ideas which prima facie are not promising. For this
purpose,
the following aspects may be looked into:

Compatibility with the promoter

Consistency with government priorities
Availability of inputs
Adequacy of market
 Reasonableness of cost
GENERATION AND SCREENING OF
Acceptability
PROJECT of risk level
IDEAS

5. Preliminary Screening ?
 Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening

?
Project Rating Index

5. Preliminary Screening

Project Rating Index

A preliminary evaluation may be translated into a project rating index to
prioritize :-
The steps involved in determining the project rating index are as follows:

Identify factors relevant for project rating.

Assign weights to these factors (the weights are supposed to
reflect their relative importance).
Rate the project proposal on various factors using a suitable
rating scale. (Typically a 5-point scale or a 7-point scale is used for this
purpose.)
 Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening

?
Project Rating Index

5. Preliminary Screening

For each factor, multiply the factor rating with the factor weight to get
the factor score.
Add all the factor scores to get the overall project rating index

• Once the project rating index is determined, it is compared

with a pre-determined hurdle value to judge whether the
project is prima facie worthwhile or not.
• Example
 Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening

?
Project Rating Index

5. Preliminary Screening
Factor VG G A VP Factor
weight P 1 score
Input availability 0.25 5 4 3 2 0.75
x
Technical Know-how 0.10 0.40
x
Reasonableness of cost 0.05 0.20
x
Adequacy of market 0.15 0.75
x
Complementary relationship with 0.05 0.20
x
other products
Stability 0.10 0.40
x
Dependence on firm’s strength 0.20 1.00
x
Consistency with government 0.10 0.30
priorities
Rating Index=
 Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening

?
Project Rating Index

6. Project Rating Index

• If the policy of the firm is to further study the projects whose rating
index is 3.50 and above, the above project will enter the next phase
of the project
.