Project Identification

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 Contents
• Introduction, meaning and definition of Project Idea

• Sources of Project Ideas

• Macro Sources

• Micro Sources

• Methods of identification

• Preliminary Screening

• Project Concept Note/ Profile Preparation

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 Project Identification
• The first step in the project cycle is to identify
candidate project ideas and develop project
portfolios from which feasible projects are going to
be selected.
• Project identification is the first phase in the Project
Life Cycle and essentially involves starting up the
project.
• This is a stage where one project-idea out of several
alternatives is chosen and defined.
• It involves identifying environmental /societal/
economical problems to be addressed and the needs
and interests of possible beneficiaries and
stakeholders.
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 Introduction
• Project identification is the first step towards
establishing a successful venture.
• Projects usually start as new ideas which are
carefully examined and if found feasible and
desirable are translated in to projects.
• Such initiation of project ideas is called project
conception.

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 Introduction ….
• Project conception is forming or developing
ideas regarding a required intervention in a
specific area to address a problem or take
advantage of opportunities.
• Identification of project idea requires:
✓ imagination,
✓sensitivity to environmental changes and
✓realistic assessment of what the firm can do.
• Project identification is interrelated with the
government policies, infrastructural
developments and skill of people.
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 Objectives of the stage
• The task (objective) of identification stage is

– To identify investment opportunities, which are

feasible and promising and which deserve
further in-depth study and appraisal.

– To identify the need in the market or customers

– To identify the problems in the community

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 Objective …
• Projects are identified because there is a need
or problem or an opportunity
• Need is a condition or situation in which
something is required or wanted
• Problems are undesirable situations that
prevent the organization from fully achieving
its purpose, goals and objectives
• Opportunities are chances to improve the
organization even in the absence of specific
problems.
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 Objective…

• Identifying suitable project ideas is the

most important and crucial step in the
whole process of project preparation.
• Identification of opportunities requires
imagination, sensitivity to
environmental changes, and realistic
assessment of what the firm/individual
can do.
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 Sources of project Ideas
• Generally, project ideas are born at two levels,
▪ the micro-level and
▪ macro-level
• Micro level sources- Project ideas originated at
individual or household level that can be further
developed through discussion with friends and
colleagues.
• Macro Sources: Project ideas originated by
institutions at regional or federal level.

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 Sources of Project Ideas(methods)

1. SWOT analysis

2. Need and Problem analysis

3. Stakeholder analysis

4. Objective analysis

5. Alternative analysis

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 1. SWOT Analysis:

• Periodic SWOT analysis stimulates the flow of

ideas.
• Often firms adopt a somewhat casual and
random approach to the generating of project
idea.
• SWOT is an acronym for strengths,
weaknesses, opportunities and threats.

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 SWOT Analysis….
• It represents a conscious deliberate and systematic
effort by an organization to identify opportunities that
can be profitably exploited by it. Periodic SWOT
analysis facilitates the generation of idea
• Once the problem is defined and formulated, both
internal and external environment shall be analyzed to
define and set achievable objectives of the project.
• SWOT analysis is used to analyse the internal
strengths and weaknesses of an organization and the
external opportunities and threats that it faces.

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 SWOT Analysis….
• The idea which sounds relatively most promising
must be put under SWOT analysis.
• SWOT analysis is a tool used to evaluate the
Strengths, Weaknesses, Opportunities, and
Threats involved in a project idea.
• It involves specifying the objective of the business
venture or project and identifying the internal and
external factors that are favorable and
unfavorable to achieve the objective.
• A SWOT analysis must first start with defining a
desired end state or objective.

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 SWOT Analysis….
• The aim of any SWOT analysis is to identify the
key internal and external factors that are
important to achieve project objectives.
• SWOT analysis groups key pieces of
information into two main categories:
✓ Internal factors – The strengths and
weaknesses— internal to the organization
(corporate appraisal).
✓External factors – The opportunities and threats
presented by the external environment to the
organization(monitoring business environment).

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 SWOT Analysis….
• Strengths: characteristics of the business or
team that give it an advantage over others in
the industry.
• Weaknesses: are characteristics that place the
firm at a disadvantage relative to others.
• Opportunities: external chances to make
greater sales or profits in the environment.
• Threats: external elements in the environment
that could cause trouble for the business.
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 SWOT Analysis….
• Identification of SWOTs is essential because
subsequent steps in the process of planning
for achievement of the selected project idea
may be derived from it.
• First, the decision makers have to determine
whether the objective is attainable, given the
SWOTs. If the objective sounds NOT attainable a
different project idea must be selected and the
process shall be repeated.

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 2. Need and Problem analysis :
• Need and Problem analysis is a critical step in the
project identification process and is an important
sources of project idea.
• On the basis of available information, the existing
situation is analysed: that is, the major needs and
problems are identified and the main causal
relationships between these are visualized.
• In formulating problems, needs and existing
problems should be identified and will serve as
source of project idea.
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 Sources of Project Ideas
The following are possible sources of project ideas
related to need and problem Analysis and some
times with opportunity sensing
A. Analysis of the performance of existing industries
B. Examination of the inputs and outputs of various
industries
C. Reviewing import and exports
D. Analyzing Economic and Social Trends
E. Drawing Clues from Consumption Abroad
F. Attend trade fairs
G. Stimulate Creativity for Generating New Product
Ideas
H. Government policy
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 Sources of Project Ideas
A. Analyze the performance of existing industries:
• A study of existing industries in terms of their
profitability and capacity utilizations indicates
promising investment opportunities.
• An examination of capacity utilization of various
industries provides information about the
potential for further investment.
• Such a study becomes more useful if it is done
region wise, particularly for products which have
high transportation costs.
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 Sources of Project Ideas
A. Examine the inputs and outputs of various industries: An
analysis of the inputs required for various industries may
throw up project ideas. Opportunities exist when:
a) Materials , purchased parts or supplies are presently
being procured from distant sources with attendant
time lag and transportation cost and
b) Several firms produce internally some
components/parts which can be supplied at a lower
cost by a single manufacturer who can enjoy economies
of scale.
c) Similarly, a study of the output of the existing industries
may reveal opportunities for adding value through
further processing of the main outputs.
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 Sources of Project Ideas
C. Review import and exports: An analysis of
import statistics for a period of years is helpful in
understanding the trend of imports of various
goods and the potential for import substitution.
– Indigenously manufacturing of goods currently
imported is advantageous for several reasons:
• (i) it improves the balance of payments situation,
• (ii) it generates employment, and
• (iii) it provides a market for the supporting industries and
services.
– Likewise an examination of export statistics is useful in
learning about the export possibilities of various
products.
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 Sources of Project Ideas
D. Analyze Economic and Social Trends: A study of
economic and social trends is helpful in projecting
demand for various goods and services. Changing
economic conditions and consumer performances provide
new business opportunities.
• Example: Increasing desire for leisure and
recreational activities. This has caused a growth in
the market for recreational products and services.
• Exercise: Make a group of four and identify one project
idea that can be only implemented under current
economic and social developments achieved in Ethiopia.
(Absolutely not realizable during the Derg regime)
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 Sources of Project Ideas
E. Draw Clues from Consumption Abroad: Entrepreneurs willing
to take higher risks may identify projects for the manufacture of
products or supply of services which are new to the country but
extensively used abroad.
F. Attend trade fairs: national and international trade fairs provide
an excellent opportunity to get to know about new products
and developments.
G. Stimulate Creativity for Generating New Product Ideas: New
product ideas may be generated by thinking along the following
lines: Modification, rearrangement, reversal, magnification,
reduction, substitution, adoption and combination.
H. Government policy: In the planned economy, the government
plays a major role in the industrial development and spells out
priorities for the economy and lays the framework for
development and resource allocation, which in turn can serve
as sources of project ideas
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 Sources of Project Ideas
3. Stakeholder Analysis:
• Analyzing the stakeholders who need to be involved is one
of the most crucial elements of any project planning.
Stakeholder analysis is a useful tool or process for
identifying stakeholder groups and describing the nature of
their stake, roles and interests.
• A stakeholder can be defined as: ‘any person, group,
organization or institution with a direct interest or ‘stake’
in something.’
• The aim of stakeholder analysis is to:
✓ Identify and define the characteristics of key stakeholders
✓ Assess the manner in which they might affect or be affected by
the proposed outcomes.
✓ Understand the relationship between stakeholders
✓ Assess the capacity of different stakeholders to participate.
✓ Ultimately to identify their unfulfilled needs.
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 Sources of Project Ideas
• Stakeholder analysis helps to identify unfulfilled
Psychological needs: For well-established, multi-brand
products, the question to be asked is whether there are
certain psychological needs of the consumers which
are presently unfulfilled. To find out whether such an
opportunity exists, the technique of spectrum analysis
is useful. This analysis is done in the following manner:
– i) Important factors influencing brand choice are identified,
– ii) existing brands in the market are positioned on a
continuum in respect of the factors identified in step (i),
– iii) Gaps which exist in relation to consumer psychological
needs are identified.

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 Sources of Project Ideas
• Some potential groups who may be
considered are:
✓Users groups - people who use the resources or
services of the firm.
✓Interest groups - people who have an interest in or
opinion about or who can affect the use of a
resource or service of a firm.
✓Winners and losers
✓Beneficiaries
✓Intermediaries
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 Sources of Project Ideas
4. Objective analysis
– After defining project problems and identifying
stakeholders, the next step is to analyse the
objectives.
– From objective analysis, the findings and gaps may be
transformed into a specific project idea.
– In objective analysis, the aim is to ensure the
relevance and timeliness of objectives.
– A clear articulation and prioritization of objectives
• helps in channelizing the efforts of employees &
• helps them to think more imaginatively.
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 Sources of Project Ideas
5. Alternatives Analysis:
• Project identification is the stage where one
project-idea out of several alternatives is
chosen and defined.
• The purpose of alternatives analysis is to
identify most possible alternative projects
options, assess their feasibility and agree
upon one project.

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 Project Identification
A project idea may also originate from multiple
sources. For instance:
• New experiments emerging from previous project
failures,
• Expansion and replication of successful projects
tested locally or proven feasible in other developing
countries,
• From the discovery of critical economic and social
bottlenecks of shortages, excess or idle resources,
• Forward & backward linkages with existing projects,

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 Project Identification
In general a proposal may be deemed to have passed the
identification test and be ready for detailed preparation
when:
• Major options and alternatives have been identified and
some initial choices made;
• The principal institutional and policy issues affecting project
outcome have been identified and deemed amenable to
solution;
• The project options selected are expected to be justified,
given rough estimates of the expected costs and benefits;
• There is justifiable expectation that the project will have
adequate support from the relevant political authorities,
other stakeholders and the intended beneficiaries.

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 Methods of identification
The methods for project identification include:
1. Analysis of Major Problem
2. Analysis of Objectives
3. Economic Analysis
• Statistical analysis of trade reports
• Study of comparative advantage
• Analysis of linkage
4. Socio-spatial Approach to Project Identification
• Participatory Approach
• Area Based Functional Analysis

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Project Concept Note/ Profile Preparation

• Once a project idea has been conceived, the next stage is

to describe the idea so that it can be prioritized and
move on to the next stage in the process.
• This may involve the preparation of a project
identification report or project concept or profile.
• Depending on the type of project it should include the
following components:-
– Justification and purpose
– Beneficiaries and stakeholders
– Resources and institutions
– Polices and plans
– Impacts
– Support
– Risks & Assumptions
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 Preliminary Screening
• Screening is an initial review of project ideas and concepts
to see if they should be advanced or abandoned at an early
stage. Once a project profile has been prepared, it would
be important to develop a clear idea of what the proposed
project is supposed to achieve.
• For this purpose, the following aspects may be looked into:
▪ Compatibility with the promoter- with the interest, skills,
personality, and resources of the entrepreneur
▪ Consistency with governmental/organizational priorities
▪ Project idea should go in line with the national goals and governmental
regulatory framework.
▪ Availability of inputs
▪ Adequacy of market
▪ Reasonableness of cost
▪ Acceptability of risk level
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 Prioritization and Ranking
• The limited resources available enforce that
effective project identification and selection
at various levels will be essential.
• To decide which projects to support it will be
necessary to set priority. This calls for the
ranking of projects using a set of criteria
(which varies from organization to
organization)
• Potential criteria for ranking projects are
given below:
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 Criteria for ranking projects
1. Extent
– Number of people affected by the project
– Geographic area affected by the project
2. Economic and financial benefit
– Potential economic benefits to the country or region,
community etc
3. Environmental
➢Conservation of natural resources and more sustainable
land use
➢Protection of natural resources such as forests
4. Social
➢Poverty alleviation
➢Assistance to disadvantaged groups

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 criteria for ranking projects……
5. Policy
– Is the project in line with national and regional policies?
6. Resources
➢Availability of human and other resources to implement
projects
➢Likely availability of funding from government, NGO and
/or donors
7. Success or failure (Risk..)
– What are the chances of project successfully meeting its
objectives?
– What degree of risk are associated with the project that may
affect its implementation?
8. Support
– Government and community support and demand for project

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 Project Rating Index
• When a firm evaluates a large number of
project ideas regularly, it may be helpful to
streamline the process of preliminary
screening by employing a project rating index.

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Steps in determining the project rating index

• Identify factors relevant for project rating

• Assign weights to these factors
• Rate the project proposal on various factors, using
the suitable rating scale.(Typically a 5-point or 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 scores to get the overall project
rating index.

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 End of the chapter

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