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Chapter 3
Chapter 3
PROJECT IDENTIFICATIONS
Introduction
The first phase of the project life cycle involves the identification of a need, problem or
opportunity and can result in customer’s requesting proposals from individuals, project team or
organizations (contractors) to address the identified needs or solve the problem. The first stage in
the project cycle is to find potential projects. It is the identification of investment opportunities.
Project ideas originate from various circumstances. A project may be designed to solve a
problem, to satisfy a need or to use available resources. Many projects are conceived just
because there is a ready market. In a poverty stricken community, a project may be identified to
cater to the needs of the poor. Where employment is a challenge, or where raw materials are
abundant, projects can be designed to use available labor and raw materials.
The search for promising project ideas is the first step towards establishing a successful venture.
Identification of investment opportunities requires imagination, sensitivity to environmental
changes, and realistic assessment of what the investor can do. The task is partly structured and
partly unstructured; partly dependent on convergent thinking, partly dependent on divergent
thinking. However, there is no well defined theory to guide the task of identifying project
opportunities.
To stimulate the flow of project ideas, SWOT analysis is helpful. It analyzes strengths,
weaknesses, opportunities and threats. SWOT Analysis represents a conscious, deliberate, and
systematic effort by an organization to identify opportunities that can be profitably exploited by
it. Periodic SWOT analysis facilitates generation of ideas.
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Description of Project Idea: An actual written description of the project idea or concept,
summarizing the main elements of the proposed project to use in the screening raking and
prioritization of project ideas.
Screening: An initial review of project ideas and concepts to see if they should be
advanced or abandoned at an early stage.
Prioritization: The tanking and selection of projects against a set of criteria to identify
the “best projects to move actively into the designed stage and development.
At identification stage an initial screening of project idea will take place, with some projects
ideas being abandoned as impractical or of a low propriety. A prelude to the full blown
feasibility study, this exercise is meant to assess:
Whether the project is worthwhile to justify a feasibility study, and
What aspects of the project are critical to its viability and hence warrant an in
depth investigation.
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Need to remove shortage in essential materials, services, or facilities that constrain the
development effort etc
There are five methods for identifying projects. They are the following.
1. Analyze major development problems
Development of a country depends heavily on the way of handling the problems related to
development. The development possibilities of the country together with the problems that
confront with the development should be analyzed thoroughly. The ideas for development and
the problems have to be listed down in their order of priority.
3. Economic Analysis
The nature and type of trade in a country provides a number of opportunities for establishing
projects. Information on imports, exports etc. may be obtained from trade reports such reports
may also shed light the possible accessibility to the trade sector of other countries and the
investment opportunities in other countries. This information may pave the way for the
establishment of a number of projects inside and outside a country.
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This approach for identifying projects usually employs the following.
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• What will benefit from the project?
• Which institutions are the targets of the project?
Resource and Institutions
• What potential resources may be available for implementing the project?
• Which organizations are to be involved in project planning and implementations?
Policies and Plans
• How does the project proposal fit into any sector or regional plans?
• Does the project fit into current policies?
Impacts
• What are the likely major positive and negative social impacts of the project?
• What is the likely positive and negative environmental impact of the project?
Support
• What is the level of political and administrative support for the project?
• Does the project have the support of beneficiaries and/or local communities?
Risks
• What are the chances of the project achieving its objective?
• What are the main risks associated with the project?
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_ Total present domestic market
_ Competitors and their market share
_ Export market
_ Sales and distribution system
_ Projected increase in consumption
_ Barriers to the entry of new units
Reasonableness of Costs: The cost structure of proposed project must enable it to realize an
acceptable profit with a competitive price.
The following should be examined in this regard:
_ Cost of material inputs
_ Labor cost
_ Factory overheads
_ General administration expense
_ Selling and distribution costs
_ Services costs
Acceptability of Risk Level: The desirability of a project is critically dependent on the risk
characterizing it. In the assessment of risk – a difficult task, indeed – the following factors should
be considered:
Technological changes
Competition from substitutes
Competition from imports
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• Number of people and Geographic area affected by the project-more people affected means the
project will be given more weight.
Economic and Financial
• Potential financial and economic benefits to the country or region and individuals.
Environmental; Impact of the project on Conservation of natural resources and more sustainable
land use
• Protection of natural resources (e.g., forests)
Social
• Contribution of the project to Poverty alleviation and Assistance to disadvantaged groups
Policy is the project in line with national policies
Resources
Availability of human resources to implement project
• Likely availability of funding from government, etc
Success or Failures
• What are the chance of the project successfully meeting its objectives?,
• What degrees of the risks are associated with the project that may affect its implementation?
Support
• Political support for project
• Community support and demand for project.
During selection process, each project can be assessed against each of the criteria to give a
rating. At this stage of the project cycle this more likely to be qualitative than quantitative.
Certain criteria can be given greater weighting to reflect the importance of the criteria in
determining the overall rank of the project.
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5. Preliminary Screening
6. Project Rating Index
1. Generation of Ideas
SWOT Analysis: This represents a conscious, deliberate, and systematic effort by an
organization to identify opportunities that can be profitability exploited by it. Periodic SWOT
analysis facilitates the generation of ideas.
Clear Articulation of objective: A clear articulation and prioritization of objectives helps in
channeling the effort of employees and prods them to think more imaginatively.
Fostering a conducive climate To tape the creativity of people and harness their entrepreneurial
urges, a conducive organizational climate has to be fostered.
2. Monitoring the Environment
Basically a promising investment idea enables a firm (or entrepreneur) to exploit opportunities in
the environment by drawing on its competitive strengths. Hence, the firm must systematically
monitor of environment and assesses its competitive abilities. The important aspects studied in
monitoring the key sectors of the environment are as follows:
Economic Sector: State of the economy, Overall rate of growth, cyclical fluctuations, Inflation
rate, linkage with the world economy, Trade surplus/deficits
Governmental Sector: Industrial policy, government programmes and projects tax framework,
subsidies, incentives, and concessions, import and export policies, Financing norms, lending
conditions of financial institutions and commercial banks
Technological Sector: Emergences of new technology, access to technical know-how,
receptiveness on the part of industry
Socio-Demographic Sector; Population trends, age shifts in population, Income distribution,
educational profile, attitude toward consumption and investment
Competition Sector: Number of firms in the industry and the market share of the top few (four or
five); entry barriers; comparison with substitutes in terms of quality, price, appeal, and functional
performance; marketing policies and practices.
Supplier Sector; Availability and cost of raw materials and sub – assemblies; availability and
cost of energy; etc
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A realistic appraisal of corporate strengths and weaknesses is essential for identifying investment
opportunities which can be profitably exploited.
By using the suggestions made in the preceding sections, it is possible to develop a long list of
project ideas. Some kind of preliminary screening is required to eliminate ideas which are not
promising. For this purpose, the following aspects may be looked in to:
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few projects are screened for further analysis. After detailed study of few limited projects, one
project will be selected at the end.
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. For this purpose, a preliminary
evaluation may be translated into a project rating index. The steps involved in determining the
project rating index are as follows:
X1 0.5 * 2
X2 0.2 * 0.2
X3 0.3 * 1.5
Total 3.7
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