CHAPTER 3

PROJECT IDENTIFICATION
I. General
Project Identification is the process of searching for and subsequently finding
potential projects that could feasibly generate benefits in excess of costs accruing
to the society and contributing towards the attainment of specified development
objectives. Project identification is made in rather general terms with broader
scope at the first glance and then, the idea will be progressively developed. In the
continuum, even alternative versions of the same may be conceived.

II. Who Identify Projects?

The following groups may identify projects:
 Small producers organizations/producers’ unions
 Large scale individual private sector producers
 Product marketing organizations
 Private sector companies (local/multinational)
 State owned enterprises & organizations
 Government ministries, authorities, agencies, and commissions
 Development banks, local as well as foreign, and international development
agencies
 Other aid agencies and self aid associations
 Local governments; state, regional, and sub-regional authorities
 Local political & pressure groups such as oppositional parties
 NGO’s: Local or international
 Credit institutions & cooperatives

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  Credit unions, saving and loan associations, saving banks, commercial
banks, etc.

PRE-IDENTIFICATION
“Pre-identification” is an important prelude to protect identification. The pre-
identification stage involves surveying, reviewing, inventorying, and analysis of
strategies and policies, data about natural resources, and socio-economic variables.
This stage is a synonym to opportunity study under the UNIDO cycle, which is
very important phase in project planning. Unfortunately, this aspect of planning is
either totally ignored or for which inadequate resources are provided in most
developing countries. There are a number of reasons for disregarding this aspect in
project planning:
 First and, perhaps, most important of all is the sheer ignorance: to learn its
importance and to identify ways of carrying out surveys; inventorying of
resources; collection, organization, and integrating data; and analyzing the
information cost-effectively and generate useful information.
 Secondly, such work tends to be regarded as an extensive task resulting in
excessive overhead costs. Moreover, often, funds for such activities are
expended in tight schedules during end of budget period.
 Thirdly, much of the work has tended to be time consuming and hence,
people lack the initiatives to start it, unable to foresee and measure its
benefits, and not patient to wait for results.
Nowadays, modern technology is revolutionizing the survey methods and the
means for carrying out synthesis and analysis, speeding up some processes,
reducing the costs of surveys, and providing new ways of looking at things.
Identifying existing gaps, generate useful information, accomplishing analysis of
data, and throwing up ideas for possible projects is a pre-requisite to sound project
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formulation. In addition, project identification must be carried out within national,
regional, and Sectorial development framework and policies including pricing,
taxation, and subsidy. Otherwise, much time and effort might be wasted in the
process of identifying and preparing projects that might be inconsistent with
existing policies, strategies, and priorities and hence, might turn out to be
unfeasible by the end of the day.
Thus, those who are responsible for identifying projects need to be aware of
accepted strategies and policies as well as to be in position to feedback information
to those who are responsible for formulating policies.

PROJECT IDENTIFICATION
The search for promising project ideas is the first step towards establishing a
successful venture. The key to success lays in getting into the right business at the
right time. The objective is to identify investment opportunities, which are prima
facie feasible and promising and merit further examination and appraisal. project
identification is the process identification should be an integral part of the micr-
planning exercise, with Sectorial information and strategies being the main sources
of project ideas.
In practice, however, projects do not always derive from national and sectoral
plans. Instead, they may originate from several sources. Irrespective of their origin,
project ideas, in general, should aim at overcoming constraints on the national
development efforts, be it material, human, or institutional constraint, or at meeting
unsatisfied needs, and demand for goods and services. Constraints, needs, and
demands should be interpreted broadly to include, for instance, foreign exchange
constraints that might indicate the need to undertake projects for export promotion
or import substitution.

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The variety of projects makes it impossible to prepare an exhaustive list of sources
from where project ideas emanate; but much depending on the experience and
imagination of those entrusted with the task of initiating development project. In
general, one can distinguish two levels where project ideas are born: the macro-
level and micro-level.

3.2. SOURCES OF PROJECT IDEAS

3.2.1. Macro Source of Project Ideas
Among the various institutions, and sources, the following are the most important
ones in developing countries at the macro level:
 Federal/central or Regional Government
 Bilateral and Multilateral Agreement
 International Development Agencies.
In general, in developing countries, the government remains to be the major source
of project for the reason that it:
A. Has the necessary resource for the task
B. Has unlimited access to data and information
C. Has the required facilities to conduct survey, studies and reviews
D. Is fully familiar with the development objective priorities and strategies, i.e.
the development goals, priorities, and strategies often are not clear to private
groups. [Ambiguity exists regarding the development goals or it may not be
in their best interest]
Specifically, project ideas emerge from the following macro sources:
 National policies, strategies, and priorities as may be enunciated(or
articulated) by government from time to time

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  National, Sectorial, sub-Sectorial, or regional plans and strategies
supplemented by special studies, sometimes called opportunity studies,
conducted with the explicit aim of translating national, Sectorial, sub-
Sectorial, and regional programs into specific projects.
 General surveys, resource potential surveys, regional studies, master plan,
and statistical publications, which indicate directly or indirectly investment
opportunities
 Constraints on the development process due o shortage of essential
infrastructure facilities, problems in the balance of payments, etc.
 Government decisions to correct social and regional inequalities or to satisfy
basic needs of the people through development projects.
 A possible external threat that necessitates projects aiming at achieving, for
example, self-sufficiency in basic material, energy, transportation, etc
 Unusual events such as droughts, floods, earthquakes, hostilities, etc
 Government decisions to create project-implementing capacity in such areas
as construction, etc.
 At the macro-level, project ideas can also originate from multilateral or
bilateral agreements, development agencies, and as a result of regional or
international agreements in which the country participate
 In addition, inspirations of individuals and institutions, workshops, and
development experiences of other nations may point to some interesting
project ideas in the local context.

3.2.2. Micro Source of Project Ideas

At the micro-level, many institutions/entities could generate project ideas,

among which the following are the main ones:

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  Private and Public Enterprise
 Local groups or Organizations
 Consumer groups and Associations
 Financial Institutions/ Credit Associations
 Cooperatives, Farmers’ Unions, etc
 New technology Suppliers.

There are quite diverse micro-sources of project ideas that emanate from:

 The identification of unsatisfied demand or needs

 The existence of unused or underutilized natural or human resources and the
perception of opportunities fro their efficient use
 The need to remove shortages in essential materials, services, or facilities
that constrain development efforts
 The initiative of private or public enterprises in response to incentives
provided by the government
 The necessity to complement or expand investments previously undertaken
 The desire of local groups or organizations to enhance their economic status
and improve their welfare
 Analyze the performance of existing industries
 Examine the inputs and outputs of various industries
 Review imports and exports
 Look at the suggestions of financial institutions and development agencies
 Investigate local materials and resources
 Analyze Economic and Social Trends
 Study new Technological Developments
 Draw clues from consumptions abroad
 Explore the possibility of reviving sick units

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  Attend trade-fairs (trade promotion)
 Project proposals may also come from multinational firms, in response to
government investment incentives or else when such firms consider
production within the country is a better way to secure a substantial share of
the domestic market for their products.

Screening Potentially Promising Ideas

Once a list of project ideas has been put forward, the first step is to select one or
more of them as potentially promising. This, calls for a quick preliminary
screening by experienced professionals who could also modify some of the
proposals. At this stage, the screening criteria are vague and rough, that become
specific and refined as project planning advances.

During the preliminary screening to eliminate ideas, which prima facie are not
promising, it is required to look into the aspects such as:

 Compatibility with the promoter

 Consistency with government priorities
 Availability of inputs
 Adequacy of market
 Reasonableness of costs
 Acceptability of risk level

During preliminary selection, the analyst should eliminate project proposals that:

 Are technically unsound and risky;

 Have no market for the output;
 Have inadequate supply of inputs;

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  Are very costly in relation to benefits;
 Assume over-ambitious sales and profitability.

Obviously, since the criteria tend to be somewhat nebulous (vague, imprecise, and
ill-defined), much depends on the experiences and sense of objectivity of the
professionals applying them. It is, however, necessary to conduct this screening,
even with indistinct criteria, in order to reduce the number of project alternatives to
a manageable level to which more work and time will be devoted. Indeed, project
planning can be viewed as a process of elimination, i.e. elimination of interior
alternatives. As a result of the preliminary screening exercise, a project profile, an
opportunity study report, or an identification study report, as appropriate, is
prepared showing which project alternatives should be rejected and which ones
may be advanced to the next stage.

PROCESS OF IDENTIFICATION

Generally, an idea of projects may come to our mind from observing existing
opportunities and problems in a given context. When we are more concerned about
project identification, the formal task of conducting identification studies,
(opportunity studies), is one of the best available option to project planners, which
is critically important to generate and/or come up with useful information.

Objective of identification studies:

To collect sufficient data and generate beneficial information concerning the

background, technical, economic, social, and environmental aspect of a potential
project.

The following table presents the approaches, aspects, and considerations in project
identification studies:

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APPROACHES ASPECTS CONSIDERATIONS

Area studies  Identification of  backward/marginalized

opportunities in given areas
area as localities,
regions, states, etc
 To bring balanced
development

Industry studies  Identification of  Development plans &

opportunities in the programs
industrial sector  Investment policy
 Specific marketable  Economic policy
product
 Diversification
 Import
substitution
 Export
possibilities

Resource based  Opportunities in  Industry policy

studies exploiting natural  Other policies &
resources priorities
 natural resource
analysis
 Import
substitution

Sector analysis/  satisfaction of social  Sectorial strategies

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Studies needs: Agricultural,
manufacturing, health,  Sectorial priorities
education, etc  Existing unsatisfied
needs
 Sectorial development
level

Project Idea Generation Process

1. Survey & Review of Endowments and Facilities (infrastructure):

Surveying, reviewing and analysis of existing policies, resource
endowments, and socio-economic variables.
 Natural resource: review of the natural resource endowments of the
country.
 Human resource : review of educational standard and facilities
 Socio-economic variables : review of various socio economic factors
such as :
 Housing facilities & standard
 Utilities services
 health and nutrition services
 income distribution
2. Field survey and interview:
Asking people what goods or services they want in order to identify their
unsatisfied needs.
Asking people what their problems are.
Asking the public unit closest to the people at the grass-root level about
what the needs of the people in the community are.

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 3. Observing and analysis of prevailing situation:
 Observing and examining current demand & supply situation for
goods/services
 Examining past& future trends for goods and services
 Observing possibilities for improvements/ quality & quantity
 Observing opportunities & threats in the invention & introduction of new
technology, etc.
4. Deliberations, discussions, and trainings:
o Discussions and deliberations in seminars, workshops, conferences both
local and international
o Meeting at different levels within the organization
o Educational & training programs
5. Brainstorming:

A group of people suggesting different ideas regarding future activities, very

quickly, before analyzing and/or considering the source of the idea more
carefully.

6. Exposure to publication & media:

 Reading various publications and media: journals, magazines, newsletter,
newspapers, etc
 Audio-visual media (discussions, reports etc)
 Visual media (cinema, video)
7. Informal discussions and meetings:
 Get together meeting
 Friendship meetings (fraternal associations)

Feeling of feasibility:

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The observation studies, discussions, etc made in accordance with the above
manner could ultimately lead to the generation of project ideas. The individuals or
entities generating the idea develop a kind of feeling that the project ideas could be
feasible. Those project ideas that seem to be feasible would then become the basis
for identification of potential projects that:

 Could be thoroughly investigated & assessed

 Need be supported by tangible and factual evidences

Approaches to Project Idea Generation

Broadly speaking, project ideas could be generated through the following two
approaches:

Top-Down Approach (Macro level)

It is an approach whereby individuals at the micro level, or grass root level, are not
involved in the process of project idea generation.

 Projects are identified at the higher planning (or macro) level and
implemented at the decision of officials at the top.
 It is based on the national plan and strategies.
 The government need not go down because the problem might be
understandable.
 However, it may not relate to the existing reality in particular vicinity.
 Such projects may encounter resistance & implementation difficulties due to
lack of interest by the society.
 Such projects are implementation entities at given local area, which may not
be consistent with the needs in the context and hence, may not necessarily
reflect the realities in the locality.

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Bottom-Up Approach (Micro level)

A bottom-up idea generation process requires base line surveys, which is based on
the realities existing in different localities.

Project Ideas

Survey of needs Survey of key Survey of resources

development problems

 May get community support, successfully implemented, and the potential

benefits might easily be visualized (seen) by the society. This may help
to create goodwill and positive images towards the institution.

STEPS IN PROJECT IDENTIFICATION:

Step 1: Generation of project ideas.

Step 2: Screening project ideas: giving priorities based on resources, compatibility

to objectives, potential to enhance competitiveness, and value adding in the
society.

Step 3: Identification of candidate projects passing the screening criteria

Step 4: Propose for pre-feasibility/ feasibility studies

PROBLEMS IN PROJECT IDENTIFICATION

 Ambiguity about the development objectives of the country:

 People may not clearly identify development goals

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  development goal may not be well communicated
 may not be in the best interest of units or groups
 may not get full hearted acceptance from the public
 Priority issues in the existing development objectives:
 Conflict regarding the priorities set
 opposing views may result in lack of interest & commitment
 Differences in views regarding critical aspects of priority
 differences in prioritizing goals & objectives
 Limited information and data and obstacles in data/information flow
and accessibility:
 Data and information flow problem
 accessibility of data flowing
 limited data& information
 data may not be dependable(reliable) to use
 Conflict of interest between local beneficiary group: (i.e. some
groups may bear the cost and others may get the benefit)
 What are the costs & benefits of identified projects?
 Who bears the costs & benefits in the society?
 Is benefits accruing to other groups while the costs paid by a given
local group (unit)
 Mechanisms to compensate those bearing the costs
 Unless compensated, the consequences might be unfavorable,
costly, and severe as well.

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