CHAPTER: III

PROJECT IDENTIFICATION
Contents:
3.1 Project Idea
3.2 Macro Sources of Project Idea
3.3. Micro Sources of Project Idea
3.4 Other Sources of Project Idea
3.1 Project Idea – Meaning:
Project idea is the first step towards establishing a successful venture. Identification of
project idea requires imagination, sensitivity to environmental changes and realistic assessment
of what the firm can do. The task is partly structured, partly unstructured, partly dependent on
convergent thinking, partly depend on divergent thinking, partly requiring objective analysis of
quantifiable factors, partly requiring subjective evaluation of quantitative factors; partly
amenable to control, partly depend on fortuitous circumstances.
Identification is often the outcome of triggering process rather than the analytical exercise.
3.1.1 Stimulating the flow of ideas:
Often firms adopt a somewhat casual and haphazard approach to the generating of project idea.
To stimulate the flow of ideas the following are helpful.
 SWOT analysis
 Clear articulation of objectives
3.1.1.a SWOT Analysis:
SWOT Analysis is an acronym for strength, weakness, opportunities and threats. SWOT analysis
represents a conscious deliberate, and systematic effort by an organization to identify
opportunities that can be profitable exploited by it. Periodic SWOT analysis facilitates the
generation of ideas.

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3.1.1.b Clear Articulation of objectives of a firm may be use or more of the following.
►Cost reduction
►Productivity improvement
►Increase in capacity utilization
►Improvement in contribution margin
►Expansion in to promising fields.
A clear articulation and prioritization of objectives helps in channel zing the efforts of employee
and prods them to think more imaginatively.
3.2 Sources of Project Ideas:
Good project idea – the key to success are elusive. So a wide variety of sources should be
trapped to identify them. For our practical purpose, the sources of project ideas are mainly
classified into two types .the classification are as follows.
1. Macro Source of Project Idea
2. Micro Sources of Project Idea
3.2.1 Macro Sources of Project Idea:
Macro sources otherwise called Sector Sources. In this level, it will require an analysis of the
overall investment potential in developing countries the general interest of developed countries.
General opportunity study or Macro study it may be divided into the following three categories;
A. Area Study
B. Industry Study
C. Resource Based Study
A. Area Study:
Area study is made to identify opportunities in a green area such as administrative province; a
back ward region etc. and the following factors should be considered while making area studies.
i) Size of the area and physical features of the area.
ii) Population occupational pattern, per capita income and social background
iii) Infrastructure facilities like transport, power, telecommunication etc.
iv) Exploited and unexploited factors of production and elements of production,
mainly labor and capital and other natural resources.

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 v) Labor laws, minimum wages, and holiday, facilities required in factory, bonus
rules, and pension rules, working hours.
vi) Level of completion
vii) Government concessions includes, tax holidays, subsided power and water.
viii) Location of marker, it covers nearness to domestic and international market.
ix) Export potential, if focuses on possibilities of export.
x) Climate requirements for workers, companies, product etc.
xi) Estimated cost of a project
xii) Availability of raw materials depends upon nature of the product.
xiii) Availability of cheap labor.
B. Industry Studies: (Sub Sector studies)
There are made to identify opportunities in industrial branches like building material or food
processing. The following factors are considered while making sub sector studies.
a. The rate of sub sector in the industry of the country.
b. Size and growth rate of industry.
c. Present size and growth rate of demands for items that are not imported and for
those which are fully or partial for each item.
d. Rough projections of demand for each item.
e. Identification of the items in short supply that have growth or export potential
supply that have growth or export potential.
f. A broad survey of raw materials; locally available.
g. Transport cost and available infrastructure facilities. Transport cost to bring raw
material to factory, and to distribute finished goods to the wholesalers and
retailers etc.
C. Resource Based Studies:
These studies are made to reveal opportunities based on the utilization of natural, agricultural or
industrial products such as forest based, petrol chemical industries. The following are considered
while making resource-based studies.
i. Features of the resources (Size, shape etc.) past rate of growth (mainly
agricultural) and potential for future growth.

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 ii. The role of the resources in the national economy in the country and export
potential.
iii. Industry currently based on the resources (finished goods of the industry can be
used as raw material to other industry). This growth capital employed, labor
engaged, productivity future plans and growth product.
iv. Major constraints and conditions in the growth of industries based on the
resource.
v. Estimate growth in demand and prospects of export items that could utilize the
resources
3.2.2 Micro Approach /Specific Opportunities studies / Enterprise Approach:
The Micro Approach is mainly concerned with a review of investment ideas of industries,
investment offices and financial institutions in both developing and developed countries. Specific
project opportunity studies are concerned with initial identification of general investment
opportunities in the form of products with the potential form of domestic manufacture. A specific
project opportunity study, which is more common than the general opportunity study, may be
defined as the transformation of project into a broad investment position. The specific
opportunity study should consider the following factors.
i) Natural resource available
j) Existing agriculture pattern
k) Future demand
l) Imports I order to identify area for import substitution
m) Environment impact
n) Possibilities for diversification.
o) The general investment climate
p) Industry policy Availability of cost of production factors
q) Export possibilities
r) Possible inter linkage with other industries.

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3.2.3 Other sources of Project Ideas:
1. Analyze the performance of Existing industries:
A study of existing industries in terms of their profitability and capacity utilization can indicate
promising investment opportunities. Opportunities, which are profitable and reliable, risk free
and 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.
2. Examine the inputs and outputs of various industries:
An analysis of the input required for various industries may throw up project ideas.
Opportunities exist when 1) materials, purchased parts or supplies are presently being procured
from distinct sources with attendant time lag and transportation cost, and ii) several firms
produce internally some components/ parts, which can be supplied at a lower by single
manufacturers who can enjoy economies of scale. Similarly a study of the output of the existing
industries may reveal opportunities for adding value through further processing of the main
outputs, by products as well as waste products.
3. Review import and Exports:
An analysis of import statistics for a period of five years is helpful in understanding the trend of
imports of various goods and the potential for import substitution. Indigenous manufacturer of
goods currently imported is advantageous for several reasons:
 It improves a balance of payments situation
 It generates employment and
 It provides a market for the supporting industries and services.
Likewise, an examination of export statistics is useful in leading about the export possibilities of
various products.
4. Study plan outlays and Governmental Guidelines:
The Government plays a very important role in the countries economy. Its proposed outlays in
different sectors provide useful points toward investment opportunities. They indicate the
potential demand for goods and services required by different sectors.
The Government publication provides information about the structure and location. Production
performance, licensed by installed capacity, and future scope of various industries.

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5. Suggestions of financial institutions and Development Agencies:
In a bid to prompt development of an industries in their respective states, state financial
corporations, state industrial development corporations, and other development bodies conduct
studies, prepare feasibility reports, and offer suggestions of potential entrepreneurs. The
suggestions of these agencies are helpful in identifying promising projects.
6. Investigate Local Materials and Resource:
A search for projects ideas may begin with an investigation into local resources and skills,
various adding value to locally available material may be examined. Similarly, the skills of the
local artisans may suggest products that may be profitably produced and marketed.
7. 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 preferences provide new business
opportunities.
8. Draw clues from Consumption abroad:
Entrepreneurs willing to take higher risks may identify projects for the manufacturer of products
or supply of services, which are new to the country but extensively, used abroad. Automatic
vending machines, entertainment parks, prefabricated houses, and fast food restaurants are
example of projects belonging to this category.
9. Explore the possibilities of reviving sick units:
Industrial sickness is ram plant in the country. There are innumerable units, which have been
characterized as sick. Theses units are closed or face the prospect closure. A significant
proportion of sick units, however, can be nurses back to health by sound management, infusion
of further capital, and provision of complementary inputs. Hence, there is a fairy goods scope for
investment in this area.
10. Identify unfulfilled psychological needs:
For well established, multi brand product groups like bathing soap, detergents, cosmetics, and
toothpaste, the question to be asked is not whether is an opportunity to manufacture something to
satisfy an actual physical need but whether these are certain psychological needs of the
consumers which are presently unfulfilled. To find out whether such an opportunity exists, the
techniques of spectrum analysis are useful.

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11. Attend trade fairs:
National and international trade fairs provide an excellent opportunity to get to know about new
products and developments.
12. Stimulate creativity for generating new product ideas:
Thinking along the following lines may generate new product ideas; modification rearrangement,
reversal, magnification, reduction, substitution, adaptation and combinations.
13. Change factors:
Identification of investment opportunity may be influenced by the change factor.
PROJECT SELECTION PROCESS
Identification of a new project is a complex problem. 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 project ideas as a
process of identification of a project begins with an analytical survey of the economy (also
known as pre-investment surveys). The surveys and studies will give us ideas. The process of
project selection consists of following stages :
 Idea generation
 Environment appraisal.
 Corporate appraisal
 Scouting for project ideas.
 Preliminary screening.
 Project rating index
 Sources of positive Net Present Value.
 Entrepreneur qualities.
Idea Generation: Project selection process starts with the generation of a project idea. Ideas are
based on technological breakthroughs and most of the project ideas are variants of present
products or services. To stimulate the flow of ideas, the following are helpful:
SWOT Analysis: SWOT is an acronym for strengths, weaknesses, opportunities and threats.
SWOT analysis represents 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 ideas.

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Operational objectives of a firm may be one or more of the following.
 Cost reduction.
 Productivity improvement.
 Increase in capacity utilization.
 Improvement in contribution margin.
Fostering a conducive climate: To tap the creativity of people and to harness their
entrepreneurial skills, a conducive organization climate has to be fostered. Two conspicuous
examples of organization which have been exceptionally successful in tapping the creativity of
employees are the Bell Telephone Laboratory and the 3M Corporation. While the former has
succeeded in harnessing creativity by providing an unconstrained environment, the latter has
effectively nurtured the entrepreneurial skills of its employees as sources of idea generation. 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.
Environment appraisal: An entrepreneur or a firm systematically appraise the environment and
assess its competitive abilities. For the purposes of monitoring, the business environment may be
divided into six broad sectors as shown in fig. no. 1.3.
The key elements of the environment are as follow :
Economic Sector
 State of the economy
 Overall rate of growth

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  Cyclical fluctuations
 Inflation rate
 Growth rate of primary, secondary and territory sector
 Growth rate of world economy
 Trade surplus and deficits
 Balance of Payment
Government Sector
 Industrial policy
 Government programs and projects
 Tax structure
 EXIM policy
 Financing norms
 Subsidies incentives and concessions
 Monetary policy
Technological Sector
Emergence of new technologies
Access to technical know-how, foreign as well as indigenous
Socio-demographic Sector
 Population trends
 Age shifts in population
 Income distribution
 Educational profile
 Employment of women
 Attitudes toward consumption and investment
Competition Sector
 Number of firms in the industry and the market share of the top few
 Degree of homogeneity and differentiation among the products
 Entry barrier
 Comparison with substitutes in term of quality and price
 Marketing polices and practices

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Supplier Sector
o Availability and cost of raw material
o Availability and cost of energy
o Availability and cost of capital
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
# Market Image
# Product Line
# Product Mix
# Distribution Channels
# Customer loyalty
# Marketing & distribution costs
Production and Operations
» Condition and capacity of plant and machinery
» Availability of raw material and power
» Degree of vertical integration
» Location advantage
» Cost structure
Research and Development
Ѳ Research capabilities of the firm
Ѳ Track record of new product developments
Ѳ Laboratories and testing facilities
Ѳ Coordination between research and operations
Corporate Resources and Personnel
Corporate image
Dynamism of top management
Relation with government and regulatory agencies

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 State of industry relations

Finance and Accounting and Financial leverage and borrowing capacity

 Cost of capital
 Tax structure
 Relation with share holders and creditors
 Accounting & control system
 Cash flow and liquidity
TOOLS AND TECHNIQUES FOR PROJECT MANAGEMENT
There are several tools and techniques which would contribute significantly towards effective
project management these can be broadly grouped under the following heads :
1. Project selection techniques
(a) Cost benefit analysis and
(b) Risk and sensitivity analysis
2. Project execution planning techniques
(a) Work breakdown structure (WBS)
(b) project execution plan (PEP)
(c) Project responsibility matrix and
(d) Project management manual
3. Project scheduling and coordinating techniques
(a) Bar charts
(b) Life cycle curves
(c) Line of balance (LOB) and
(d) Networking techniques (PERT/CPM)
4. Project monitoring and progressing techniques
(a) Progress measurement technique (PROMPT)
(b) Performance monitoring technique (PERMIT) and
(c) Updating, reviewing and reporting technique (URT)
5. Project cost and productivity control techniques
(a) Productivity budgeting techniques
(b) Value engineering (VE) and

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(c) COST/WBS

6. Project communication and clean-up techniques

(a) Control room and
(b) Computerised information systems

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